JS Bank Limited: Annual Report 2020 (2024)

Embed Download

of


Create FREE Account

or

Sign in to continue reading...

JS Bank Limited: Annual Report 2020 (1)

By IM Insights

2 years ago

JS Bank Limited: Annual Report 2020

Ijara, Sukuk, Credit Risk, Foreign Currency Bonds, Mark-Up, Net Assets, Participation, Provision, Receivables, Reserves, Sales, Specific Provision

Sukuk

Investing

Microfinance

Sustainability

Banking

Standards

International Trade

Shariah Governance

Show more

Organisation Tags (14)

JS Bank Limited

Alliance Insurance P.S.C

KPMG

Meezan Bank

United Bank Limited

Askari Bank

SME Bank

MCB Islamic Bank

Soneri Bank

National Bank of Pakistan

Bank Alfalah

Byco Petroleum Pakistan Ltd Sukuk PKR3.12 Billion 1.05% 18-Jan-2022

Dawood Hercules Corporation Limited Sukuk PKR6 Billion 1-Mar-2023

Dawood Hercules Corporation Limited Sukuk PKR5.2 Billion 16-Nov-2022

Create FREE account or Login to add your comment

Comments (0)

Transcription

  1. Annual Report 2020
  2. JS Bank is one of the fastestgrowing Banks in Pakistan , with both a domestic and international presence. The Bank is a leader in the digital financial services, SME & consumer loans space. JS Bank has been recognized on multiple international and national forums including the prestigious AsiaMoney, Asian Banking and Finance, DIGI and Pakistan Banking Awards. The Bank is part of JS Group, one of Pakistan’s most diversified and progressive financial services groups.
  3. Contents 02Vision 02 Mission 04 Corporate Values 04 Code of Conduct ORGANIZATIONAL OVERVIEW 05 Products and Services 08 Company Information 10 Entity Credit Rating 11 Operating Structure 12 Profile of the Board of Directors 16 Staff Strength 17 Our Presence 18 Organizational Structure 19 Corporate Profile of the Bank 20 Chairman ’s Review 23 Directors’ Report PERFORMANCE & POSITION 45 Six Years’ Financial Summary 46 Six Years’ Vertical Analysis 47 Six Years’ Horizontal Analysis 48 Financial Performance 2015- 2020 50 Graphical Presentation of Financial Statements 51 Financial Ratios 52 DuPont Analysis 53 Economic Value-Added Statement 54 Summary of Cash Flows 54 Free Cash Flows 55 Analysis of Capital Adequacy Ratio 56 Category of Investments 57 Non-Performing Loans 58 59 60 60 61 92 63 65 66 67 Advances by Segmentation Funding Mix Deposits Breakdown Deposits Composition Quarterly Performance Quarterly Analysis of NIM & PBT Markup & Non-Markup Income Market Share Information Share Price Trend Calendar of Major Events During 2020 STRATEGY & RESOURCE ALLOCATION 68 Strategic Objectives and KPIs 69 Strategy to Overcome Liquidity Gap IDENTIFICATION AND MITIGATION OF RISKS AND OPPORTUNITIES 73 Sources of Risk and its Assessment 74 Risk Management Framework 74 Risk Governance Structure 74 Inadequacy in the Capital Structure and Plans to Address such Inadequacy 74 Sensitivity Analysis Due to Foreign Currency Fluctuations 74 Information about Default in Payment of any Debts and Reasons Thereof CORPORATE GOVERNANCE 76 Role & Responsibilities of the Board 80 Management Committees 82 Salient Features of Board Committees’ TOR 85 IT Governance
  4. 89 92 94 Human Resource Management Policy Sustainability & Corporate Social Responsibility Business Model STAKEHOLDERS RELATIONSHIP 97 Steps to Encourage Minority Shareholders Participation in AGM 97 Investor Relation Section on Corporate Website 97 Investors Relations Policy 97 Corporate Briefing Session 98 Excellence in Corporate Reporting 99 Statement and Distribution of Value Added 100 Auditors’ Review Report to the Members on Statement of Compliance 101 Statement of Compliance with Listed Companies (CCG Regulations, 2019) UNCONSOLIDATED FINANCIAL STATEMENTS 104 Auditors’ Report to the Members on Unconsolidated Financial Statements 109 Unconsolidated Statement of Financial Position 110 Unconsolidated Profit and Loss Account 111 Unconsolidated Statement of Comprehensive Income 112 Unconsolidated Statement of Changes in Equity 113 Unconsolidated Cash Flow Statement 114 Notes to the Unconsolidated Financial Statements CONSOLIDATED FINANCIAL STATEMENTS 217 Directors’ Report on Consolidated Financial Statements 222 Auditors’ Report to the Members on Consolidated Financial Statements 227 Consolidated Statement of Financial Position 228 Consolidated Profit and Loss Account 229 Consolidated Statement of Comprehensive Income 230 Consolidated Statement of Changes in Equity 231 Consolidated Cash Flow Statement 232 Notes to the Consolidated Financial Statements 345 Annexure I 346 Annexure II 347 Branch Network 353 Pattern of Shareholding 355 Notice of Fifteenth Annual General Meeting Form of Proxy
  5. Vision To be the most innovative , customer centric and responsible bank in Pakistan. Mission Our mission is to be a world class bank providing innovative financial services to our customers through a motivated team of professionals, supported by the latest technology, whilst maintaining high ethical standards, creating value for all our stakeholders, and contributing to the society through responsible and sustainable development.
  6. Corporate Values Code of Conduct JS Bank ’s Code of Conduct is designed to guide the personal business ethics of its employees and does not tolerate any conduct which might be considered detrimental to the Bank and its reputation. The Bank considers honesty and integrity as cornerstones of ethical behavior for lasting business relationships. The Bank aims to deliver products and services in a fair, transparent, and ethical manner. Our Code of Conduct emphasizes upholding ethical standards across all business dealings and relationships. The Bank aims to be transparent in all its dealings and enhance customer banking knowledge and inform them about banking services in a wholistic manner. The complete Code of Conduct is handed over to all employees and is available on the Bank’s website as well. Annual Report 2020 4
  7. Products and Services JS Current Deposit Products For complete day-to-day banking needs , JS Current Deposit menu to provides our valued customers with transactional convenience and flexibility for all their financial dealings. JS Consumer Lending Products JS Consumer Banking offers a full suite of consumer lending products to our valued customers. The Bank’s Current product portfolio consists of Credit Cards, Auto loans, Home loans and Personal loans. JS Savings Deposit Products We offer a wide array of savings products that cater to short term investment and transactional needs. JS Digital Banking Products and Services JS Mobile and Internet Banking offer customers unprecedented control over their transactions. Customers can make real time payments, set up standing instructions and even find their favourite Discounts with a few clicks. JS Term Deposit Products JS Term Deposits offer attractive short and medium to long-term investment options with flexibility, convenience and security. With various tenure options, customers can choose the one that suits their needs. Foreign Currency Accounts The customers can save in any foreign currency accounts and enjoy attractive returns. A wide range of account types are offered for personal and business clients. Corporate Banking JS Corporate Banking is focused on providing a range of diverse financial services (including tailor made solutions) to corporate clients (including multinational and public entities) by partnering with them and build long-term sustainable relationships. JS Private Banking JS Private Banking takes our customers on a journey of rewarding experiences and a diverse product suite of deposits, lending and investment solutions. Employee Banking and Cash Management We offer superior payroll and cash management solutions to corporates across Pakistan. In addition to the best set of product features, our payroll customers enjoy unmatched rates on consumer loans, free of cost insurance coverage and facilities such as Advance Salary, Personal Loans & Charge Cards. 5 We provide Mastercard Debit Cards with EMV chip and NFC capabilities to our customers. Mastercard is accepted worldwide and offers added benefits, including travel and dining. For the ease of our valued customers, we are now also offering Debit Card activation via IVR and JS Bank ATMs. As part of its drive to digitize Public to Government (P2G) payments, JS Bank partnered with KPK & Islamabad Traffic Police for issuance and payment of Digital challan. JS Bank facilitates over 6 million annual traffic violation payments through instant fine payment and real-time SMS-based notifications. JS Bank has also digitized the driving license fee process for all districts of KPK. JS ATMs We have a widespread ATM network placed at both Bank branches and commercial locations for consumers’ convenience. JS ATMs provide customers with 24-hour convenience to withdraw cash, view mini-statement, and make fund transfers and much more. JS SMS Alerts We continually update our valued customers with financial transaction and information alerts via SMS. Annual Report 2020
  8. JS Mobile Wallet JS Mobile wallet allows users to open instant mobile wallet by downloading the J-Cash wallet app . The wallet offers customers services including funds transfers, bill payments, mobile recharge, online payments and e-commerce opportunities. The wallet can be topped up via multiple channels including physical locations (JCash Agents/JS Bank branches) or digital means (IBFT). We are one of the leading players in Government to Public (G2P) payments. From remote areas of Baluchistan to Interior Sindh and from Gilgit Baltistan to along the Line of Control, JSBL agents have serviced BISP, Ehsas Kifalat, EOBI Pension and Khidmat Card Program beneficiaries in all provinces and territories of Pakistan. JS Call Centre We offer customers a 24/7 call center designed to enhance service delivery and support across multiple channels. Our Call Centre is equipped with trained professionals who offer a wide array of information and problem resolution support around the clock. The customers are further facilitated through self-service modes like Interactive Voice Response (IVR) and Telephonic Personal Identification Number (TPIN). Home Remittances We offer customers a multitude of Home Remittance offerings and are committed to contributing towards the national interest of promoting remittances through legal channels. We are the first bank in Pakistan which allows remittances to be sent to any cell number domestically in alliance with international remittance partners. Remittances can be collected from any JCash agent or through ATM/Debit Card. Safe Deposit Lockers We pride ourselves in offering our customers ease of mind and this is yet another service that highlights our commitment in providing everything necessary to accommodate their needs. We offer various types of lockers depending on customer requirement to protect their documents, jewelry or any other valuables. Annual Report 2020 SME Banking We are one of the leading banks in the SME lending space, with a variety of loans available geared towards development and expansion of SMEs across the country. We offer a diverse portfolio of lending facilities, including SBP initiatives offering rebated loans to specific target segments. JS School Development Finance JS School Development Finance, offers educational institutions with financing of up to Rs. 50 million to fulfil all their financial and non-financial needs. JS Hospital Financing JS Hospital Financing, based on State Bank’s Refinance Facility for Combating COVID-19 (RFCC), is a loan facility for Hospitals, Medical Centres and entities planning to engage in manufacturing of medical equipment to combat COVID-19 and allows them to buy local /imported medical equipment so that they are fully prepared and adequately equipped to deliver quality services. JS Green Financing We offer Solar Panel financing solutions to individuals and businessmen for residential, agriculture and commercial needs. As one of Pakistan’s leading Banks in green financing, we ensure end to end comprehensive installation of solar solutions through a network of over 40 AEDB-certified partners across Pakistan. JS Agri Financing Products Agriculture finance business of the Bank has embraced a new and progressive outlook as a result of various Initiatives. A well-equipped, trained & experienced team has been put in place to facilitate customers on their door steps. JS Gold Finance We are one of the leading banks offering loans against gold ornaments for business and agricultural requirements. We provide one of the most swift turnaround times, with loans being processed as quickly as 100 minutes from the time of application. 6
  9. JS Kamyab Jawan Youth Entrepreneurship Scheme (PMYES) In October 2020, we launched the Prime Minister’s Kamyab Jawan Youth Entrepreneurship Scheme (PMYES). The scheme aims at empowering the youth of Pakistan by providing them highly subsidized loans to set up or expand their business. Through its strategic alliance based model, we have partnered with various local and international organizations in the ride hailing, dairy farming and transportation segment in addition to financing individuals business loans. In the coming years, strategic partnerships in the Agri value chain, Education, Business Incubation, Economic Development, and Manufacturing sectors are being explored as we look to transform lives throughout the country. JS Khud Mukhtar A financing solution based on State Bank of Pakistan’s Refinance and Credit Guarantee Scheme for Women Entrepreneurs, JS Khud Mukhtar enables empowerment and financial stability for women entrepreneurs in Pakistan. JS Naya Aghaaz The JS Naya Aghaaz SME Loan has been designed to enable personal development of the differently abled individuals in Pakistan through term finance based on State Bank of Pakistan’s Small Enterprise (SE) Financing and Credit Guarantee Scheme for Special Persons. 7 Annual Report 2020
  10. Company Information Board of Directors Chief Financial Officer Mr . Kalim-ur-Rahman Mr. Adil Matcheswala Mr. Ashraf Nawabi Mr. G.M. Sikander Mr. Hassan Afzal Mr. Munawar Alam Siddiqui Ms. Nargis Ghaloo Mr. Sohail Aman Mr. Basir Shamsie Chairman Non-Executive Director Non-Executive Director Independent Director Non-Executive Director Non-Executive Director Independent Director Independent Director President & CEO Mr. Hasan Shahid Chairperson Member Member Member Legal Advisors Company Secretary Mr. Ashraf Shahzad Auditors EY Ford Rhodes, Chartered Accountants (Member firm of Ernst & Young Global Limited) Audit Committee Ms. Nargis Ghaloo Mr. Adil Matcheswala Mr. G.M. Sikander Mr. Munawar Alam Siddiqui Human Resource, Remuneration & Nomination Committee Mr. Sohail Aman Mr. Adil Matcheswala Mr. G.M. Sikander Mr. Kalim-ur-Rahman Chairman Member Member Member Risk Management Committee Mr. Ashraf Nawabi Mr. Munawar Alam Siddiqui Ms. Nargis Ghaloo Mr. Basir Shamsie Chairman Member Member Member Bawaney & Partners Haidermota & Co. Liaquat Merchant Associates Share Registrar CDC Share Registrar Services Limited CDC House, 99 – B, Block ‘B’, S.M.C.H.S., Main Shahra-e-Faisal, Karachi Registered office JS Bank Limited Shaheen Commercial Complex Dr. Ziauddin Ahmed Road P.O. Box 4847, Karachi-74200, Pakistan UAN: +92 21 111 JS Bank (572-265) 111-654-321 www.jsbl.com Board IT Committee Mr. Hassan Afzal Mr. Kalim-ur-Rahman Mr. Sohail Aman Mr. Basir Shamsie Chairman Member Member Member Annual Report 2020 8
  11. 9 Annual Report 2020
  12. Entity Credit Rating AALong Term (Double A Minus) A1+ Short Term (A One Plus) (Assigned by Pakistan Credit Rating Agency) Annual Report 2020 10
  13. Operating Structure Jahangir Siddiqui & Co. Ltd. (JSCL) JS Bank Limited (JSCL holds 75.02% of JSBL) JS Global Capital Limited (JSBL holds 83.53% of JSGCL) JS Investments Limited (JSBL holds 84.56% of JSIL) 11 Annual Report 2020
  14. Profile of the Board of Directors Composition of the Board S .No Name of Directors Status 1 Mr. Kalim-ur-Rahman - Chairman Non- Executive Director 2 Mr. Adil Matcheswala Non- Executive Director 3 Mr. Ashraf Nawabi Non- Executive Director 4 Mr. G.M. Sikander Independent Director 5 Mr. Hassan Afzal Non- Executive Director 6 Mr. Munawar Alam Siddiqui Non- Executive Director 7 Ms. Nargis Ghaloo Independent Director 8 Mr. Sohail Aman Independent Director 9 Mr. Basir Shamsie- President & CEO Non-Elected Executive Director The Board of Directors of JS Bank presently has three (3) directors as Independent Directors including one Female Independent Director. The Independent Directors meet the criteria of independence as defined in the Companies Act, 2017 and the State Bank of Pakistan’s directives. Further, the Board also has five Non-Executive Directors. The President & CEO of the Bank is a non-elected Executive Director. Annual Report 2020 12
  15. Mr . Kalim-ur-Rahman Non-Executive Director – Chairman Mr. Adil Matcheswala Non-Executive Director Mr. Kalim-ur-Rahman was formerly President & CEO of JS Bank Limited from 2010 to 2013 and has been a Director of the Bank since then. He was elected Chairman of the Board of Directors in August 2019. Mr. Adil Matcheswala is the CEO and founding Director of Speed (Private) Limited, a retail and distribution company that is incorporated in Pakistan. The Company’s portfolio includes numerous leading international brands such as Nike, Adidas, Under Armour, Tag Heuer, Charles & Keith, Pedro and Timex. He is a seasoned banker with 50 years of experience in both international and domestic banking. He started his banking career with National & Grindlays Bank in 1963 as a Management trainee. After nearly three years of banking training in Pakistan and London, he was appointed as a covenanted officer of the Bank in 1966, and served in Karachi, Peshawar and London in senior positions till 1978, when he resigned and joined Middle East Bank, Dubai as Chief Manager, and subsequently promoted as Assistant General Manager - UAE Operations. During his tenure with Middle East Bank in Dubai, he conceived and implemented the online computerization of the UAE branches in 1980, being one of the first in UAE banking. In 1985, he was posted to Karachi as General Manager – South Asia, and till 1991 saw Middle East Bank, Pakistan grow its profitability by 35% per annum CAGR from only three branches in the country. After 1991, Mr. Kalim-ur-Rahman served in several Pakistani banks in senior positions, including as the President & CEO of Askari Commercial Bank from 1999 to 2006, during which period the Bank saw a phenomenal growth in its assets (40% CAGR) and profitability (47% CAGR). He subsequently served as the General Manager of Arab Emirates Investment, Dubai 2007-2008. Mr. Kalim-ur-Rahman was the first Secretary General of the Pakistan Banks Association 2006- 2007. Mr. Kalim-ur-Rahman did his Senior Cambridge from Burn Hall School, Abbottabad and B.Sc. (Hons) from Government College, Lahore. He had a first class academic career throughout, and his name is inscribed on the College Roll of Honor. He is a Fellow of the Institute of Bankers in Pakistan and holds the Director’s certification from the Pakistan Institute of Corporate Governance as well as the Institute of Directors, London. Mr. Kalim-ur-Rahman is a member of the Board’s IT Committee and the HR, Remuneration & Nomination Committee. Directorships in Other Companies: Excel Labs (Pvt) Limited He started his professional career in the financial services industry in 1992 and was the Head of the Equity Sales Division of Jahangir Siddiqui & Co. Ltd. (formerly Bear Stearns Jahangir Siddiqui Limited). He has previously served as the Chairman of the Board and Chairman of the Audit Committee of JS Global Capital Ltd. as well as a Director of JS Value Fund. of Europe and America. Further branches of International School of Choueifat are planned to be opened in different cities of Pakistan in next few years. On his own, with an upto date personal contribution of almost Rs. 200 million he has established KPSS School in Chakwal, specifically to impart quality education to under privileged children of the area. This School has enrolment of over 400 pupils which will gradually increase to 1500 students in next few years. To accommodate increase in students, substantial expansion is underway to increase the capacity of school. Global institutions, Pakistani corporates, businessmen and individuals from Pakistan and abroad continue to donate substantial amounts for this noble cause. Further schools are also planned to be opened in less developed areas. He has served on the Board of JS Bank Limited since 2012. He is also a member of the Board’s Audit Committee and HR, Remuneration & Nomination Committee of the Bank. Mr. Nawabi has served on the Board of JS Bank Limited since 2007. He is also a Chairman of the Board’s Risk Management Committee. Mr. Matcheswala graduated from Brown University with an A.B. in Economics. Directorships in Other Companies: Directorships in Other Companies: Speed (Private) Limited JOMO Technologies (Private) Limited Mr. Ashraf Nawabi Non-Executive Director Mr. Ashraf Nawabi is a seasoned banker, working in United Arab Emirates since 1967. He has worked in United Bank Limited/BCCI, as CEO for their Middle East Regions. Presently he is working as Advisor in Emirates NBD Bank PSC, which is largest Commercial Bank in the Middle East & Africa. Mr. Nawabi is also Board Member of Alliance Insurance P.S.C Dubai. He was also a Board member of Union National Bank Abu Dhabi, the third largest Bank of U.A.E. for almost ten years. Apart from this he is CEO/Director of First Jamia Services Limited Lahore and Chairman Alif Noon Parents Foundation. Mr. Nawabi, in coordination with Dubai ruling family members and businessmen established International School of Choueifat in Lahore in 1991. This school is one of its kind in the entire subcontinent, imparting high quality education to students for entry into leading Universities 13 First Jamia Services Limited, Lahore Alliance Insurance Co. P.S.C. Dubai. Mr. G.M. Sikander Independent Director Mr. G.M. Sikander has been a career civil servant having served the Government of Pakistan in various capacities for 39 years. He retired as Federal Secretary of the Housing and Works Division. He has served as Assistant Commissioner and Deputy Commissioner in various districts of Punjab and contributed significantly towards social sector development. While serving as Deputy Commissioner of Kasur he single handedly established a public school on self-help basis which has now become a degree college with almost 5,000 students. Mr. Sikander has previously served as Secretary to the Government of the Punjab and (KPK) provinces and headed the departments of Services, Establishment, Information & Tourism, Housing & Physical Planning, Baitul Maal, Social Security and Cooperatives. He also served as Principal Secretary to five Chief Ministers in the Punjab for a record period of nearly 10 years. Mr. Sikander is also a Trustee of the Hamza Annual Report 2020
  16. Foundation in Lahore which is a foundation dedicated to supporting and educating deaf and mute students and a Life Trustee of the Marafie Foundation Pakistan which is engaged in the development of public health and education sectors in GilgitBaltistan . Mr. Sikander has served on the Board of JS Bank Limited since 2013. He is also a member of the Board’s Audit Committee and HR, Remuneration & Nomination Committee of the Bank. Mr. Sikander received his M.A. in Political Science from Punjab University and completed a Diploma in Development Administration from the University of Birmingham. He has also completed the Advanced National Management Course from the former Pakistan Administrative Staff College Lahore and a special course in Development Administration from The National Institute of Public Administration. Furthermore, he also holds the Director’s Certification from the Institute of Chartered Accountants of Pakistan (ICAP). Directorships in Other Companies: Nil Mr. Hassan Afzal Non-Executive Director Mr. Hassan Afzal is the Chief Technology Officer of Afiniti, a company that offers AI products to transform how enterprises pair employees and customers. Mr. Afzal has been responsible for the company’s product engineering, professional services, and production support areas since 2007. Prior to joining the Afiniti team, Mr. Hassan held senior management positions with Deloitte Consulting, Commerce One and American Management Systems. At Deloitte Consulting, Mr. Afzal advised the CIOs of Fortune 500 companies on technology strategy, merger integration, and enterprise system implementations. As Senior Principal at American Management Systems (AMS), Mr. Afzal was responsible for the systems deployment function of AMS’s Healthcare product offering. As Senior Director at Commerce One, Mr. Afzal was responsible for professional services engagements in the Oil and Gas sector. Mr. Afzal was elected as director on the Board of JS Bank Limited in 2019. He is also the Chairman of the Board’s Information Technology Committee of the Bank. Mr. Afzal holds a MSE in Computer and Information Systems from the University of Pennsylvania and a BS in Electrical Engineering from the University of Virginia. Directorships in Other Companies: Nil Directorships in Other Companies: Jahangir Siddiqui & Sons Limited Fakhr-e-Imdad Foundation JS ABAMCO Commodities Limited Karachi Education Initiative Peregrine Aviation (Private) Limited Karigar Training Institute. Mr. Munawar Alam Siddiqui Non-Executive Director Mr. Munawar Alam Siddiqui, retired as an Air Commodore from the Pakistan Air Force (PAF) in 2003. His last post was Assistant Chief of Air Staff (Administration) at Pakistan Air Force Headquarters. For his meritorious services to the PAF, he was awarded Tamgha-e-Imtiaz (Military) and Sitara-e-Imtiaz (Military). He was commissioned in the GD (P) Branch of the Pakistan Air Force in 1974. He is a qualified flying instructor and has flown over 8000 hours on different aircraft types including C-130, Boeing and Dassault aircraft. He has served as a VVIP and Presidential Pilot during his tenure of service and has held various key command and staff appointments in the PAF. He served as Director of Air Transport at Air Headquarters from 1996 to 1998 and commanded an operational air force base with over 8,500 personnel from 2000 to 2002. Presently Mr. Siddiqui is Advisor to JS Investments Limited and was Chairman of JS Investments Limited from 2004 to 2013. Currently, he is Chairman of Peregrine Aviation (Pvt.) Limited. As part of his social commitment, he works as a director on the boards of Fakhr-eImdad Foundation, Karachi Education Initiative, Karachi School for Business & Leadership and Karigar Training Institute. He is also a Trustee of the Cardiovascular Foundation. Mr. Siddiqui has served on the Board of JS Bank Limited since 2016. He is also a member of the Board’s Audit Committee and Risk Management Committee of the Bank. Mr. Siddiqui holds a B.Sc. (Honours) in War Studies from Karachi University, a B.Sc. Avionics from Peshawar University, an M. Sc. in Defence and Strategic Studies from Quaide-Azam University and an M. Sc. in Strategic Studies from Karachi University. He is also an alumnus of the National Defence University. Annual Report 2020 14 Ms. Nargis Ghaloo Independent Director Ms. Nargis Ghaloo is a retired senior civil servant having served the Government of Pakistan in various capacities for 36 years. She retired as the Managing Director Public Procurement Regulatory Authority, Government of Pakistan. Ms. Ghaloo was Chairperson of State Life Insurance Corporation of Pakistan, Pakistan’s largest life assurer, from 2014 to 2016. She is also the Chairperson of Alpha Insurance Company Limited. Ms. Ghaloo joined the Civil Services of Pakistan in 1982, has many years of professional experience serving in senior management positions with provincial as well as federal government departments in diversified fields such as public sector management, administration, financial, judicial, health, insurance and planning. Ms. Ghaloo did her Masters in English from University of Sindh in 1981 and is a Certified Director from The Pakistan Institute of Corporate Governance (PICG) and holds Certificate of Corporate Governance from INSEAD and also holds a Certificate in Company Direction from Institute of Directors, UK. Ms. Ghaloo has served on the Board of JS Bank Limited since 2016. She is also a member of the Board’s Audit Committee and Risk Management Committee of the Bank. Directorships in Other Companies: Alpha Insurance Company Limited Hinopak Motors Limited
  17. Mr . Sohail Aman Independent Director Born in 1959, Air Chief Marshal Sohail Aman received his intermediate and graduate education at PAF College, Sargodha. Subsequently, he joined Pakistan Air Force and graduated from PAF Academy in 1980. He is a graduate of Pakistan Air Force War College and has two Masters Degrees: Strategic Studies from Karachi University and International Relations from Kings College, London. He is also a proud alumnus of Royal College of Defence Studies United Kingdom and has attended National & International Security Course at Harvard Kennedy School USA. During his career, ACM Sohail Aman has flown various types of fighter aircraft including F-16s and has a grand total of over 3000 fighter hours to his credit. As a distinguished fighter pilot and Combat Commander, he has also evaluated modern fighter aircraft like SU27, SU30, Gripen and Euro fighter Typhoon. He has commanded a Fighter Squadron, Combat Commanders’ School, a Fighter Base and a Regional Air Command of Pakistan Air Force. Air Chief Marshal also has a rich staff experience and has served as Director Operations, Director Plans, Assistant Chief of Air Staff Operations, Deputy Chief of Air Staff Training and Deputy Chief of Air Staff Operations at Air Headquarters. As Deputy Chief of Air Staff Training, he focused on the concept of Education for All; especially to the underprivileged children. In this regard he introduced various scholarship schemes for deserving PAF as well as civilian children. He also developed two medical colleges and three air university campuses across the country during his tenure as the Chief. As Deputy Chief of the Air Staff Operations, he was the main architect of Pakistan Air Force’s campaign in support of successful Counter Terrorism Operation Zarb-e-Azb that proved pivotal in eliminating the menace of terrorism from Pakistan and restoration of peace in the country. He personally led anti-terrorists missions in F16 aircraft depicting the nation’s resolve to combat terrorism. share PAF’s rare experiences in Counter Terrorism Air Operations (CT) with friendly air forces. The institute also lays special focus on Research and Development (R&D) in the field of ‘Airpower Application in Contemporary Warfare’. ACE’s R&D is closely linked to development of modern aviation hardware at Aviation City, especially Project ‘Azm’ which was initiated by him as the PAF effort to manufacture fifth generation fighter aircraft. He envisioned and developed PAF Base Bholari near Hyderabad and developed it at a record speed as a fighter base. Owing to his experience in security related issues and Leadership, Sohail Aman has extensively lectured at think tanks and audience at various high-ranking universities and Staff & War colleges; both inland and abroad. Sohail Aman is also a man of great compassion which is evident from the monumental steps he has undertaken for the welfare of families of martyrs, Personnel with Special Needs (PSN) and education and wellbeing of low paid employees of PAF. In recognition of his meritorious and exceptionally dedicated services, he has been decorated with awards of Nishan-iImtiaz (Military), Hilal-i-Imtiaz (Military), Sitara-i-Imtiaz (Military) and Tamgha-iImtiaz (Military). He is also recipient of “The Legion of Merit” of Turkish Armed Forces, “King Abdul Aziz Medal of Excellence” by the Kingdom of Saudi Arabia and United States “Legion of Merit”, the highest military award of US Armed forces awarded to any foreign military official. Air Chief Marshal is currently studying Leadership, Policy formulation and Governance and is undertaking projects relating philanthropic work. Mr. Basir Shamsie President & CEO Mr. Basir Shamsie has received his Bachelors in Business Administration from University of Texas at Austin. He has also completed the Program for Leadership Development from Harvard Business School. Mr. Shamsie joined Bear Stearns Jahangir Siddiqui & Co. (now Jahangir Siddiqui & Co. Ltd.) in 1994 in the Money and Bond Markets business. His particular expertise is in Treasury and Investment Banking and he is credited with over 60 capital market deals, many of which have been landmark transactions for Pakistan. He was part of the core team responsible for acquisition of American Express Bank’s Pakistan operations in 2006 and its merger into JS Bank Limited Mr. Shamsie has since been associated with JS Bank in various senior roles such as Group Head of Treasury, Wholesale & International Banking which he held till May of 2017. His last assignment was Deputy CEO, JS Bank. He has previously served as Chairman, JS Investments Limited and JS Global Capital Limited and Director of JS Bank Limited. He is also a member of the Board’s Risk Management Committee and Information Technology Committee of the Bank. Directorships in Other Companies: Nil Mr. Aman was appointed as director on the Board of JS Bank Ltd in 2019. He is also the Chairman of the Board’s HR, Remuneration & Nomination Committee and member Board IT Committee of the Bank. Directorships in Other Companies: Nil ACM Sohail Aman is also highly regarded for orchestration and actualization of Pakistan Air Force’s modernization plan. His relentless pursuit of indigenization and focus on Human Resource development through industry academia linkage is evident in shape of development of “Aviation City” in PAF. The establishment of “PAF Airpower Centre of Excellence” is yet another strategic initiative by the Air Chief Marshal. This unique institution aims to 15 Annual Report 2020
  18. Staff Strength Number of employees as on December 31 , 2020 Average number of employees as on December 31, 2020 5,311 5,111 Women Joining in 2020 311 Men Joining in 2020 1212 % 80 Men % 20 Women New Joining in 2020
  19. Our Presence 1 Nationwide International branch in Bahrain Branches 17 Annual Report 2020
  20. Organizational Structure Annual Report 2020 18
  21. Corporate Profile of the Bank JS Bank Limited (the Bank / JSBL) is a banking company incorporated in Pakistan as a public limited company on March 15, 2006. The Bank is a subsidiary company of Jahangir Siddiqui & Co. Ltd. (JSCL) and its shares are listed on Pakistan Stock Exchange Limited (PSX). The Bank commenced its banking operations on December 30, 2006 and its registered office is situated at Shaheen Commercial Complex, Dr. Ziauddin Ahmed Road, Karachi. Pakistan with a leadership position in the domestic capital markets. It is in the business of equity, fixed income, currencies and commodities brokerage and investment banking. It was incorporated in Pakistan on June 28, 2000 and is the successor to the securities business of Jahangir Siddiqui & Co. Ltd. formerly Bear Stearns Jahangir Siddiqui Limited. The Bank is a scheduled bank, engaged in commercial banking and related services as described in the Banking Companies Ordinance, 1962 and is operating through 307 (December 31, 2019: 360) branches / subbranches in Pakistan and one wholesale banking Holding 84.56% Profile: JS Investments Limited is a licensed Investment Adviser and Asset Management Company under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the NBFC Rules) and the Non- branch in Bahrain (December 31, 2019: one). The Pakistan Credit Rating Agency Limited (PACRA) has assigned the long-term entity rating of the Bank to AA- (Double A Minus) whereas short-term rating is maintained at A1+ (A One Plus), which is the highest possible short-term rating. The ratings denote a very low expectation of credit risk and indicate very strong capacity for timely payment of financial commitments. Banking Finance Companies and Notified Entities Regulations, 2008 (the NBFC Regulations). In addition, the Company is also a licensed Pension Fund Manager under the Voluntary Pension System Rules 2005. Recently, JSIL also acquired the Private Equity and Venture Capital Fund Management Services license and RIET management services license from the Securities and Exchange Commission of Pakistan. Further, JS ABAMCO Commodities Limited is a wholly owned subsidiary of JS Investments Limited. Subsidiaries JS Investments Limited JS Global Capital Limited Holding 83.53% Profile: JS Global Capital Limited is one of the largest securities brokerage and investment banking firms in 19 Annual Report 2020
  22. Chairman ’s Review I am pleased to present this report to the valued stakeholders of JS Bank Limited (the “Bank”) on the overall performance of the Bank and efficacy of the role played by the Board in driving the Bank’s objectives. The Bank’s principal market strengths were acknowledged by the Pakistan Credit Rating Agency (PACRA) and the Bank has been assigned a short-term credit rating of A1+(A One Plus), the highest possible in the category, while long-term credit rating was maintained at AA- (Double A Minus). The ratings denote very high credit quality, low expectation of credit risk and strong capacity for timely payment of financial commitments. The Bank is committed to its role of acting as a catalyst of progress within the financial industry, by providing customers with innovative and value-added financial products and services designed to make their lives simple, easy, and convenient. The Bank’s deposit and advances have continued to show remarkable stability, and we continue to engage with customers facing economic shocks at an individual level. As of December 2020, JS Bank was ranked as one of the top SME banks in Pakistan. It continued to enhance current SME relationships while introducing innovative financial products with customized financial offerings. Based on the Country’s goal of increasing exports, JS Bank established itself as a onewindow solution by financing trade and servicing the cash management & payroll needs of the SME clientbase. Responsibility to the community is a cornerstone of the Bank’s activities through sustainable development and responsible business. In the effort to fight and respond to COVID-19, in November 2020 JS Bank, in partnership with Future Trust, has launched Future Labs, a highly advanced robotic mobile COVID-19 laboratory in Islamabad. Future Trust is a non-profit philanthropic organization, set up by the JS Group that seeks to use advanced technology to address the problems caused by poverty. Annual Report 2020 In 2020 the Bank has been recognized for its commitment to excellence on a national and international level. The prestigious awards that JS Bank received in the year 2020 include Asiamoney Award - Best Bank for SMEs – Pakistan, Asiamoney Award - Best Bank for CSR – Pakistan, Asian Banking Finance Awards 2020 - SME Bank of the Year – Pakistan and Certificate of Merit – Best Corporate Report Award 2019 by ICAP/ICMA. These global acknowledgments bear testimony to our customer centricity and outreach, driving us to deliver value added offerings and services that surpass expectations. Based on an extensive market analysis and business efficiency ratios, the Bank conducted a branch network review and successfully merged 51 branches during the year. The Board of JS Bank is committed to ensuring good corporate governance through ethical and professional business conduct as well as effective risk and audit management. The Board continually reviews the Bank’s financial and operational soundness, and significant policies in-line with regulatory requirements. The Board has constituted its subcommittees for oversight of all key areas of the Bank covering risk management, audit related matters, information technology and human resources for achieving the Bank’s strategic objectives. The Pakistan Institute of Corporate Governance (PICG) has been engaged to perform annual evaluation(s) of the Board, its committees and its respective members as per regulatory guidelines and international best practices. In 2021, the Bank will continue to play its innovative role in Pakistan’s banking system. The shifting customer preference for digital products has driven banks to transform the traditional way of banking. Our strategic priorities in the years ahead include continuous focus on operational digitalization and transformation to enhance the customer service experience. Core strategies are based on identifying and fulfilling customer needs through product innovation, 20
  23. alliances , and automation of service delivery. Simplification of banking through digitized products and secure payment enablement are among our key priorities. Several technology initiatives have been rolled out to support business growth while improving the speed and accuracy of credit decision-making. The Bank is making continuous efforts to strengthen its ability to prevent, detect and respond to cyber-attacks by improving governance and leveraging technology advancements. We believe that our people are our strength and by investing in their capacities and enriching their experience, it boosts both our productivity and customer satisfaction. We continue to provide best learning interventions, including a wide range of e-learning modules. I am confident that with our diversified Board of Directors, value added offerings, unique emphasis on customer satisfaction and dedication towards excellence, we will succeed and thrive, no matter what the conditions or environment. On behalf of the Board of Directors, I would like to extend appreciation for the continuous co-operation extended by the regulatory bodies including the State Bank of Pakistan, the Securities and Exchange Commission of Pakistan and Federal Board of Revenue. I would also like to thank our shareholders, for their continued commitment and confidence in our longterm strategic vision. Sincerely, Kalim-ur-Rahman February 24, 2021 21 Annual Report 2020
  24. Muhammad Kamran I believe art is something which cannot be verbally explained but only felt and expressed in your paintings . since art has no boundaries and totally depends upon one’s creativeness. Institute: FAST University
  25. Directors ’ Report We are pleased to present herein the 15th Annual Report of JS Bank Limited (“JSBL”) along with the audited accounts and auditors’ report for the year ended December 31, 2020. Economic Review Pakistan, much like other countries across the globe, witnessed the socio-economic impact of the COVID-19 pandemic during the first half of CY20. Nonetheless, the timely relief measures taken by the Government of Pakistan and the State Bank of Pakistan (SBP) provided due support to the economy and the masses through various measures including Monetary Policy, Regulatory Framework, Health, Investments, Loans, Employment, and Availability and Continuity of Financial Services. Among the key relief measures were the cut in interest rates, subsidized lending to businesses, deferment options for loan repayments, a cash disbursement program for low-income families etc. Hence, the economy not only began to show signs of recovery during 2HCY20, while the second wave of COVID-19 not significantly hindered the country’s economic activity. After a decline in Large Scale Manufacturing Index during 1HCY20, recovery was reflected in the second half of the year. Resumption of economic activity and materialization of the construction package announced by the Honorable Prime Minister in the earlier part of CY20 have been among the key factors that drove the rebound in LSM. During 5MFY21, LSM has already reported 7.4% YoY growth. On the external front, the country’s current account has reported a surplus of USD 1.13 billion in 1HFY21 as against a deficit of USD 2.03 billion during the same period last year. Key contributors to the surplus have been a remarkable growth remittances and controlled imports. Resultantly the Foreign Exchange reserves increased by more than USD 2.5 billion during the year under review and closed at USD 20.51 billion at CY20 end. Despite the pandemic situation considerably weakening the currencies of several regional countries, the Rupee closed the year with only 3% depreciation against the greenback. On the fiscal side, where Pakistan had a deficit of 2.5% of GDP during 1HFY21, the country is still in a surplus on the primary balance front. 23 Although volatile food prices pushed inflation upward during CY20, the high base could harness inflation in the coming months. Furthermore, despite the recent increase in energy tariffs, the SBP’s view of 7-9 percent inflation for FY21 remains unchanged. Banking Sector Review The year under review witnessed numerous developments for Pakistan’s banking sector. The SBP took relevant measures to curb the potential impact of the pandemic during the first half of the year, which included sharp monetary easing – drop in the Policy Rate from 13.25% to 7.00%, subsidized loans offered for investments and preventing layoffs, and other relief packages to consumers and the SME segment. During the same period, the banking sector’s deposits witnessed a robust growth of 22% YoY, marking the highest growth the sector has witnessed in the past fifteen years, reaching PKR 17,876 billion. Meanwhile, the sector’s Investments crossed PKR 11,500 billion, reporting 31% YoY growth, and increasing the Investments-to-Deposit Ratio (IDR) by 447 basis points, from CY19, to 65%. Total Advances witnessed muted growth, expanding by 4% YoY and clocking in at PKR 8,497 billion. The sector’s Advances-to-Deposit Ratio (ADR) declined to 48%, as compared to 56% in CY19. Concurrently, private sector credit also reported slow growth of 5% YoY during CY20. Non-Performing Loans (NPLs) grew to PKR 852 billion during 9MCY20, taking the infection ratio to 10.5%. Financial Performance In 2020, the Bank launched multiple targeted offerings aimed at a diverse customer base while undertaking organization redesign and cost economization. The Bank’s earnings during the year remain strong despite a challenging operating environment. The Bank reported a profit before tax of PKR 2,023 million (profit after tax of PKR 1,150 million) for the year ended December 31, 2020 as compared to a profit before tax of PKR 133 million (profit after tax of PKR 25 million) in the corresponding period last year. On the revenue side, the Bank reported total mark-up revenue of PKR 43,099 million compared to PKR 41,595 million from the corresponding period last year, an Annual Report 2020
  26. improvement of 3 .6%. Net interest income was 39.1% higher than the corresponding period last year and closed at PKR 9,777 million. Non-markup income stood at PKR 6,676 million, higher by 69.3%, with major contribution from capital gains of PKR 1,873 million, FX income of PKR 1,010 million and fee & commission income of PKR 3,596 million despite slower resumption in economic activities in the country due to the pandemic lockdowns. Administrative expenses were PKR 13,019 million compared to PKR 10,792 million for the corresponding period last year, up by 20.6%. The cost to income ratio of the Bank improved to 79.1% as compared to 98% during the corresponding period last year, showing the Bank’s focus on cost rationalization. Earnings per Share (EPS) The EPS for the year ended December 31, 2020 is PKR 0.8864 per share as compared to EPS of PKR 0.0004 per share by December 31, 2019. Capital Adequacy As of December 31, 2020, JS Bank’s Capital Adequacy Ratio (CAR) stood at 12.77% as compared to 12.93% in 2019. Minimum required CAR (including Capital Conservation Buffer) as prescribed by SBP is 12.50%. However, the State Bank of Pakistan as a regulatory relief to dampen the effects of COVID-19, for the time being, has reduced the requirement of CAR for banks by 1%. Summarized financial data for the last six years is given below: Particulars Deposits 2018 2017 433,063 369,790 321,413 290,078 532,168 Total Assets 201,698 Investments-Net 250,199 Advances- Net 43,099 Gross Mark-up Income 9,777 Net Mark-up Income 6,676 Non-Mark-up Income 2,023 Profit Before Tax 1,150 Profit After Tax Earnings Per Share (Basic) – PKR Return on Avg. Assets (ROAA) Return on Avg. Equity (ROAE) Capital Adequacy Ratio (CAR) Advances to Deposits Ratio (ADR) Employees 2019 20,592 Equity Branches 2020 0.8864 0.23% 6.06% 12.77% 57.8% 308 5,311 PKR ‘million’ 2016 2015 226,099 141,840 17,333 15,617 16,669 16,650 15,968 469,821 456,754 391,479 264,700 218,476 142,568 148,690 169,612 133,727 116,030 242,944 251,991 184,140 93,794 76,666 41,595 29,997 20,381 15,081 15,328 7,028 8,809 6,242 5,728 5,590 3,943 2,141 4,051 4,861 3,290 133 905 1,621 3,390 3,174 25 562 973 2,077 2,026 0.0004 0.30 0.74 1.77 1.74 0.01% 0.13% 0.30% 0.86% 1.03% 0.16% 3.49% 5.84% 12.74% 13.95% 12.93% 12.01% 11.95% 14.05% 12.50% 65.70% 78.40% 63.48% 41.48% 54.05% 360 345 323 307 277 4,904 5,127 4,998 4,163 2,946 Business Overview The year witnessed continued steady balance sheet growth, backed by prudent expansion in advances, aggressive deposit mobilization and diversified fee business. The Bank’s overall product strategy is to promote access to financial services for financial inclusion as well as identifying and fulfilling needs of customers across all customer segments while also catering to niche market needs in an effort to stand apart from the competition. Annual Report 2020 24
  27. Deposits JS Bank remained focused on core deposit mobilization , particularly targeting growth in low-cost deposits (Current Accounts – CA). The Bank was able to close CY2020 with a deposit base of PKR 433 billion, registering growth of 17.1% over CY2019. Significant growth in the CA deposit base has been augmented by focusing on affluent and mass affluent market segments, providing greater stability and strength to the Bank. The Bank embarked on several key initiatives to expand its deposit relationships in various segments including business accounts, employee banking, cash management relationships, corporate deposits and technology-based solutions. Advances On the assets side, the bank’s strategy involved prudent and coherent expansion through a holistic product range designed around customers’ needs. In addition to traditional lending segments, the Bank enhanced its focus on the SME landscape through a relationship lending model, operating through several SME hub branches. Furthermore, the secured consumer lending volumes remained strong through 2020. The leasing business also developed a healthy portfolio catering to all industrial sectors of the economy. The Bank grew its Gold Finance and Solar Panel financing portfolios by forming multiple alliances to promote the products within their value chains. JS Bank met its agriculture credit targets with a clean portfolio, paving the way for sustainable expansion in the coming years. Fee Business The Bank made concerted efforts to optimize the revenue mix between interest and fee-based income through parallel growth by cross selling various feebased products to new and existing customers alongside traditional fee income streams. The Investment Banking Group (IBG) continued its focus on advisory business and building the Bank’s asset base by extending services to entities across microfinance, construction, oil & gas, and power sectors. Trustee and Agency services together with Bankers-to-the-Issue business continued to yield positive outcome. Going forward, IBG is to continue its focus on the advisory business, capital market and privatization transactions. 25 Service Management and Fair Treatment of Customers JS Bank is committed to providing its customers with the highest level of service quality and satisfaction. The Bank has established an independent service management function that oversees service quality, phone banking, problem resolution and the fair treatment of customers. The Bank’s Complaint Handling Policy and Grievance Redressal Mechanism ensure that complaints are resolved in a timely manner and recurrence of complaints is prevented where possible. Customers have the option of registering their complaints at the Bank’s branches, phone banking center, JS Bank’s website or via email. The Bank reviews all service level complaint reports and initiatives and focuses on simplifying processes for improvement in service levels and overall customer satisfaction. ‘Fair Treatment of Customers’ is an integral part of our corporate culture. We also focus on financial literacy of our customers, for promoting responsible conduct and informed financial decisions by consumers, through our ‘Consumer Education and Financial Literacy Program’. Sustainable Finance JS Bank continued its efforts towards national sustainability and green project support. After successfully becoming an accredited entity of the executing Green Climate Fund (GCF), despite COVID, JS Bank has been working with GCF to develop and finance multiple projects to help mitigate the climate change impact in Pakistan. GCF is the world’s largest climate fund and JS Bank, as an accredited entity, can apply to fund projects up to USD 250 million. Over the year, the Bank also focused its efforts towards plantation drives pan-Pakistan in association with renowned entities as well as its operating locations worldwide. Being a responsible lender, the Bank implemented SBP’s Green Banking Guidelines which focus on risk management, own impact reduction and promotion of renewable and energy efficient products. Risk Management The Board is committed to adopting the best risk management practices in letter and spirit. To maintain effective risk management oversight, the Bank follows an appropriate risk management framework according to the regulatory directives issued by SBP and other related guidelines under the Basel II / III framework. In Annual Report 2020
  28. this regard , the Bank has a comprehensive set of risk management policies, practices and procedures in place which enable the Bank to take into consideration, in an appropriate manner, all major kinds of risks including credit, market, liquidity, operational, technology and information security. The overall risk management framework of the Bank is under the supervision of the Board of Directors (BoD)/ Board Risk Management Committee (BRMC) while the operational level day-to-day functioning is carried out by the senior management of the Bank. In order to develop a holistic integrated risk management approach, a dedicated and independent Risk Management Group is in place to manage various aspects of risk management in the Bank. To formalize and strengthen the risk management approach within the Bank, the following significant policies were developed / reviewed and approved by the Board: • • • • • • • • • Risk Management Policy Credit Policy Collateral Management Policy Market Risk Management Policy Operational Risk Management Policy Liquidity Risk Management Policy Country Risk Management Policy Business Continuity Policy Information Security Policy BRMC keeps an eye on the overall risk profile of the Bank. The Integrated Risk Management Committee (IRMC), Credit Risk Committee (CRC), Operational Risk Management Committee (ORMC), IT Steering Committee (ITSC) and Assets & Liabilities Committee (ALCO) of the management operate within an established framework in order to monitor the Bank’s activities and maintain the risk level within predefined limits. These Committees meet on a regular basis to review market developments and the level of financial and security risk exposures of the Bank. Risk Management plays a vital role in ensuring that an appropriate balance is struck between risk and reward throughout the Bank. Towards this end, the risk management function and framework has been significantly strengthened in the year under review. This includes but is not limited to the formation of management committees for monitoring credit portfolio and operational risks, introducing the concept of enterprise risk management, undertaking the automation of various processes, and incorporating Annual Report 2020 the Information Security function into the risk management group. Market risk measurement, monitoring and management reporting is done on a regular basis. The Market Risk & Basel Unit supported by the Treasury Middle Office is involved in daily monitoring of all related financial risk exposures in the form of interest rate risk, equity exposure risk, currency or foreign exchange risk, cross border or country risk, financial institutions (FI) exposure risks, liquidity risk and capital adequacy. The Bank is in the process of upgrading its system capabilities and has implemented the market risk module of Temenos Insight Risk Intelligence Solutions to enhance analytical capabilities and plans to implement modules for regulatory capital and asset & liability management in the coming year. On capital management side, the Bank’s practices ensure that it has sufficient capital to cover the risks associated with its activities. It is the prime objective of the Bank’s capital management to ensure that the Bank complies with all regulatory capital requirements and at the same time maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholders’ value. Apart from usual monitoring of Risks and Control SelfAssessment (RCSA), operational loss data and Key Risk Indicators (KRI), Operational risk management function also maintains the Business Continuity Policy and facilitates the annual testing of mission-critical systems and services that may be disrupted due to any eventuality or disaster. The Bank has also developed a Disaster Recovery (DR) site to ensure maximum availability of system and services to customers and partners for critical (time sensitive) and support functions. Credit risk management is an ongoing process. The overall credit policy and the credit risk management guidelines are approved by the Board of Directors. In this regard, a Central Credit Committee (CCC) is entrusted with the responsibility of monitoring and controlling credit risk in the Bank. CCC meets regularly to actively supervise credit risk across the lending portfolio. In order to maintain a healthy growth of the credit portfolio, the Bank’s Credit Risk Management processes are consistently upgraded and improved to meet future challenges. Further, in order to bolster credit risk management monitoring activities, a Credit Risk Monitoring Unit is in place for regular portfolio monitoring, formulating and implementing credit risk 26
  29. management tools , including setting up of industry, geographic and sectorial limits, and devising credit risk quantification / statistical techniques to meet SBP and Basel II/III requirements. The health of the credit portfolio is being monitored through Credit Administration, which is responsible for housekeeping elements along with management of credit limits. The management of risks and uncertainties associated with problem credit requires a different and more intense approach than normal management. In this regard, a Special Asset Management Unit is in place following SBP’s regulatory guidelines to focus on remedial management issues, take ownership of classified portfolio for effective management and to determine the work-out modes for rehabilitation and settlements, as stipulated in the Remedial Asset Management Policy of the Bank. In terms of Information Security, the Information Security Department performs security/risk assessments, as well as vulnerability assessment, and monitors critical IT and information security-specific risks across the bank. To further improve the information security posture Advance/Zero-Day Threat Protection solution is being evaluated for implementation. Statement on Internal Controls The Bank places the utmost emphasis on establishing stringent controls across all its operations. It is the cornerstone of the Bank’s policies to adhere to the best industry practices, ethical standards and regulatory requirements. In this context, the Board of Directors has promulgated policies that provide for assessing the overall effectiveness of the internal control environment. It is the responsibility of senior management to evolve systems and procedures that ensure overall comprehensive controls in the light of Board of Directors guidelines. Internal controls are intended to provide a reasonable measure of assurance regarding the effectiveness and efficiency of the Bank’s operations, reliability of financial information and compliance with applicable laws and regulations. However, it is acknowledged that the systems put in place can only provide reasonable but not absolute assurances against material misstatement or loss since they are designed to manage, rather than eliminate, the risk of unforeseen loss is seeking to achieve the business objectives. 27 To ensure effective management of risk, the governance structure of internal control functions at the Bank consists of three levels of defense. The first line of defense is the business itself which owns its risks, including its operational risk and is responsible for its management. The second line of defense is the oversight provided by the Risk Management, Compliance and control functions who identify and assess risks impacting existing and new business initiatives, coordinate risk mitigation with risk specialists and business and then report and escalate it to the Risk Management Function for appropriate corrective measures. The last line of defense is an independent and effective Internal Audit Function which reviews the effectiveness and adequacy of internal controls and continues to monitor compliance with policies and procedures. The Board of Directors is regularly kept up to date about the state of compliance through the Board Audit Committee. As a priority, all significant and material findings of the internal and external auditors and regulators are addressed by the management ensuring that appropriate corrective actions have been implemented. Adequate systems are in place to minimize breaches repetition of mistakes and strengthen the control environment. In addition, the Compliance Function is performing its due role to ensure regulatory compliance across the Bank. The Bank diligently follows SBP’s Guidelines on Internal Control to evaluate the effectiveness of the overall set of internal controls including financial reporting controls. A detailed documentation of bankwide processes and controls has been completed. Furthermore, the Bank has developed a comprehensive management testing and reporting framework for ensuring operating effectiveness of key controls and has significantly addressed the identified design improvement opportunities. Upon satisfactory completion of the Internal Control over Financial Reporting (ICFR) Roadmap, SBP granted exemption to the Bank in August 2016 from the submission of a Long Form Report (LFR) by external auditors. Annual assessment report for December 31, 2020 on efficacy of ICFR shall henceforth be submitted to SBP duly approved by the Board Audit Committee. The management considers that the internal control system presently existing is adequate, implemented effectively and continuously monitored. This statement is also endorsed by the Board of Directors. The management will endeavor to continue Annual Report 2020
  30. enhancing its coverage and compliance with the SBP guidelines on Internal Controls and thereby strengthening its control environment on an ongoing basis . Corporate Governance The Bank prides itself on good corporate governance by maintaining high levels of professional and business conduct, implementing effective internal controls and audit functions, including risk management framework and complying strictly with both local and international codes of practice. The Board closely reviews policy-related matters with long-term implications as per regulatory obligations which also meet the Bank’s operational requirements. The Management and the Board Committees have been duly constituted with a defined scope of work to ensure that they perform their prescribed functions precisely and efficiently as per their mandate and respective terms of reference. Corporate and Financial Reporting Framework The Directors confirm compliance with the Corporate and Financial Reporting Framework of the Securities & Exchange Commission of Pakistan’s Code of Corporate Governance for the following: • The financial statements prepared by the management present fairly the state of affairs of the Bank, the results of its operations, cash flow statement and statement of changes in equity. • Proper books of accounts of the Bank have been maintained. • Accounting policies as stated in the notes to the accounts have been consistently applied in the preparation of financial statements and accounting estimates are based on reasonable and prudent judgment. • International Accounting Standards as applicable to banks in Pakistan have been followed in preparation of the financial statements. • The system of internal controls is sound in design and has been effectively implemented and monitored. • There are no doubts about the Bank’s ability as a going concern. • There has been no material departure from the best practices of corporate governance, as detailed in the listing regulations. • The details of outstanding statutory payments, if any, have been adequately disclosed in the financial statements. Holding Company Jahangir Siddiqui & Co. Limited, listed on the Pakistan Stock Exchange Limited, is the holding company of JS Bank Limited, owning 75.02% of the ordinary shares. Subsidiary Companies JS Global Capital Limited and JS Investments Limited are subsidiaries of JS Bank with shareholdings of 83.5% and 84.5% respectively. Performance of these companies has been reviewed under the consolidated Directors’ Report. Attendance of Directors in the Board meetings Six meetings of the Board of Directors were held during the year 2020. The attendance of directors at Board Meetings was as follows: Name of Director Mr. Kalim-ur-Rahman – Chairman Mr. Adil Matcheswala Mr. Ashraf Nawabi Mr. G.M. Sikander Mr. Hassan Afzal Mr. Munawar A. Siddiqui Ms. Nargis Ghaloo Mr. Sohail Aman Mr. Basir Shamsie, President & CEO Annual Report 2020 Eligible to attend 6 6 6 6 6 6 6 6 6 28 Meetings attended 6 6 5 6 6 6 6 6 6
  31. The attendance of directors at Board Committees meetings was as follows : Name of Director Audit Committee Eligible to attend Meetings attended Risk Committee Eligible to attend Meetings attended HR Committee Eligible to attend IT Committee Meetings attended Eligible to attend Meetings attended Mr. Kalim–ur-Rahman - - 7 7 4 4 Mr. Adil Matcheswala 4 4 7 7 - - - - 7 6 - - 4 4 - - Mr. Ashraf Nawabi - - Mr. G.M Sikander 4 4 4 3 Mr. Hassan Afzal - - Mr. Munawar A. Siddiqui 4 4 4 4 Ms. Nargis Ghaloo 4 4 4 4 Mr. Sohail Aman Mr. Basir Shamsie President & CEO - - 4 Election of Directors The election of directors of the Bank was held on March 28, 2019 at the AGM wherein eight directors were elected by the shareholders for a period of three years. Directors Remuneration The remuneration of directors is fixed by the Board of Directors in accordance with applicable laws. The remuneration for attending meetings of the Board and/or Board Committees is within the scale as is reasonably determined by the Board of Directors, provided that an Executive Director shall not be paid any remuneration for attending Board/Board Sub Committee meetings. Pattern of Shareholding The pattern of shareholding at the close of December 31, 2020 as required u/s 227(f ) of the Companies Act, 2017 is given on page number 353. Related Party Transactions Related party transactions are disclosed at note # 43 to the unconsolidated financial statements and the consolidated financial statements of the Bank for the year ended December 31, 2020. Corporate & Social Responsibility The Statement of Corporate & Social Responsibility is included in the Annual Report. Credit Ratings The Pakistan Credit Rating Agency Limited (PACRA) 29 4 7 - 7 - - - 4 4 4 4 has maintained the long term rating of the Bank at ‘AA-‘ (Double A Minus) and the short-term rating of “A1+” (A One Plus) which is the highest possible shortterm rating. Dividend to Shareholders No dividend is being paid to the shareholders on the ordinary shares for the year 2020. Employee Benefit Schemes JS Bank operates a Staff Provident Fund (the Fund) and funded Gratuity Scheme (the Scheme) covering all its permanent employees. The contribution made toward the Fund during the year 2020 is PKR 229 million (2019 PKR 209.87 million). Un-audited balance of the asset of the Fund as of December 31, 2020 was PKR 2,278 million (2019: PKR 1,795 million). The contribution to be made to the Scheme is PKR 152 million for 2020 (2019: PKR 102 million). The unaudited balance of the assets of the Scheme as of December 31, 2020 was PKR 1,392 million (2019: PKR 705 million). Auditors The present auditors, EY Ford Rhodes, Chartered Accountants (a member firm of Ernst & Young Global Limited), retire and cannot, in compliance of the Listed Companies (Code of Corporate Governance) Regulations, 2019, be re-appointed as having completed a term of five years. The Board of Directors, on the recommendation of the Annual Report 2020
  32. Audit Committee of the Bank , has recommended the appointment of KPMG Taseer Hadi & Co. Chartered Accountants as auditors for the year ending December 31, 2021 at the upcoming Annual General Meeting of the Bank. Auditors have confirmed that the firm is fully compliant with the International Federation of Accountants’ Guidelines of Code of Ethics, as adopted by the Institute of Chartered Accountants of Pakistan (ICAP) and have satisfactory rating under Quality Control Review Program of the ICAP. Evaluation of the Board’s Performance The Board of Directors of JS Bank sets the Bank’s strategic direction and ensures that the organization stays true to this direction - enabling it to achieve its long-term objectives while ensuring regulatory compliance. To discharge its fiduciary responsibility of safeguarding the stakeholders’ interests, a formal and effective mechanism is put in place for an annual evaluation of the Board’s own performance, members of the Board and of its Committees as required by the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan. The Board of Directors of JS Bank has a good mix of skills, core competencies, diversity, experience, and knowledge and is at the same time committed to strong corporate governance to protect the overall interests of the Bank and its stakeholders. The Board continually reviews the Bank’s financial and operational soundness, governance, internal controls, and significant policies as per regulatory requirements. Further, the Board Committees have been constituted, each with a prescribed mandate and terms of reference. In line with the best practices of corporate governance, the Board conducts a self-evaluation exercise on an annual basis by engaging Pakistan Institute of Corporate Governance (PICG) as an external facilitator which is the lead on Corporate Governance and has a team of qualified consultants to conduct board evaluations for companies and banks. The Board of JS Bank in compliance with SBP’s Guidelines on Performance Evaluation of Board of Directors and Listed Companies (Code of Corporate Governance) Regulations, 2019 has conducted its self-evaluation by engaging PICG. The evaluation covered various aspects of the performance of the Board including but not limited to: Board Composition, Strategic Planning, Control Environment, Committees, CEO & Chairman etc. Annual Report 2020 The evaluation was carried out using quantitative method, based on subjective assessment, and was conducted via questionnaires developed by the consultants. The quantitative technique has the advantage of being specific and measurable. Measurement scale used in the Banks’s board evaluation is the summated rating depending on how strongly they agree or disagree with a given statement. The use of this method ensures specific and measurable data that can be benchmarked over time. Compliance with the Listed Companies (Code of Corporate Governance) Regulations, 2019. The requirements of the Listed Companies (Code of Corporate Governance) Regulations, 2019 set out by the Securities & Exchange Commission of Pakistan (SECP) have been adopted by the Bank and have been duly complied with. A Statement to this effect is annexed with the report. Events after the Date of Statement of Financial Position There have not been any material events that occurred after the date of the Statement of Financial Position that require adjustments to the enclosed financial statements. Acknowledgements On behalf of JS Bank, we would like to express our gratitude to our valued stakeholders for their continued patronage and support. We would also like to thank the Ministry of Finance, the State Bank of Pakistan, the Securities & Exchange Commission of Pakistan and other regulatory authorities for their guidance and support to our Bank. At the close, we extend our appreciation to all our colleagues at JS Bank for their commitment towards ever greater success and growth. For and on behalf of the Board, Basir ShamsieKalim-ur-Rahman President & CEO Chairman February 24, 2021 30
  33. 31 Annual Report 2020
  34. Annual Report 2020 32
  35. 353 43 33 Annual Report 2020
  36. 4 4 7 7 - - - 7 7 - - - - 4 4 - - 4 - - 4 4 4 7 7 4 4 - - 3 6 - - - 4 4 - - 4 4 - - 4 4 4 4 4 4 - - - - 4 7 4 Annual Report 2020 4 34 ،
  37. 35 Annual Report 2020
  38. Annual Report 2020 36
  39. 37 Annual Report 2020
  40. Annual Report 2020 38
  41. 39 Annual Report 2020
  42. Annual Report 2020 40
  43. 12 .77 12.77% 57.8% 41 Annual Report 2020
  44. Annual Report 2020 42
  45. 43 Annual Report 2020
  46. Ahwar Nasir I am a 19 year old aspiring artist who paints to make herself and others happy . Painting to me is to communicate love. Institute: Indus Valley School of Art and Architecture
  47. Six Years ’ Financial Summary 2020 2019 2018 2017 2016 Rs. in million 2015 Statement of Financial Position Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments - net Advances - net Operating fixed assets Deferred tax assets Other assets Assets held for sale Total Assets 30,421 1,106 23,240 201,698 250,199 10,086 14,678 739 532,168 25,589 463 30,321 142,568 242,945 11,964 9 16,194 374 470,427 32,111 969 1,937 148,690 251,991 8,415 287 12,354 456,754 17,334 1,034 3,116 169,612 184,140 7,113 9,131 391,479 15,509 753 11,334 133,727 93,794 5,837 6,490 267,444 11,159 584 3,581 116,030 76,666 4,574 5,882 218,476 Bills payable Borrowings Deposits and other accounts Sub-ordinated loans Deferred tax liabilities Other liabilities Total Liabilities 4,982 48,303 433,063 7,493 1,194 16,541 511,576 3,804 54,468 369,790 7,495 17,536 453,094 3,520 96,559 321,413 7,497 12,148 441,137 3,824 64,557 290,078 4,999 797 10,555 374,810 2,544 10,320 226,099 3,000 1,205 7,626 250,794 1,609 54,638 141,840 1,695 2,724 202,508 Net Assets 20,592 17,333 15,617 16,669 16,650 15,968 Share capital Discount on issue of shares Preference shares Reserves Unappropriated profits Surplus / (deficit) of assets - net of tax Total Equity 12,975 (2,855) 1,991 6,148 12,975 (2,855) 1,750 4,828 12,975 (2,855) 1,712 4,821 12,225 (2,105) 1,500 1,541 4,519 12,225 (2,105) 1,500 1,334 3,973 12,225 (2,105) 1,500 919 2,529 2,334 20,592 637 17,333 (1,036) 15,617 490 16,669 1,223 16,650 2,401 15,968 Profit & Loss Account Mark-up / return / interest earned Fee, commission and brokerage income Gain/ (loss) on sale of securities - net Income from dealing in foreign currencies Dividend income Other Income Total Gross Income 43,099 3,596 1,873 1,040 98 70 49,775 41,595 2,860 (711) 1,010 300 484 45,538 29,997 2,669 (1,434) 688 109 109 32,138 20,381 2,124 1,234 357 167 169 24,433 15,081 1,427 2,965 313 98 59 19,942 15,328 1,124 1,799 288 85 (6) 18,618 33,322 34,566 21,188 14,139 9,353 9,738 681 360 406 203 (64) 675 275 324 132 13,019 47,752 (345) (107) 139 10,792 45,405 (220) 52 (149) 9,859 31,136 123 45 46 8,347 22,902 415 99 6,848 16,652 141 65 4,890 15,509 2,023 873 1,150 133 108 25 905 342 562 1,621 647 973 3,390 1,313 2,077 3,174 1,148 2,026 Mark-up / return / interest expensed Provision/ (reversal) against nonperforming loans and advances Provision / (reversal) of diminution in value of investments Other provisions/ (reversal)/ write-off Workers’ welfare fund & Other Charges Operating expenses Total Expenses Profit Before tax Taxation Profit After Taxation 45 Annual Report 2020
  48. Six Years ’ Vertical Analysis Rs. in million Vertical Analysis 2020 % 2019 % 2018 % 2017 % 2016 % 2015 % 30,421 6% 25,589 5% 32,111 7% 17,334 4% 15,509 6% 11,159 5% 0% 463 0% 969 0% 1,034 0% 753 0% 584 0% 4% 30,321 6% 1,937 0% 3,116 1% 11,334 4% 3,581 2% Statement of Financial Position Cash and balances with treasury banks Balances with other banks 1,106 23,240 Lendings to financial institutions 201,698 Investments - net 250,199 Advances - net 10,086 Operating fixed assets - Deferred tax assets 14,678 Other assets 739 Assets held for sale Total Assets 532,168 4,982 Bills payable 48,303 Borrowings 433,063 Deposits and other accounts 7,493 Sub-ordinated loans 1,194 Deferred tax liabilities Other liabilities 16,541 Total Liabilities 511,576 Net Assets 38% 142,568 30% 148,690 33% 169,612 43% 133,727 50% 116,030 53% 47% 242,945 52% 251,991 55% 184,140 47% 93,794 35% 76,666 35% 2% 11,964 3% 8,415 2% 7,113 2% 5,837 2% 4,574 2% 0% 9 0% 287 0% - 0% - 0% - 0% 3% 16,194 3% 12,354 3% 9,131 2% 6,490 2% 5,882 3% 0% 374 0% - 0% 100% 470,427 100% 456,754 100% 391,479 100% 267,444 100% 218,476 100% 1% 3,804 1% 3,520 1% 3,824 1% 2,544 1% 1,609 1% 9% 54,468 12% 96,559 21% 64,557 16% 10,320 4% 54,638 25% 81% 369,790 79% 321,413 70% 290,078 74% 226,099 85% 141,840 65% 1% 7,495 2% 7,497 2% 4,999 1% 3,000 1% - 0% 0% - 0% - 0% 797 0% 1,205 0% 1,695 1% 3% 17,536 4% 12,148 3% 10,555 3% 7,626 3% 2,724 1% 96% 453,094 96% 441,137 97% 374,810 96% 250,794 94% 202,508 93% 20,592 4% 17,333 4% 15,617 3% 16,669 4% 16,650 6% 15,968 7% 12,975 2% 12,975 3% 12,975 3% 12,225 3% 12,225 5% 12,225 6% 1% (2,855) -1% (2,855) -1% (2,105) -1% (2,105) -1% (2,105) -1% 0% - 0% - 0% 1,500 1% 1,500 1% 1,500 1% 0% 1,750 0% 1,712 0% 1,541 0% 1,334 0% 919 0% 1% 4,828 1% 4,821 1% 4,519 1% 3,973 1% 2,529 1% Represented by: Share capital (2,855) Discount on issue of shares - Preference shares 1,991 Reserves 6,148 Unappropriated profits Surplus / (Deficit) on revaluation of 2,334 assets - net of tax Total Equity 20,592 0% 4% 17,333 637 0% 4% 15,617 (1,036) -0% 3% 16,669 490 0% 4% 16,650 1,223 0% 6% 15,968 2,401 1% 87% 41,595 91% 29,997 93% 20,381 83% 15,081 76% 15,328 82% 7% 2,860 6% 2,669 8% 2,124 9% 1,427 7% 1,124 6% 4% (711) -2% (1,434) -4% 1,234 5% 2,965 15% 1,799 10% 2% 1,010 2% 688 2% 357 1% 313 2% 288 2% 0% 300 1% 109 0% 167 1% 98 0% 85 0% 7% Profit & Loss Account 43,099 Mark-up / return / interest earned Fee, commission and brokerage income Gain on sale of securities - net Income from dealing in foreign currencies Dividend income 3,596 1,873 1,040 98 70 Other Income 0% 484 1% 109 0% 169 1% 59 0% (6) -0% Total Gross Income 49,775 100% 45,538 100% 32,138 100% 24,433 100% 19,942 100% 18,618 100% Mark-up / return / interest expensed 33,322 67% 34,566 76% 21,188 66% 14,139 58% 9,353 47% 9,738 52% 681 1% 360 1% 406 1% 203 1% (64) -0% 675 4% 275 1% (345) -1% (220) -1% 123 1% 415 2% 141 1% 0% (107) 0% 52 0% 45 0% - 0% - 0% Provision/ (reversal) against nonperforming loans and advances Provision / (reversal) of diminution in value of investments 324 Other provision / (reversal) / write-off Worker’s welfare fund & Other Charges Operating expenses Total Operating Expenses Profit Before tax Taxation Profit After Taxation 132 0% 139 0% (149) 0% 46 0% 99 0% 65 0% 26% 10,792 24% 9,956 31% 97% 8,256 22,812 34% 93% 6,748 16,552 34% 83% 4,824 15,444 26% 2,023 4% 133 0% 905 3% 1,621 7% 3,390 17% 3,174 17% 873 2% 108 0% 342 1% 647 3% 1,313 7% 1,148 6% 1,150 2% 25 0% 562 2% 973 4% 2,077 10% 2,026 11% 13,019 47,752 96% 45,405 Annual Report 2020 100% 31,233 46 83%
  49. Six Years ’ Horizontal Analysis Statement of Financial Position Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments - net Advances - net Operating fixed assets Deferred tax assets Other assets Assets held for sale Total Assets 6 Years CAGR 2020 Horizontal Analysis 2019 2018 2017 Rs. in million 2016 2015 22% 18% 13% 16% 26% 18% 0% 17% 100% 20% 30,421 1,106 23,240 201,698 250,199 10,086 14,678 739 532,168 25,589 463 30,321 142,568 242,945 11,964 9 16,194 374 470,427 32,111 969 1,937 148,690 251,991 8,415 287 12,354 456,754 17,334 1,034 3,116 169,612 184,140 7,113 9,131 391,479 15,509 753 11,334 133,727 93,794 5,837 6,490 267,444 11,159 584 3,581 116,030 76,666 4,574 5,882 218,476 Bills payable Borrowings Deposits and other accounts Sub-ordinated loans Deferred tax liabilities Other liabilities Total Liabilities 24% -1% 26% 16% 18% 37% 21% 4,982 48,303 433,063 7,493 1,194 16,541 511,576 3,804 54,468 369,790 7,495 17,536 453,094 3,520 96,559 321,413 7,497 12,148 441,137 3,824 64,557 290,078 4,999 797 10,555 374,810 2,544 10,320 226,099 3,000 1,205 7,626 250,794 1,609 54,638 141,840 1,695 2,724 202,508 Net Assets 8% 20,592 17,333 15,617 16,669 16,650 15,968 -3% -100% 0% 25% 34% 12,975 (2,855) 1,991 6,148 12,975 (2,855) 1,750 4,828 12,975 (2,855) 1,712 4,821 12,225 (2,105) 1,500 1,541 4,519 12,225 (2,105) 1,500 1,334 3,973 12,225 (2,105) 1,500 919 2,529 9% 8% 2,334 20,592 637 17,333 (1,036) 15,617 490 16,669 1,223 16,650 2,401 15,968 Mark-up / return / interest earned Fee, commission and brokerage income Gain on sale of securities - net Income from dealing in foreign currencies Dividend income Other Income Total Gross Income 25% 28% 4% 25% -5% 100% 24% 43,099 3,596 1,873 1,040 98 70 49,775 41,595 2,860 (711) 1,010 300 484 45,538 29,997 2,669 (1,434) 688 109 109 32,138 20,381 2,124 1,234 357 167 169 24,433 15,081 1,427 2,965 313 98 59 19,942 15,328 1,124 1,799 288 85 (6) 18,618 Mark-up / return / interest expensed Provision/ (reversal) against non-performing loans and advances Provision / (reversal) of diminution in value of investments Other provision/ (reversal) / write-off Worker’s welfare fund & Other Charges Operating expenses Total Expenses 29% 33,322 34,566 21,188 14,139 9,353 9,738 1% 681 360 406 203 (64) 675 9% 86% 15% 22% 26% 275 324 132 13,019 47,752 (345) (107) 139 10,792 45,405 (220) 52 (149) 9,956 31,233 123 45 46 8,256 22,812 415 99 6,748 16,552 141 65 4,824 15,444 Profit Before Tax Taxation Profit After Taxation 4% 8% 1% 2,023 873 1,150 133 108 25 905 342 562 1,621 647 973 3,390 1,313 2,077 3,174 1,148 2,026 Represented by: Share capital Discount on issue of shares Preference shares Reserves Unappropriated profits Surplus / (deficit) on revaluation of assets - net of tax Total Equity Profit & Loss Account 47 Annual Report 2020
  50. Financial Performance 2015 - 2020 79 ,389 96,453 186,879 Rs. in million 255,147 Rs. in million 246,453 Rs. in million 254,402 Rs. in million Annual Report 2020 48
  51. Rs . in million Rs. in million Rs. in million Rs. in million 49 Annual Report 2020
  52. Graphical Presentation of Financial Statements Annual Report 2020 50
  53. Financial Ratios Six Years ’ Financial Performance 2020 2019 12.29% 9.07% 40.58% 79.13% 6.06% 1.22% 10.00% 35.94% 98.36% 0.15% 6.30 0.89 15.87 5.40 0.00 13.36 7.37 0.30 12.04 7.52 0.74 15.54 Market capitalisation (Rs. in million) 8,174.02 7,006.31 9,562.31 8,064.93 Number of shares (Number in million) Price to Book Ratio 1,297.46 39.69% 1,297.46 40.42% 1,297.46 61.23% 1,072.46 48.38% Profitability Ratios Profit before tax ratio (PBT / Total Income) Gross yield on earning ratio Non Interest income to total income Cost/Income ratio Return on Equity (PAT / Average Equity) Investors’ Ratios Market Price per share (Rs.) Earning per share (Rs.) Break Value or Net assets per share (Rs.) Assets Quality and Liquidity Ratios Gross Advances to Deposits ratio Net Advances to Deposits ratio Investments to Deposits ratio Infection Ratio (NPLs to Gross Advances) NPLs to Net Advances Ratio Coverage ratio (Specific provisions to NPLs) Deposits to shareholders’ equity Assets to shareholders’ equity Earning assets to total assets ratio Capital Adequacy Tier 1 Capital Total Eligible Capital Risk Weight Assets (RWA) RWA to Total Assets Tier 1 to RWA Capital adequacy ratio Financial Ratios Net Operating Margin (PAT / Total Income) Return on capital employed Return on Assets (PAT / Average Assets) Debt to Equity Ratio (Long term Debt / Equity) Liquidity Ratios Advances to deposits ratio Cash to Current Liabilities Others Number of branches Number of Employees 2018 2017 (Percentage) 8.26% 15.74% 7.45% 5.71% 19.55% 39.36% 90.92% 80.21% 3.48% 5.84% 2016 2015 32.02% 6.31% 45.91% 63.72% 12.74% 35.75% 7.81% 37.05% 54.33% 13.95% 10.81 1.77 15.52 7.75 1.74 14.89 11,593.34 1,072.46 69.63% 8,311.60 1,072.46 52.05% (Percentage / Times) 58.74% 66.65% 79.38% 64.42% 42.66% 55.97% 57.77% 65.70% 78.40% 63.48% 41.48% 54.05% 46.57% 38.55% 46.26% 58.47% 59.15% 81.80% 4.61% 4.20% 3.26% 1.74% 3.45% 3.76% 4.69% 4.26% 3.30% 1.77% 3.55% 3.89% 35.64% 32.26% 35.98% 81.00% 78.68% 90.72% 21.0 Times 21.3 Times 20.6 Times 17.4 Times 13.6 Times 8.9 Times 25.8 Times 27.1 Times 29.2 Times 23.5 Times 16.1 Times 13.7 Times 89.28% 88.47% 88.15% 91.16% 89.31% 89.84% 18,478 23,099 180,889 34.14% 10.21% 12.77% 17,120 21,426 165,774 35.27% 10.33% 12.93% 6.99% 4.35% 0.23% 0.4 Times 0.22% 0.10% 0.01% 0.4 Times 57.77% 57.09% 308 5,311 51 (Rs. in million / Percentage) 15,917 14,351 20,178 18,943 168,020 158,458 36.79% 40.48% 9.47% 9.06% 12.01% 11.95% 13,181 16,721 118,992 44.49% 11.08% 14.05% 10,525 11,399 91,189 41.74% 11.54% 12.50% (Percentage) 5.13% 9.45% 2.51% 4.71% 0.13% 0.30% 0.5 Times 0.3 Times 19.62% 11.66% 0.86% 0.2 Times 22.82% 13.95% 1.03% 0.0 Times 65.70% 43.91% (Percentage / Times) 78.40% 63.48% 32.09% 25.35% 41.48% 120.56% 54.05% 19.84% 360 4,904 (Number) 345 323 5,127 4,998 307 4,163 277 2,946 Annual Report 2020
  54. DuPont Analysis Dupont model is a financial ratio based on the return on equity ratio that is used to analyze Bank ’s ability to increase its return on equity. This is the method of breaking down the original equation for ROE into three components: operating efficiency, asset efficiency, and leverage. Operating efficiency is measured by Net Profit Margin and indicates the amount of net income generated after taking account all the expenses. Asset efficiency is measured by the Total Asset Turnover and represents how much revenue has been generated by optimum utilization of the assets. Finally, financial leverage is determined by the Equity Multiplier Net operating margin for the year has improved significantly indicating an increase in customer trust, product and service quality. Improved Leverage ratio explains the Bank is well equipped to meet its financial obligation and commitments. Net Operating Margin Asset Utilization Return on Assets Leverage Ratio / Equity Multiplier Return on Equity PAT / Total Income Total Income / Average Assets Average Assets / Average Equity A 2020 6.99% 2019 0.22% 2018 5.14% 2017 9.45% 2016 19.61% 2015 22.82% B 3.28% 2.37% 2.58% 3.12% 4.36% 4.49% C=AXB 0.23% 0.01% 0.13% 0.30% 0.85% 1.03% D 26.42 28.12 26.27 19.78 14.90 13.60 CXD 6.06% 0.15% 3.48% 5.84% 12.74% 13.95% Rs. in million Annual Report 2020 52
  55. Economic Value-Added Statement Economic value added is a measure based on the residual income technique that serves as an indicator of the profitability . It takes into account all costs including the opportunity cost of equity and it does not stick to accounting profits only. 2020 Invested Capital Average shareholders’ equity Add: Cumulative provision against assets Invested Capital Return on Invested Capital Profit after taxation Add: (Reversals) / provision against write offs - net Total return on invested capital Economic cost (12 months average Treasury Bill rate plus 2% premium) Opportunity cost of invested capital Economic Value-Added Rs. in million 2019 18,963 5,121 24,084 16,475 4,030 20,505 1,150 1,280 2,430 25 (92) (67) 10.75 % 2,589 14.60% 2,994 21,495 17,512 2020 Economic Value-Added 2019 21,495 17,512 Opportunity cost of invested capital 2,589 2,994 Total return on invested capital 2,430 (67) Invested Capital 24,084 20,505 53 Annual Report 2020
  56. Summary of Cash Flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 2020 95 ,088 Rs. in million 2015 34,992 2019 (28,905) 2018 (37,583) 2017 98,303 2016 (16,771) 22,775 49,674 (96,188) 21,484 (32,598) (1,033) 2,318 (180) (180) (156) 25,415 32,578 18,169 16,221 11,688 9,450 31,384 25,415 32,578 18,169 16,221 11,688 (87,981) (1,138) Free Cash Flows 2020 2,023 Profit before taxation Adjustment for non-cash items Operating assets/liabilities changes Net cash generated from operations Capital expenditure Free cash flows 2019 3,476 89,589 95,088 1,076 94,012 Annual Report 2020 133 2018 905 2017 1,621 2016 Rs. in million 2015 3,390 3,174 1,457 537 834 891 1,312 (30,495) (39,026) 95,848 (21,052) 30,506 (28,905) (37,583) 98,303 (16,771) 34,992 (30,937) (38,951) 97,013 (18,621) 33,687 (2,032) 54 (1,367) (1,290) (1,850) (1,305)
  57. Analysis of Capital Adequacy Ratio 2020 Minimum Capital Requirement (MCR): Rs. in million 2019 Paid-up capital (net of losses) 10,119 10,119 Eligible Common Equity Tier 1 (CET 1) Capital Eligible Additional Tier 1 (ADT 1) Capital Total Eligible Tier 1 Capital Eligible Tier 2 Capital Total Eligible Capital (Tier 1 + Tier 2) 16,229 2,251 18,479 4,621 23,100 14,620 2,500 17,120 4,307 21,426 Risk Weighted Assets (RWAs): Credit Risk Market Risk Operational Risk Total 155,762 1,145 23,982 180,889 144,381 925 20,468 165,774 Total Eligible Capital Risk Weighted Assets (RWAs) Capital Adequacy Ratio 23,100 180,889 12.77% 21,426 165,774 12.93% 55 Annual Report 2020
  58. Category of Investments 2020 T-bills PIBs - floating rate PIBs - fixed rate TFCs and Sukuks Shares Associates and subsidiaries Others 115 ,052 19,424 54,044 6,639 4,264 2,161 114 201,698 Rs. in million 2019 2018 2017 2016 2015 67,669 44,375 22,254 70,643 24,488 22,927 - - - - 44,881 92,252 135,536 49,835 82,704 2,963 1,526 1,992 1,754 2,008 1,966 2,557 3,547 4,388 3,649 2,120 2,099 1,919 1,919 1,919 41 5,882 4,364 5,188 1,261 142,568 148,690 169,612 133,727 116,030 Rs. in million Annual Report 2020 56
  59. Non-Performing Loans Categorywise OAEM Substandard Doubtful Loss Total 2020 NPLs Provision 297 1 ,178 3,264 6,995 11,734 156 724 3,301 4,182 2019 NPLs Provision 841 1,159 2,442 5,911 10,353 2 65 426 2,847 3,340 Variance NPLs Provision -64.71% 1.62% 33.66% 18.34% 13.33% 100.00% 141.33% 69.94% 15.93% 25.21% Rs. in million 2020 Coverage 0.13% 13.25% 22.19% 47.19% 35.64% Rs. in million 57 Annual Report 2020
  60. Advances Segmentation Annual Report 2020 58
  61. Funding Mix Deposit Mix 59 Annual Report 2020
  62. Deposits Breakdown Rs . in billion DEPOSIT TYPE 2020 2019 2018 2017 2016 2015 Term Deposit 210 197 148 132 106 62 Saving Account 115 90 91 83 66 44 Current Account 108 83 82 75 54 36 433 370 321 290 226 142 Deposits Composition Annual Report 2020 Rs. in billion 60
  63. Quarterly Performance Profit and loss account Mark-up earned Mark-up expensed Net mark-up income Non mark-up income Total Income Non-mark-up expenses Profit before provisions Provisions and write off Profit before taxation Taxation Profit after taxation Statement of Financial Position Assets Cash and balance with treasury banks Balances with other banks Lendings to Financial Institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Assets held for sale Liabilities Bills payable Borrowings Deposits and other accounts Subordinated debt Deferred tax liabilities Other liabilities Net assets Represented by : Share capital Reserves Unappropriated profit Surplus / (deficit) on revaluation of assets - net of tax 4th Quarter 2020 3rd Quarter 2nd Quarter 1st Quarter 4th Quarter 2019 3rd Quarter 2nd Quarter Rs. in million 1st Quarter 9,213 (6,737) 2,476 2,218 4,694 (3,815) 879 822 58 (73) (15) 9,536 (7,385) 2,151 1,483 3,634 (3,129) 505 (12) 493 (184) 309 11,426 (8,818) 2,609 1,769 4,377 (3,291) 1,086 243 844 (370) 474 12,923 (10,382) 2,542 1,207 3,749 2,917 832 204 628 (246) 383 11,336 (9,593) 1,743 1,622 3,365 (3,027) 338 593 932 (329) 603 11,199 (9,625) 1,574 749 2,324 (2,618) (294) 92 (202) 66 (136) 9,722 (8,075) 1,647 803 2,450 (2,736) (286) (365) (651) 176 (475) 9,339 (7,274) 2,065 768 2,833 (2,550) 283 (229) 55 (21) 33 30,421 1,106 23,240 201,698 250,199 7,600 2,487 14,678 739 532,168 33,588 618 8,780 168,386 241,852 8,835 2,419 13,513 477,990 32,726 1,133 9,977 180,783 241,608 9,182 2,349 16,829 374 494,961 27,431 1,316 3,845 183,241 235,140 9,393 2,280 15,011 374 478,030 25,589 463 30,321 142,568 242,945 9,693 2,271 9 15,588 374 469,821 21,094 1,140 1,229 140,692 238,393 11,736 2,272 612 12,999 430,167 34,742 2,315 4,598 136,623 250,021 11,578 2,128 471 13,627 456,103 19,973 1,131 58,976 118,020 255,665 6,349 2,226 111 13,100 475,550 4,982 48,303 433,063 7,493 1,194 16,541 511,576 4,341 34,317 391,953 7,495 1,217 18,625 457,947 4,259 36,567 405,832 7,495 1,621 18,962 474,736 4,465 49,834 379,246 7,495 171 18,785 459,996 3,804 54,468 369,790 7,495 16,930 452,488 3,174 59,923 327,064 7,496 16,628 414,285 3,914 52,589 361,105 7,496 15,173 440,277 3,740 115,366 319,779 7,497 12,995 459,377 20,592 20,043 20,225 18,035 17,333 15,883 15,826 16,173 10,119 1,991 6,148 10,119 2,012 5,864 10,119 1,958 5,521 10,119 1,854 5,137 10,119 1,750 4,828 10,119 1,751 4,237 10,119 1,764 4,366 10,119 1,723 4,829 2,334 20,592 2,047 20,043 2,627 20,225 925 18,035 637 17,333 (225) 15,883 (423) 15,826 (498) 16,173 Rs. in million 61 Annual Report 2020
  64. Quarterly Analysis of NIM & PBT Rs. in million NIM & PBT Q2 2,609 Q1 2,542 Q4 2,476 Q1 Q2 Q3 Q4 NIM 2,542 2,609 2,151 2,476 PBT 628 844 493 58 844 Q3 628 2,151 493 58 NIM PBT Rs. in million NIM & PBT Q1 2,065 Q4 1,743 Q2 1647 Q3 1,574 Q1 Q2 Q3 Q4 NIM 2,065 1647 1,574 1,743 PBT 55 (651) (202) 932 932 55 (202) NIM (651) PBT Annual Report 2020 62
  65. Markup and Non-Markup Income Markup and Non-Markup Income Mark-up /return/interest earned Loans and advances Investments Lendings to financial institutions Balances with others banks Securities purchased under resale agreements Mark-up/return/interest expensed Deposits Borrowings Securities sold under repurchase agreements Sub-ordinated loans Lease liability against right-of-use assets Net Markup income Non-markup / interest income Fee and commission income Dividend income Foreign exchange income Income from derivatives Gain / (loss) on securities Other income Rs. in million 2015 2020 2019 2018 2017 2016 25,288 16,509 33 10 1,259 43,099 30,945 9,683 53 55 859 41,595 19,657 10,071 111 20 137 29,997 10,007 10,118 78 4 174 20,381 6,220 8,758 1 20 82 15,081 5,942 9,207 1 9 169 15,328 29,390 1514 28,415 1,804 15,099 705 11,775 401 7,531 318 6,447 400 900 406 33,322 2,811 4,976 1,735 1,504 2,891 1,029 507 34,566 408 21,188 228 14,139 9,353 9,738 9,777 7,028 8,809 6,242 5,728 5,590 3,596 98 1,010 29 1,873 70 6,676 2,860 300 963 47 (711) 484 3,943 2,669 109 671 17 (1,434) 109 2,141 2,124 167 357 94 1,234 75 4,051 1,426 98 313 19 2,965 40 4,861 1,124 85 288 (41) 1,799 35 3,290 1,112 Rs. in million 63 Annual Report 2020
  66. Markup Income 1 ,259 16,509 33 Rs. in million 10 55 859 9,683 43,099 53 41,595 30,945 25,288 Loans and Investments advances Securities Lendings to Balances purchased financial with other under resale institutions banks agreements Total Loans and Investments advances Securities Lendings to Balances purchased financial with other under resale institutions banks agreements Total Non-Markup Income 1,010 98 70 29 6,676 300 47 484 1,873 3,943 963 -711 2,860 3,596 Fee and commission income Gain / (loss) on securities Foreign exchange income Dividend income Other income Income from derivatives Total Annual Report 2020 Fee and commission income 64 Gain / (loss) on securities Foreign exchange income Dividend income Other income Income from derivatives Total
  67. Market Share Information Below is a list of some key factors that can influence the share price of JS Bank Limited . Some of the major factors can include the following: Regulatory / Policy Changes All policy and regulatory level changes that are directly related to the overall environment within banking industry are likely to influence the bank’s stock price. These can include several things such as a change in monetary policy stance of SBP (which directly impacts the yield on investment portfolio of the bank). Furthermore, any change within reserve requirement specifications can also impact the available pool of funds for onward usage as advances and investments by the bank. This can have a positive or negative effect on the overall profitability of the bank which can then lead to changes in stock price. Additionally new policy initiatives by SBP to encourage initiatives such as those geared towards encouraging digital banking, increasing financial inclusion of the country’s population can also affect share price of the bank. Investor and Market Sentiment Stock market within Pakistan is largely sentiment driven. There have been several instances where market returns skyrocketed as a result of increased investor interest at PSX. These trends not only impact the overall market dynamics of the stock market but they can also have a dynamo impact on individual shares including JS Bank stock. Moreover, market dynamics can also change due to new PSX regulations such as those that are pertaining to increasing investor base. For instance, the initiatives of current government to increase interest of expatriates within local market through the Roshan Digital Account framework is an example of one such policy measure which can influence the ongoing market sentiment at PSX thereby affecting individual share prices including JSBL share. Change in Macro Environment The macro-economic environment factors including those that affect the ongoing law and order situation within the country, deviations within the political climate, stability in government policies regarding financial markets can also influence share price movements at PSX. JSBL share is also liable to be driven by these macro level changes both in the short and the long term. 65 Annual Report 2020
  68. Share Price Trend 100 % 100% h Price (Rs. / share) 7.30 ket Price ( Dec 31, 2020)High Price (Rs. / share) 6.30 7.30 3.95 6.30 Price (Rs. / share) Market Price ( Dec 31, 2020) 3.95 Low Price (Rs. / share) 54.1% 54.1% Share Price Sensitivity The share price remained fairly sensitive during the calendar year 2020 with share recording high of Rs. 7.30 and low of Rs.3.95 following the overall market fluctuation within PSX. Liquidity within the share was significant as evidenced by 1.6 million shares being traded on average during the year. Days traded No. of trading days 300 247 Days traded 200 100 0 251 No. of trading days 300 247 251 200 100 1.62M 0 1.62M Description Value % of days traded 98.40 Average volume (shares) 1,623,512 Days traded 247 High Price (Rs. / share) 7.30 Low Price (Rs. / share) 3.95 Annual Report 2020 66
  69. Calendar of Major Events During 2020 Annual Results – 2019 approved by the Board February 27, 2020 Annual General Meeting March 27, 2020 1st Quarter Results – 2020 approved by the Board May 28, 2020 Board Meeting for other Matters June 15, 2020 2nd Quarter Results – 2020 approved by the Board August 26, 2020 3rd Quarter Results – 2020 approved by the Board October 28, 2020 Budget - 2021 approved by the Board December 28, 2020 Corporate Briefing Session December 30, 2020 67 Annual Report 2020
  70. Strategy & Resource Allocation Rationale The central focus of our short and long term strategic objectives has been our customer-centric approach. Utilizing a mix of dedicated service and relationship management, with modern digital solutions, we aim to create a frictionless customer experience across a variety of moments of truth our customers experience with us, every day. At JS Bank, we are also channeling our energy and resources in building a strong network for a sustainable economy. This is achieved by mobilizing pathways for financial literacy, facilitating short and long term operational needs for small entrepreneurs and mid-sized organizations, and extending our branch and payments footprint across Pakistan. As an employer, we understand that our people are our strongest asset. The thousands of dedicated and talented members of our team enable this organization to contribute to the lives of our customers and enhance value for the organization. Strategic Objectives and KPIs Short Term Strategic Objectives Strategy for Meeting Objectives KPIs Adopting a customer-first approach, ensuring continuous process optimization to ensure a high level of customer satisfaction. Adopting a customer-centric approach and minimizing turnaround times for existing processes, while focusing on customer satisfaction. Net Promoter and Customer Satisfaction Scores Developing financial awareness and empowerment through targeted SME lending solutions to maximize impact Developing a strong range of partnerships that help the Bank utilize SBP, Government of Pakistan and other collaboration partners to maximize scale and make a difference to thousands of lives. Percentage of SME Loans to total Advances Establishing a strong and sustainable bank serving a offering consumer, agriculture and renewable energy solutions for retail and medium-sized clients. Diversifying product offering to our valuable customers to meet personal or business requirements through the provision of banking services and financing facilities. Constant research and development on products that can meet gaps in customer needs. Well-diversified and effective product suite Maintaining a robust portfolio risk management utilizing conventional and contemporary tools. Ensuring responsible and prudent expansion in lending through structured onboarding, continuous monitoring and maintaining strong communication with customers. Asset Quality Annual Report 2020 68 Turn-around times Estimated number of lives impacted through SME lending
  71. Long Term Strategic Objectives Strategy for Meeting Objectives KPIs JS Bank aims to develop a user experience that transcends conventional banking norms and embeds deeply within the financial transaction ecosystem of our customers and economy at large . Investment in digitization and agile way of work, to help bring more relevant solutions to customers with minimal times to market. Migration to self-served solutions We aspire to creating an organizational culture which harbors innovation, diversity and drive for economic sustainability, built around the needs of our customers and stakeholders. Encourage gender equality and diversity. Provide opportunities and investing in employees for their career growth. Create a structure that rewards entrepreneurial spirit. Employee Retention JS Bank strives to support environmental, social and good governance initiatives for economic growth, social progress and environmental protection. Promotion of sustainable ventures and community development along with minimizing our carbon footprint. Measuring impact created in terms of carbon footprint, lives impacted and communities supported through interventions. We aim to partner with like-minded organizations & entities in strengthening the economy for all stakeholders, with a vision to build an environment of prosperity, security and economic independence for the people of Pakistan. Building a network of partners across the country to bring value through solutions to our customers, utilizing the benefits of various synergies created between such partnerships. Lives impacted Time to market Customer satisfaction score Employee Satisfaction Wealth creation Economic activity creation Strategy to Overcome Liquidity Gap The Bank’s Current, Savings and Term deposit base indicates a stable and sound liquidity position. The Bank has also a reasonable portfolio of marketable securities that can be realized in the event of stress. The Bank’s Liquidity Coverage Ratio and Net Stable Funding Ratio are well above the regulatory requirement. The Bank has a welldefined Liquidity Contingency Plan for liquidity crisis management, and detail aspect of liquidity risks are discussed under risk management section of the report. CEO presentation video on the organization’s website explaining the business overview, performance, strategy and outlook. Web link: https://jsbl.com/mr-basir-shamsie-president-ceo-js-bank/ 69 Annual Report 2020
  72. Alizey Lateef I am a self taught artist who ’s in her final year of MBBS. Illustration and water colour is the perfect medium for me to highlight the details I appreciate in all things around me. Institute: Ziauddin Medical University
  73. Identification and Mitigation of Risks and Opportunities Credit Risk Measurement : Credit Risk Management function under Risk Management Group identifies, measures, manages, monitors, and mitigates credit risk. Credit Risk is measured and estimated through detailed quantitative financial and qualitative factors analyses, internal and external credit risk ratings including of facility risk ratings, and customers’ behavior analysis. Monitoring: Credit Risk function carries out review of counterparties through credit proposals and the Credit Admin Department (CAD) function performs post disbursement monitoring including security documentation and limits monitoring. Business functions continuously remain in contact with customers for updated information about the clients. Management: The Bank has a diversified loan portfolio spread over public and private sectors with different industries. Credit Risk Function ensures to minimize credit risk associated with borrowers. Risk Management Group has a defined structure with credit approving authorities with Central Credit Committee in place to approve large credit exposures. The Bank is in the process of implementing Loan Originating System (LOS) for automated credit approval process in a paperless environment to optimize the Turn Around Time with effective credit and control polices. To further enhance the credit risk analysis, the Bank has in place Internal Credit Risk Rating (ICRR) model for Obilgor Risk Ratings (ORR) and Facility Risk Ratings (FRR) for corporate, commercial, and small & medium enterprise borrowers. In addition to it, the Bank will implement Risk Based Pricing model to augment the credit decisioning. The Bank has Portfolio Management Committee (PMC) at management level and Board Risk Management Committee (BRMC) at board level for discussions and deliberations on key risk issues on portfolio level. Periodic meetings are conveyed to oversee the risk exposures at portfolio level. Market Risk Measurement: The Bank is exposed to market risk through its trading and other investment activities 71 including derivatives and options. VaR methodologies augmented by sensitivity analyses, notional limits, management action triggers and stop loss triggers at a script and portfolio level, and stress testing are used to capture and report the various aspects of market risk. Monitoring: The Bank has a separate Market Risk Unit under Risk Management Group that ensures market risk limits will not exceed the tolerance levels set by the Board. Assets & Liability Committee (ALCO) is entrusted to monitor the market risk exposures and limits through meetings on a periodic basis. Management: The Bank is following a balanced approach towards risk taking in the market risk area. The robust risk management architecture ensures that the exposures remain within the defined risk appetite. Dashboards for money market and foreign exchange exposures are being presented to manage the limits and exposures within defined levels. Liquidity Risk Measurement: The Bank measures Liquidity Risk as part of its liquidity monitoring activities. The purpose of the liquidity risk assessments and stress tests is to ensure sufficient liquidity for the Bank under normal and stress conditions. Monitoring: In line with SBP’s directives under Liquidity Risk framework and Basel III guidelines, the Bank regularly monitors liquidity monitoring tools along with Net Stable Funding Ratio (NSFR) and Liquidity Coverage Ratio (LCR). The Bank has also in place Early Warning Indicators and Liquidity Risk Analysis tools to trigger any point for management attention. Management: The Bank is following liquidity risk management approach to manage funding sources and intraday liquidity management. The Bank’s deposit base indicates fair liquidity position and Bank’s NSFR and LCR are well above the regulatory requirement. ALCO has the responsibility for liquidity management and contingency funding plan. Underlying policies are approved by the Board in respect of liquidity, investment, and treasury. Annual Report 2020
  74. Operational Risk Measurement : The Bank has a defined Operational Risk Management Policy and framework in place. In line with, the Bank has a database of operational risks/ losses, and Key Risk Indicators (KRI). The Bank analyzes key risks and controls through Risk and Control SelfAssessment (RCSA) exercise covering all critical functions of the Bank. Analysis of operational loss and results of KRIs and RCSAs help the Bank to mitigate risks. Monitoring: The Bank as a practice to present updates on operational risk and loss events on a periodic basis to senior management and relevant board subcommittee. Management: The Bank has an Operational Risk Management unit under Risk Management Group responsible for managing operational risk tools. There is an Operational Risk Management Committee (ORMC) at management level to oversee various operational risk events. The Bank has initiated awareness programs through workshops and training sessions to build and inculcate risk culture across the Bank. Capital Adequacy Risk Measurement: The Bank has a capital base above regulatory limits and Basel requirements and is following the predefined format and criteria mentioned in the Basel II and III guidelines. Monitoring: The Bank assesses current and future capital requirements and ensures that the minimum capital requirements specified by the State Bank are adhered to. Regular assessment of capital enables the Bank to evaluate adequacy of the amount, type and distribution of capital required to cover various risks. Management: The Bank total Capital Adequacy Ratio is above the requirement of 12.50% (including capital conservation buffer of 2.50%). The Bank’s Common Equity Tier-1 (CET1) to total risk weighted assets ratio is also above the requirement of 6%. The Bank maintains a leverage ratio above the regulatory limit of 3.0%. The Bank will continue to retain and accumulate profits to capitalize opportunities in short, medium, and long term. Country Risk Measurement: The Bank’s Country Risk exposure is assessed against the Bank’s cross border trade and treasury activities. Risk Tolerance Limits are set for various countries with different country ratings. Annual Report 2020 Monitoring & Management: Market Risk Unit and ALCO are responsible for regular monitoring of risk exposure. Country Exposure Limits both for Trade and Treasury exposures are in place, which broadly capture direct exposure on sovereigns and foreign domiciled counterparties. Information Security Risk Monitoring & Management: The Bank focuses on providing simplified banking solutions to its customers through innovative technology applications security while protecting the client information from vulnerabilities and threats. The Bank has embedded various controls on the information security and consistently developing more controls. The Bank has developed Information Technology Risk Assessment Framework which enables better management of technology risk, especially information security risks, properly. Regulatory Risk Measurement: The Bank takes into consideration all regulatory risks for effective management of changes in legislature and regulatory requirements that may affect the Bank. Monitoring & Management: Compliance Function of the Bank reviews key regulatory developments to anticipate changes and their potential impact on its performance. The Bank aims to keep continued compliance with regulatory requirements. Opportunities 1. Increasing the Bank’s advances portfolio with focus on agriculture, SME and other segments through special focus on untapped markets and clients, reducing the process time. 2. Sound equity provides the opportunity of exploring new markets to expand the Bank’s business in different products through feasibility studies and market check. 3. Developing new deposit products to strengthen the existing product mix and to take advantage of the growing branchless and digital banking opportunities through automation of various processes and through alliances. External 1. Facilitating non-resident Pakistanis to increase the flow of home remittances through new contracts and foreign agents along with exploring new markets to increase customer base. 72
  75. Sources of Risk and its Assessment The Board of Directors carries out continual assessment of the primary risks the Bank is facing to analyze on an on-going basis , including those that would arise and threaten the businesses and/or Bank’s performance, solvency or liquidity. The Bank looks at the following risks after analyzing the external and internal factors: Factors Source Primary Risks Economic External Credit Risk, the risk of loss to the Bank from its borrowers and counterparties in the event of failure to fulfill their obligations, including of whole or partial settlement of principal, mark-up, collateral and other receivables. External Market Risk, the risk of loss arising from potential unfavorable change in the Bank’s assets and liabilities from market variables including, but not limited to, interest rates, foreign exchange rates, equity prices, commodity prices, spreads, and market volatilities. External/ Internal Liquidity Risk, the risk that the Bank is unable to offset certain positions at market price or the inability of the Bank to convert assets to cash or obtain funding from other sources. External Capital Adequacy, the risk the Bank has an insufficient capital to support its business activities and to meet the regulatory requirements under normal and stressed situations. External/ Internal Operational Risk, the risk of loss to the Bank from inadequate or failed processes, systems, people and / or from external events (e.g; fraud or natural disasters). System / Information Information Security Risk, the riskcomprises the impacts to the Bank and its stakeholders that could occur due to the threats and vulnerabilities associated with the operation and use ofinformationsystems and the environments in which those systems operate. The Bank mitigates such risks through the selection, implementation, maintenance, and continuous monitoring of preventive, detective, and corrective security controls. Political External Country Risk, the risk of likelihood of a country unable to fulfill its obligations towards one or more foreign lenders/ investors. The Bank engages in international lending and having cross border exposure is exposed to country risk. Political stability plays a vital role in country ratings and may negatively impact the economy if rating is downgraded. Regulator External/ Internal Regulatory Risk, the risk of loss arises due to imposition of any penal action against the Bank in the event of failure to meet the regulatory or contractual obligations. The Bank foresees the uncertainty in respect of implementation of IFRS-9, which may adversely impact the financial position. Social External/ Internal Reputation Risk, the risk to the earnings and capital arising from negative perception among the stakeholders. This may have an impact on customer base the Bank’s ability to capture new markets. 73 Annual Report 2020
  76. Risk Management Framework The Bank has a well-defined Risk Management Framework that governs the risk management structure to ensure that the Bank is continuously evaluating and monitoring the associated risks and ensuring the mitigating controls . The Bank always remain committed to ensure appropriate balance between risk and reward throughout the Bank. The following structure is being followed in the Bank; Risk Governance Structure • Board of Directors • Board Risk Management Committee • Integrated Risk Management Committee • Management Committees for Risks; including Portfolio Management Committee, ALCO, Operational Risk Management Committee, Remedial Management Committee and ITSC to review IS related matters. • Risk Management Function under the CRO, which broadly covers Credit Risk Heads including Agri Risk, Market & Basel, Enterprise Risk Management Operational and Environmental Risk, Consumer Risk, Credit Administration, Information Security, Special Assets Management and Strategic Projects and Quantitative Analysis. The Bank has a well-structured risk management framework which is based on three lines of defense; Business and support functions directly involved in risk taking activities constitute the first line of defense, Risk and Compliance, being the second line of defense, are responsible for ensuring policies, procedures and limits are within strategic objectives and regulatory requirements, and audit function plays an independent part for over sighting as the third line of defense. Sensitivity Analysis Due to Foreign Currency Fluctuations The regional currency trends for the start of the year 2020 showed downward pressure as the COVID-19 took hold and Pak rupee followed course as per SBP avowed goal to let market determine exchange rate. Following the challenging situation in the aftermath of pandemic, the rupee showed volatility and traded in a wide band of 154-168 but since the rebound in economic activity and relative success in dealing with COVID, after reaching a low of 168 in August 2020, we have seen a steady appreciation in Pak Rupee to 159.83 by the end of year. To combat the negative impact of COVID related lockdowns, SBP also reduced SCR requirements to enhance economic activity. The market has subsequently settled around the 160 level. The astute management of our dealings in foreign currency has ensured no volatility in our earnings. The risk appetite of our bank is determined by the Board and monitored by the risk team. The treasury team proactively manages day to day liquidity, net open positions and Foreign Exchange Exposure Limits (FEEL) of the Bank. The risk management team ensures adherence to Liquidity Coverage Ratio (LCR) and Net Stability Fund Ratio (NSFR) as per SBP guidelines. The bank ensures full implementation of BASEL III liquidity standards and liquidity ratios. Information about default in payment of any debts and reasons thereof There were no default in the payment of any borrowing/ debt during the year. Bank has sufficient liquidity to fulfill all its commitments. Inadequacy in the capital structure and plans to address such inadequacy The Bank is not facing any kind of inadequacy in the capital structure and has capital adequacy over and above the regulatory requirement. Annual Report 2020 74
  77. Ahwar Nasir I am a 19 year old aspiring artist who paints to make herself and others happy . Painting to me is to communicate love. Institute: Indus Valley School of Art and Architecture
  78. Corporate Governance Role & Responsibilities of the Board Role, responsibilities, prohibitions and restrictions relevant to the directors of JS Bank Limited, as contained in the existing laws and regulations have been prepared and approved by the Board as Directors’ Handbook. The Board is responsible for formulating broad goals and strategies for the Bank. It is also responsible to define and determine policies of the Bank regarding the execution of its functions and approve internal rules for their implementation. The formulation of clear objectives and policies supplies a framework for the management to work within defined parameters. The Board also helps to set priorities for the Bank. One of the key functions of the Board is to monitor the performance of senior management and its function. The Board establishes its sub-committees to discharge its responsibilities. For each sub-committee, the Board adopts a formal Terms of Reference (ToRs) setting out the matters relevant to the composition, roles, functions, responsibilities and administration of such committees. All Board sub-committee meetings are held sufficient number of times in a year to discharge its duties. The Board presently has the following sub-committees: 1. Board Audit Committee 2. Board Risk Management Committee 3. Board Human Resource, Remuneration and Nomination Committee 4. Board Information Technology Committee All the Board sub-committees have access to the appropriate external and professional advice if needed to assist the committee in fulfilling its role. Annual Evaluation of the Board’s Performance The Board of Directors of JS Bank sets the Bank’s strategic direction and ensures that the organization stays true to this direction - enabling it to achieve its long-term objectives while ensuring regulatory compliance. To discharge its fiduciary responsibility of safeguarding the stakeholders’ interests, a formal and effective mechanism is put in place for an annual Annual Report 2020 evaluation of the Board’s own performance, members of the Board and of its sub-committees as required by the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan. The Board of Directors of JS Bank is enriched with skills, core competencies, diversity, experience and knowledge and at the same time committed to strong corporate governance to protect the overall interests of the Bank and its stakeholders. The Board continually reviews the Bank’s financial and operational soundness, governance, internal controls and significant policies as per regulatory requirements. Further, Sub-Committees were constituted with a prescribed mandate and respective terms of reference. In line with the best practices of the corporate governance the Board has conducted self-evaluation exercise on an annual basis by engaging Pakistan Institute of Corporate Governance (PICG) as an external facilitator which is the lead on Corporate Governance and has a team of qualified consultants to conduct board evaluations for companies and banks. The Board of JS Bank in compliance with the SBP’s Guidelines on Performance Evaluation of Board of Directors and Listed Companied (Code of Corporate Governance) Regulation, 2019 has conducted its selfevaluation for the year 2020 by engaging PICG. The evaluation covered various aspects of the performance of the Board including but not limited to: Board Composition. Strategic Planning, Control Environment, Committees, CEO & Chairman etc. The evaluation was carried out using quantitative method, based on subjective assessment and was conducted via questionnaires developed by the consultants. The quantitative technique has the advantage of being specific and measurable. Measurement scale used in the Bank’s board evaluation is the summated rating depending on how strongly they agree or disagree with a given statement. The use of this method ensures specific and measurable data that can be benchmarked over time. External Consultant’s Board Performance Evaluation The State Bank of Pakistan (SBP), through BPRD 76
  79. circular no . 11 of 2016 dated August 22, 2016, has mandated that the Board of every bank, must carry out a formal annual performance evaluation of the Board, its Committees, and individual directors. The circular also required performance evaluation to be carried out by an external independent evaluator at least once in every three years. During the year, Pakistan Institute of Corporate Governance carried out performance evaluation of the Board, its Committee and the Directors. Directors Orientation Courses The Board Members are regularly provided with update on new applicable laws, rules and regulations including amendments thereto to apprise them with their powers, duties and responsibilities. At the time of induction of any new director, he/she is provided with the detailed written material in the shape of extracts from relevant laws, rules & regulations on Role, Obligations, Powers and Responsibilities of the Board of Directors. Directors’ Training The members of the Board are fully conversant with their duties and responsibilities as directors of the Bank. Out of nine directors, six directors have completed Director’s Training Program and two directors of the Bank are exempted from the requirement of Directors’ Training Program, as per the Listed Companies (Code of Corporate Governance) Regulations, 2019. The Bank has effective system to carry out orientation for its directors to acquaint them with the Code, applicable laws and their duties and responsibilities to enable them to effectively govern the affairs of the Bank for and on behalf of shareholders. Directors’ Remuneration Policy The Bank has a formal Directors’ Remuneration Policy for non-executive directors including independent directors, which has been approved by the shareholders. The remuneration of directors is fixed in accordance with the applicable laws. The remuneration for attending meetings of the Board and/or Board Committees is within the scale as is reasonably determined by the Board of Directors, provided that 77 Executive Director shall not be paid any remuneration for attending Board or its sub Committees meetings. Security Clearance of Foreign Director In accordance with the regulatory requirements clearance of foreign director(s) is being obtained from the Interior Ministry, Government of Pakistan. Governance Practices Exceeding Legal Requirements JS Bank’s Board always considers and ensures meticulous compliance of applicable laws, rules and regulations. The Board never encourages any sort of noncompliance and considers it as reputational risk. Board’s Policy on Diversity and Inclusion We have approved policy to ensure fair representation of females in the workforce and to provide a nurturing and enabling environment to all genders with equal opportunity to contribute and grow within the organization. To achieve this objective the Bank has formulated and implemented following policy; • All Bank job advertisements that can be applicable to all genders will carry the statement, “We are an equal opportunity employer.” • The language of the advertisement will be gender sensitive. • Position profiles will be developed to ensure gender concerns are built in. • Interviews will be conducted in a gender sensitive manner. • There shall be no gender discrimination on positions, promotions, or salary levels, except for those positions where a particular gender is necessary because of the nature of the job. • No harassment of any sort will be tolerated, and any such incidents reported will be handled through the Head Office in consultation with the Human Resources Department. • Commitment of senior management to gender sensitivity issues will be ensured through training, workshops and seminars. • Reporting will be done of the total number of female employees and those who are in senior management positions. Annual Report 2020
  80. • Development/mentoring programs for the professional development of female employees will be introduced. • Opportunities will be explored to directly address some of the new and emerging issues for female employees. The Bank strongly believes that a diverse and inclusive workplace can earn deeper trust and more commitment from its people. Our emphasis is more on making the numbers count than counting numbers by respecting the unique needs, perspectives, and potential of the teams. The Bank has embarked on a three-year journey to keep up to its commitment for building a diverse and inclusive organization. This includes multiple initiatives ranging from policy review for inclusiveness, talent attraction and retention targets for leadership team, building organization standing against Global Diversity and Inclusion Benchmarks (GDIB) and concrete measures for communicating organization’s commitment to D&I through educational sensitization sessions. In consideration of the Bank’s commitment to build an inclusive organization, an exclusive and elaborate program has been kicked off. This starts from an internship program for persons with disabilities (PWDs) which will include infrastructure readiness, sensitization sessions, building recruitment and retention capabilities that also ensure compliance with Govt. Laws and Regulations and industry benchmarks. No. of Companies in which the Executive Director is serving as Non-Executive Director President & CEO, the Executive Director is not serving as director in any other company. Board Meetings Outside Pakistan Board meetings were not held outside Pakistan during the year. Policy Disclosure for Conflict of Interest The Bank has an effective system in place to deal with conflicts of interest relating to the Board members. Under this mechanism, any director who has a business or other interest in a matter being presented at a Board meeting does not participate in neither the Annual Report 2020 discussion nor the decision on that matter. The procedure to handle conflict of interest in the Board meetings is followed strictly and no breach was occurred during the year. Investors’ Grievance Policy The Bank had strived for a better understanding and committed to provide its customers/investors with the highest level of service quality and satisfaction and has therefore set-up an independent Service Quality function that manages service quality, phone banking, problem resolution, quality assurance and the fair treatment of customers. As per SBP Consumer Grievances Handling Mechanism the Bank holds surveys aiming to measure its customer’s satisfaction with regard to grievance handling mechanism in place at their end. This is done at least once in two years and the report thereof is to the Board and SBP. Remedial steps are taken to address the defective service areas. Our focus is to maintain fairness in our customer dealings, clarity in communication, develop a service culture and design an effective grievance handling mechanism. We also focus on financial literacy of our customers, for promoting responsible conduct and informed financial decisions by consumers, through our Consumer Education and Financial Literacy Program. To create enhanced visibility of its complaint handling function, the Bank has incorporated awareness messages in several customer’s communications such as account statements, ATM screens, and letters sent to the customers. For increased accessibility of the recourse mechanism for the customers, the Bank has made the information available on social media and has send SMS messages and E-Shots to its customers every quarter. Records Safety Policy Safe keeping and retention of official documents is imperative to make records readily available as and when required. The Bank’s record retention / destruction policy is in accordance with all the stipulated and applicable laws and for as long as they are required in the conduct of the Bank’s business while complying with the regulatory requirements. 78
  81. Dedicated department is responsible for maintenance of records in form of hard copies at a data storage warehouse built on international standards . Internal policies on how the data is maintained and retrieved is aligned with the guidelines set by the State Bank of Pakistan, The Securities and Exchange Commission of Pakistan, and any other applicable regulatory authority. The Bank aims to comply with the regulations of State Bank of Pakistan and other regulatory bodies to align its policies for retaining records. Un-necessary records for which the retention period has expired are destroyed as per each department’s respective guidelines. Role & Responsibilities of the Chairman The Chairman of the Board of Directors is responsible for leadership of the Board of Directors and for ensuring that the Board plays an effective role in fulfilling its responsibilities. The Chairman’s role entails the following: • • • • • Preside as the chairman at general meetings of the Bank Set the agenda of the Board meetings and ensure that reasonable time is available for discussion of the same Ensure that minutes of the meetings truly reflect what transpired during the meeting. Ensure that the minutes of the meetings are kept in accordance with the requirements of the law Ensure that the Board discharges its role effectively and swiftly in line with the regulatory requirements. 79 Role & Responsibilities of the President & CEO The President & CEO’s role constitutes an absolutely engaged position, demanding complete involvement and shepherding of the organization. The role entails the following: • • • • • • Ensure execution of the strategy approved by the Board. Effectively allocate and manage organizational resources and budgets to ensure achievement of short and mid-term objectives that contribute to the achievement of the long-term strategic goals. Establish a system of checks and controls to supplement the growth of the Bank. Provide liaison between the Board and the Bank’s Management to ensure placement of managerial efforts with Board’s directives. Encourage a culture of professionalism and high ethical standards within the Bank. Facilitate an organizational culture of development of innovative products and services to meet the growing needs of a diverse range of customers. Name of external search consultancy that has been used in the appointment of the Chairman or a nonExecutive Director No external search consultancy has been used in the appointment of the chairman or a Non- Executive Director. Annual Report 2020
  82. Management Committees Annual Report 2020 80
  83. Muhammad Kamran I believe art is something which cannot be verbally explained but only felt and expressed in your paintings . since art has no boundaries and totally depends upon one’s creativeness. Institute: FAST University
  84. Salient Features of Board Committees ’ TOR Board Audit Committee (BAC) The Audit Committee shall review the effectiveness of the Bank’s internal control and operational controls, integrity and adequacy of financial reporting and appraise the audit efforts of the Bank’s external auditors and internal audit function (IAF); and review the Bank’s process for monitoring compliance with relevant laws and regulations. recommendations implemented. have been effectively • Review action taken by Business and Support Groups for implementation of Audit Committee observations on issues deliberated in Committee meetings. • The BAC shall formulate and document ‘Key Performance Indicators’ (KPIs) for CIA and evaluate his/her performance against the set KPIs on annual basis. • Consider and recommend to the Board regarding promotions, increments and rewards for Chief Internal Auditor (CIA). • Monitoring compliance with the best practices of corporate governance and identification of significant violations thereof. • Consideration of any issue or matter as may be assigned by the Board of Directors. • Report to the Board any significant matter(s) identified by the IAF / External Auditors that warrant Board’s immediate attention. • The BAC shall ensure independence of any investigations/disciplinary actions against CIA and Internal Auditors. • Review of BAC performance on annual basis against the defined roles & responsibilities. • • Ascertaining that the internal control system including financial and operational controls, accounting system and reporting structure are adequate and effective. Review quarterly, half-yearly and annual financial statements of the Bank, prior to their approval by the Board of Directors and any announcements to be made in the public domain with regard to these accounts. • The committee shall review the Related Party transactions and recommend the same for review and approval by the Board of Directors. • Consider annual review report on the Bank’s Internal Controls over Financial Reporting (ICFR) for effectiveness and efficiency of Financial Reporting. • Recommend to the Board of Directors the appointment of External Auditors and consider any questions of their resignation or removal, audit fees and provision of other services in addition to audit of financial statements. • Determination of appropriate measures to safeguard the Bank’s assets. • Determination of compliance with relevant statutory requirements. • Review the Bank’s statement on internal controls prior to endorsement by the Board of Directors. • Consider and approve the Internal Audit Charter. • Review and approve Risk Based Annual Audit Plan. • Review scope and adequacy of IAF and ensure that IAF has adequate resources and is appropriately placed within the Bank. • • The BAC shall ensure that IAF remains equipped with the necessary financial, human, operational, physical, and technological resources to carry out its mandated responsibilities. Discuss with External Auditors, major observations arising from interim and final audits and any matter that the auditors may wish to highlight (in the absence of management, where necessary). • Review major findings of special reviews, internal and external frauds, internal control deficiencies and significant audit issues, and ensure audit Review the Management Letter issued by the External Auditors and Management’s response thereto. • Ensure coordination between the Internal and External Auditors of the Bank. • Annual Report 2020 82
  85. • • Compliance Department shall periodically, on quarterly basis, report to the Board Audit Committee on the Bank’s management of its compliance risk and identified gaps, in such a manner as to assist the Committee to make an informed judgment on whether the Bank is managing its compliance risk effectively. Compliance Risk to include risks emanating from Money Laundering (ML) / Terrorist Financing (TF), AML/CFT obligations and its allied elements. the Bank and incorporate necessary risk adjustments. Audit Committee is a committee of Board of Directors of JS Bank Ltd from which it derives its authority and to which it regularly reports. In discharging its oversight role, the Committee is empowered to investigate any matter brought to its attention, with full power to retain outside counsel or other experts for this purpose. Board Human Resource Remuneration & Nomination Committee (BHRRNC) • Recommending Human Resource management policies to the Board • Review and recommend to the Board selection, evaluation, compensation, increments, performance bonuses, succession planning, fringe benefits including service end benefits of the Executive Directors, CEO, Key Executives and any other employee or group of employees institution wide (as required by the Board). • Consideration and approval on recommendation of CEO on such matters for key management positions who report directly to the Chief Executive Officer or Chief Operating Officer or Deputy Chief Executive Officer. • The Committee shall assess whether the remuneration policy is aligned with the significant regulatory requirements including Guidelines on Remuneration Practices issued by the State Bank of Pakistan (SBP). The review may focus on the following: ‚‚ Major types of risks and how these are taken into account for determination of risk adjusted compensation. ‚‚ Separate structures of remuneration for MRTs and MRCs. ‚‚ Review of scorecards for MRTs and MRCs and their performance evaluation mechanisms. ‚‚ Criteria for determining the variable portion of remuneration to be deferred, the period of deferral for different types and levels of employees identified as MRTs or MRCs and payout structure of deferred remuneration. ‚‚ Ensure that institution wide remuneration policy should take into account all cadres of employees. The remuneration policy should specifically take into account the pay-gap between the highest paid and the lowest paid employees, across various levels as well as across the organization. • Review the Bank-wide program for implementation of Guidelines on Remuneration Practices, including necessary awareness and change management initiatives, review, progress against roadmap for onward reporting to State Bank of Pakistan (SBP). • Review the remuneration policy and remuneration setting mechanism at least once every three years. Amongst other factors, the review of remuneration framework may include but not limited to the effectiveness of remuneration policy and mechanism. • Review and obtain approval for fixed and variable compensation pools from the Board of Directors. • Approve development of a fund for deferred compensation pool management and monitoring progress there against. ‚‚ Criteria for identification of personnel who may subject the Bank to significant risks i.e. Material Risk Takers (MRTs) and Material Risk Controllers (MRCs). • Role of BHRRNC in facilitating enablement of Internal Audit and Compliance role in implementation reviews, as per Guidelines on Remuneration Practices. ‚‚ Remuneration principles including concept of fixed and variable remuneration, risk adjusted balanced scorecard mechanism to ensure alignment of remuneration with longterm and short-term business objectives of • Receive and consider information from the Bank’s risk management, compliance and internal audit functions, to assess the appropriateness of the compensation system relative to the organizational goals and risk profile of the Bank. 83 Annual Report 2020
  86. • Grievance handling & Disciplinary Action Policy • Guidance for performance management, annual increment and employee recognition programs. • Monitoring the utilization of training and development budget, and implementation of approved training and development policy. • Review and approval of Provident Fund, Gratuity Fund policies and any other separation benefits or schemes. • Those matters wherein ratification/ approval of the Board will be required, the Secretary BHRRNC with the approval of its Chairman shall forward Memoranda to the Company Secretary for placing before the Board of Directors. Board Risk Management Committee (BRMC) The BRMC shall review and recommend the establishment of and revision to the bank’s risk governance framework and oversee its implementation by senior management. The BRMC may also constitute different sub-committees to facilitate in difference areas. • Ensure implementation of all Risk Management Policies approved by the Board and subsequent monitoring thereof and periodically oversee updating of the risk policies (if the same have not already been approved / reviewed by the BOD) based on changing business requirements as well as SBP guidelines. • Portfolio Reviews including NPLs, remedial actions and strategy for the same. • To approve / review list of shares and margins to be accepted as collateral for Financing against Shares (FAS). Also to approve / ratify any exceptions to existing FAS requirements as laid down in Credit Policy of the Bank. • Delegation of powers to the President / CEO & Group Head Risk Management to appoint credit officers, based on their experience and ability to understand associated risks while approving the credits; • Review any other risk related matters / regulatory changes that warrant discussion at the committee. Board Information Technology Committee (BITC) The Board IT Committee shall be mainly responsible for advising and reporting to the Board on the status of technology related activities, major IT projects and digital initiatives within JS Bank including but not limited to the following: • To review IT and Digital strategies and relevant policies before submission to the Board and make recommendations for strategic decisions on IT related matters. • To review progress and implementation of the IT Strategic Plan and deliberate changes to it, as and when required. • To ensure the alignment of IT strategy with business strategy, optimization of resources, value delivery and performance measurement to achieve business objectives and effective technology risk management. • To ensure that risk management strategies are designed and implemented which have the capability to respond to wide-scale disruptions, including cyber-attacks and attacks on multiple critical infrastructure sectors • To review progress and implementation of various IT projects • To make recommendations on major IT investment decisions and ensure that investments are aligned with IT Strategy approved by the Board. • Approve/review Sector / Industry Concentration guidelines for the overall credit portfolio of the Bank. • • To approve / ratify credit bulletins issued by RMG from time to time for effective implementation of Credit Policy / Risk Management Framework. To review and approve cloud-based outsourcing arrangements in line with the policy approved by the Board of Directors. • To review and approve TORs of IT Steering Committee. • To ratify any other urgent matter which has been approved by the management subject to subsequent ratification by the Committee. • Review the Market / Liquidity limits as recommended by ALCO / IRMC / CCC as when required. Annual Report 2020 84
  87. IT Governance IT Governance Policy Technology governance is an integral part of Bank ’s corporate governance framework consisting of the leadership and organizational structures to ensure the alignment of IT strategy with business strategy, optimization of resources, value delivery and performance measurement to achieve business objectives and effective technology risk management. It is now recognized that technology plays a pivotal role in improving corporate governance and in this context, the need to govern technology and technology enabled business developments to have never been so greater. A comprehensive enterprise technology governance framework based on prudent practices can help bank in better development of innovative products and services by enabling them to manage technology issues and identify, measure, mitigate, monitor and report technology-based risks and threats. The 85 underlying principle for an enterprise technology governance framework is that technology requirements of an institution follow a pre-defined process that begins with a business need and ends with a technology solution that conforms to the policies approved by the board of directors and senior management. As such, technology governance is an ongoing activity that shall not be considered a onetime effort in the fast-changing technology environment. The purpose of the technology governance framework is to evaluate the current and future use of technology, direct the preparation and implementation of plans and policies to ensure that use of technology meets business objectives and monitor compliance to policies and performance against the plans. The basic principles of strategic alignment of IT and the business, value delivery to businesses, risk management, resource management Annual Report 2020
  88. (including project management) and performance management shall form the basis of this technology governance framework. Technology governance framework shall be closely aligned with Bank’s corporate governance framework and shall cover, among other things, policies and procedures to provide oversight and transparency in the use of technology. Bank is encouraged to adopt relevant aspects of international standards/best practices for effective and efficient enterprise technology governance. Scope Technology governance aims at fully aligning technology and business strategies with each other so that technology risks are identified and controlled as part of the enterprise risk management process. It spans the culture, organizational policies and procedures which provide oversight and transparency to optimize the costs and enable trust, teamwork and confidence in the use of technology itself and the people trusted with technology services. Therefore, the processes for technology governance need to be integrated with the bank’overall corporate governance framework. The evolving role of technology and automation in the banking services sector has become increasingly complex. Bank employs the advances in technology which drives the efficiency of operations and financial soundness of these institutions by improving overall decision-making process. As technology becomes an integral part of the business and operations of financial institutions, such technology usage and dependence, if not properly managed, may heighten various risks. Bank has developed this policy aimed to enable themselves to keep abreast with the aggressive and widespread adoption of technology. An IT governance framework comprises definitions, principles and a model for governing IT. The board should govern IT through two main tasks: a) Evaluate the current and future use of IT, including strategies, proposals and other arrangements (internal, external, or both). Annual Report 2020 b) Monitor the performance of IT against plans and business objectives; and, that the use of IT conforms to internal policies and conforms to external obligations (regulatory, legislation, common law, contractual). This Policy suggests guidelines for defining the roles and responsibilities pertaining to Information Technology throughout the bank. A comprehensive IT Governance Framework shall enable bank to evaluate the current and future use of IT, direct the preparation and implementation of plans and policies to ensure that use of IT meets business objectives and monitor conformance to policies, and performance against the plans. IT Governance framework entails an IT strategy, organizational structures, roles of the board and senior management and IT policy framework. Broadly an enterprise IT Governance Framework of the bank shall aim to achieve the following institutional objectives: Strategic Alignment – Alignment of the strategic direction of IT with the business with respect to services & projects and verifying strategic compliance, i.e. achievement of organizational objectives through strategic IT objectives. Benefit Realization (Value Delivery) – Ensuring that IT delivers the promised benefits against the strategy, concentrating on optimizing costs & proving the intrinsic value of IT. Bank’s IT processes with IT portfolio management shall provide effective and efficient delivery of the IT components of programs and early warning of any deviations from plan, including cost, schedule or functionality that may impact the expected outcomes of the programs. It shall be ensured that the expected business outcomes of technology based investments are understood; that comprehensive and aligned business cases are created and approved by stakeholders; with active management of the benefit realization; and efforts required in objectives are achieved. 86
  89. IT Risk Management Ensuring that processes are in place and effective to assess , manage and monitor the associated risks in IT investments, developments and operations. Bank ensure that the IT risks do not exceed the enterprise risk appetite. Resource Optimization – Ensuring that there is an adequate IT capability and infrastructure assessment to support current and expected future business requirements. Performance Management - Reviewing the measurement of IT performance and the contribution of IT to the business (i.e. delivery of promised business value). Adequate Policies Framework and its independent assurance – ensure that the appropriate policy controls are in place and the processes are standardized and documented. Independent assurance (internal or external) should be acquired about the conformance of IT with relevant laws and regulations, bank’s policies, standards and procedures and relevant accepted practices. To ensure that information technology is properly governed and aligned with business objective, all the bank associates must understand and comply with the responsibilities identified in this document when their duties entail one or more of the roles described below. The Technology Policy is strategized under following FOUR (4) sections. Planning the IT Environment Policies related to this section ensure that the IT Plans are properly aligned with the business goals, objective and Strategies. to enable the bank to meet its changing business requirements. Enterprise Technology Operations This section provides maintenance standards for the operation of the IT Environment while ensuring the availability, confidentiality and integrity of information systems to meet the business requirements. Organizing and Monitoring the IT Processes Policies pertaining to this section helps managing the above three sections. Project Management Effective project management manages the possibility of loss resulting from inadequate processes, personnel or systems. Losses can result from errors, fraud or an inability to deliver products or services, maintain a competitive position or manage information. The purpose of this policy is to define a methodology for Management of all technology Projects in the bank’s IT Department. The Bank has established Project Management Office (PMO) which works closely with-it project management function, as the key strategic partner to achieve organizational benefits and is charged for delivering continuous incremental improvement in projects and programs success delivery. Independent Audit To increase confidence level in the business systems, benefit from global best practices and have an unbiased review of the information technology setup of bank, an independent IT audit is essential. This allows management to take proactive measures for safeguarding the information assets of the bank in view of the emerging threats and to exploit the opportunities as they present themselves. Developing and Delivering IT Solutions Acquire develop, deliver and maintain new or enhanced business solutions involving IT architecture 87 Annual Report 2020
  90. Ahwar Nasir I am a 19 year old aspiring artist who paints to make herself and others happy . Painting to me is to communicate love. Institute: Indus Valley School of Art and Architecture
  91. Human Resources Management Policy At JS Bank , we understand that the right talent is crucial to succeed in today’s hyper-competitive and increasingly complex global economy. Hence along with understanding the need to hire, develop, and retain talented people, we understand that we must manage talent as a critical resource to achieve the best possible results. From day one, we went with the Talent First Approach, where we put our people at the center of all aspects of business infrastructure: its digital and physical spaces, processes, and culture. Our latest Talent Management Framework is a testimony of this, genuinely increasing the talent pool’s efficiency levels, expanding the retention rate, and attracting potential leaders. We believe in developing talent selflessly and believe that everyone has the potential to grow and develop into indispensable talent if provided the right tools and resources. Hence here at JS Bank, we see a distinctive talent pipeline, precise talent gap analyses and talent development roadmaps as the core of our talent management philosophy. If we spell-out what our Talent Management Framework, job rotation, secondment, succession planning and 360-degree feedback would be the few among the whole lot. We are also adding some specialized tools like Workforce Planning, Talent Development Journeys, and Rapid Talent Audit in our system to match the organization’s contemporary talent needs. Last year we went further ahead and executed an unparalleled five-step succession planning scheme for the most critical leadership positions. Not only this, we engaged our MANCOM as well through international leadership development and coaching program, making sure that real challenges at every level of the organization are addressed through the right interventions. Moving forward in the year 2021, we are not only aiming to launch a succession planning scheme across second leadership tier and build an internal talent pipeline, we are also striving to launch performance accelerators, leadership huddles, learning clubs and innovation labs. On the strategy front, teams are busy developing EVPs, forward-focused learning paths and a prudent employer branding strategy. Through each action, we ensure that the organization moves towards sustained growth in the years to come. 89 Remuneration Policy The Bank’s remuneration framework aims to comply with the revised guidelines on remuneration practices issued by State Bank of Pakistan. All compensation matters, and overall compliance with regulatory requirements, are overseen by the Board Human Resource Remuneration & Nomination Committee (BHRRNC) and approved by the Board of Directors thereafter. Staff Remuneration Strategy The Bank’s basic compensation philosophy is to provide a competitive level of total compensation to attract and retain qualified and competent employees who are committed to maintaining a career with the Bank, and who will perform their role in the long-term interests of the Bank. The Bank’s variable remuneration policy is driven primarily by a performance-based culture that aligns employee interests with those of the Bank’s shareholders. These elements support the achievement of the Bank’s objectives, through balancing rewards for both short-term results and long-term sustainable performance. The Bank’s reward package on cash awards is comprised of the following key elements: 1. Fixed pay; 2. Benefits; and 3. Annual performance bonus (variable remuneration). The Bank’s remuneration policy, in particular, considers the role of each employee and sets guidance on whether an employee is a “Material Risk Taker (MRT)” and/or a “Material Risk Controller (MRC)” in a business line, control or support function. An employee is considered as Material Risk Taker if he/ she has authority and is a decision maker having appropriate level of power and control related to the products, portfolios, transactions and processes, which may pose serious risks to the Bank. Whereas, an employee is considered Material Risk Controller (MRC) who is primarily tasked with reviewing and assessing the idiosyncratic and systemic risks, and controls pertaining to functions and processes, to determine and recommend the ways to mitigate those risks, and to minimize the probability of occurrence of loss to Annual Report 2020
  92. the Bank . These employees are not directly involved in business or risk-taking activities of the Bank. The Bank uses Risk Adjusted Balanced Scorecard to measure the performance of MRTs and MRCs. Variable Remuneration Variable remuneration is performance related and consists of annual performance bonus award which is connected to achievement of operational and financial targets set out at beginning of the year and employees’ contribution to delivering the Bank’s strategic objectives. In the framework adopted for determining the variable remuneration pool, the BHRRNC aims to balance the distribution of the Bank’s profits between shareholders and employees. Key performance metrics in Risk adjusted Balanced Scorecard at the Bank level include a combination of short-term and long-term measures, and include profitability, solvency, liquidity and growth indicators. The performance management process ensures that all goals are appropriately cascaded down to respective business units and employees. The Bank uses a formalized and transparent process to adjust the bonus pool for quality of earnings. It is the Bank’s objective to pay bonuses out of realized and sustainable profits. If the quality of earnings is not strong, the profit base may be adjusted at the discretion of the BHRRNC. Employees Remuneration for MRTs The compensation mix for MRTs is appropriately balanced and the amount of fixed remuneration is sufficiently high in order to ensure that the reduction of the variable remuneration down to zero would be possible. Further, the variable remuneration of MRTs will be compensated on achieving the pre-determined qualitative and quantitative objectives considering the risk-adjusted performance and long-term health of the bank. The qualitative factors may override the achievements of quantitative factors in order to discourage undue/ excessive risk taking. Remuneration for MRCs The remuneration level of staff in the control and support functions/ MRCs allows the bank to employ qualified and experienced personnel in these functions. The Bank ensures that the mix of fixed and variable remuneration for control and support function personnel is weighted in favor of fixed remuneration. The variable remuneration of control functions is to be based on function-specific objectives and is not determined by the financial performance of the business areas they monitor. This compensation structure is designed to ensure that objectivity and independence of these functions is not compromised. Deferral of variable remuneration The variable compensation of all MRTs, MRCs, and in case of Bahrain operations, approved persons (APs) is subject to mandatory deferrals and malus/ claw back in accordance with the below table Element of Variable Pay Constitution Vesting Period Malus Claw Back MRTs Upfront cash 70% Immediate - No MRTs Deferred cash 30% 3 Years Yes No MRCs Upfront cash 75% Immediate - No MRCs Deferred cash 25% 3 Years Yes No MRTs and APs (Bahrain)* Upfront cash 40% Immediate - No MRTs and APs (Bahrain)* Deferred cash 60% 3 Years Yes Yes * MRTs and approved persons earning over BHD 100,000 in total compensation. Annual Report 2020 90
  93. Deferred variable remuneration is paid proportionately over the three years , even if the person is no more employee of the Bank (subject to the malus provisions). Malus and Claw back The Bank has devised malus and claw back provisions in the relevant policies that allows forfeiture / adjustment of paid variable remuneration in certain adverse business situations. Any decision to hold or claw back individual’s award can only be made by the BHRRNC of the Bank as per events set out in detail in the Bank’s remuneration framework and accountability framework. operations and support unit which enables the entity to plan and develop the relevant backup sites, determine financial resource, manpower, critical documents and system resource commitments. The core objective of the plan is to ensure that the Bank is prepared to effectively respond to business interruptions by developing a recovery plan which ensures the safety of employees, assets and continuity of business functions in the event of disaster or crisis. Effective business continuity planning is an integral part of the Bank’s daily business activities. Whistle Blowing Policy Disclosure of Whistle blowing policy was established to receive, handle complaints in a fair and transparent manner and providing protection to the complainant against victimization, and disclosure of the number of such incidences reported to the Audit Committee during the year. HR has clear Disciplinary Procedure policy according to which Disciplinary Action Committee explicitly handles all complaints in a fair and transparent manner via a standard process to remove all kinds of biasness and ensure victims and witness’s protection. This is also supported by Grievance Redressal and Harassment at Workplace policies. Business Continuity Plan The Bank has a Board of Directors’ approved Business Continuity Planning Policy ensuring the clear plan is available and maintained for all critical functions of the Bank. Regular periodic testing of BCP has given a confidence to the management that business will continue to work in the event of any disruption occurs. The Business Continuity Plan (BPC) for the Bank aims to enable it to continue offering critical services in the event of a disruption and to survive a disastrous interruption to their information systems. The main objective of developing a BC Policy and BCP is to ensure “Business Continuity (BC)” at all times by preempting or avoiding a crisis and/or managing it in such a manner that it causes the least amount of damage/disruption. JSBL is committed to ensuring the continuity of its critical business and support functions. The BCP helps the Bank in understanding the criticality of entity’s operations and processes under each business, 91 Annual Report 2020
  94. Sustainability and Corporate Social Responsibility JS Bank remains committed to partnering with industry and other stakeholders to find innovative solutions that open opportunities for economically , socially, and environmentally sustainable solutions. We do this by dedicating a significant number of resources to contribute to the wellbeing of society. JS Bank creates value by contributing to sustainable development and responsible business within our spheres of operation. Some of our key on-going initiatives and past projects include: Green Climate Fund (GCF) GCF is the world’s largest dedicated fund helping developing countries reduce their greenhouse gas emissions and enhance their ability to respond to climate change. It was set up by the United Nations Framework Convention on Climate Change (UNFCCC) in 2010. The Fund is unique in its ability to engage directly with both the public and private sectors in transformational climate-sensitive investments. Key investment Themes for GCF include: ƒƒ ƒƒ ƒƒ ƒƒ ƒƒ ƒƒ ƒƒ ƒƒ Compliance with State Bank of Pakistan - Green Banking Guidelines (GBG) Green Banking Guidelines (GBG) acknowledges the responsibility of the financial sector in supporting policy initiatives for aimed at a low carbon and climate resilient economy. As of 2020, the Bank is fully compliant with the GBGs having undertaken: ƒƒ Clean Energy Generation & Access Green Transport Solutions Empowering/Financing green initiatives Annual Report 2020 Mitigating Forest/Land use Health, food, water & security Livelihoods of people & communities Ecosystem services Infrastructure and the built environment ƒƒ 92 Introduction of an Environmental and Social Risk Management (ESRM) Framework to create awareness towards the environmental and social (E&S) risks involved in extension of credit and the procedures and authorities which have been established to manage these risks. Means to identify, assess and mitigate environmental risks for clients. While the primary responsibility of ensuring compliance
  95. ƒƒ with environmental laws and regulations rests with the borrowers, JS Bank goes above preestablished standards to create a holistic ecosystem of environmental risk management for all concerned. Introduction of carbon reduction measures in self operations. This extensive exercise including measurement of energy (on and off grid power) and paper consumption of all of JS Bank operating locations. Recognition of gaps was followed by a rectification exercise through promulgation of energy efficient appliances (Inverter and LED based), increased usage of solar power (for technical equipment) and process automation to cut down on documentation. Renewables Energy Solutions JS Bank has continued its efforts to create environmentally friendly products for its customers. The Bank has been the first to develop specialized products to make solar panels more accessible to citizens across the country. In CY2020 despite COVID, JS Bank has financed over 112 (Rs. 393 Million) solar projects for commercial, residential and agriculture purposes. Collectively the bank has been working aggressively to reduce the carbon footprint and has deployed over 11.8 MW of solar power units in the country. Partnering with World Wind Energy Association JS Bank has partnered with World Wind Energy Association – Pakistan (WWEA) under the State Bank of Pakistan’s (SBP) renewable energy scheme to improve access to clean energy generation for commercial and residential customers. Based on SBP’s scheme, financing for generation of clean energy is offered at a subsidized mark-up rate of 6% per annum. Partnering with Federal Government to Combat Pollution and Landfills To support the federal government, initiatives aimed at combating climate change and its impacts, the Federal Minister for Climate Change – Zartaj Gul, Islamabad Capital Territory Administration and JS Bank distributed canvas as an alternative to polythene shopping bags. The amount of plastic waste has been increasing by 10pc each year for the past 20 years, and its accumulation poses grave threats to the well-being of all people worldwide. 93 Partnering with Women Chamber of Commerce JS Bank signed a Memorandum of Understanding (MoU) with the Women’s Chamber of Commerce and Industry (South) on Women’s Equality Day. JS Bank will provide financial tools and resources to women across Pakistan, to help them set up and grow their businesses under the JS Khud-Mukhtar program. This onewindow solution provides women with easy access to business loans of up to Rs. 1.5 million, at a subsidized markup rate of 5% per annum, based on State Bank of Pakistan’s refinance scheme for women entrepreneurs. Green Office Accreditation – 4 Years and Counting JS Bank is one of the few commercial institutions to be Green-Office certified and was the first commercial bank in Pakistan to attain this certification. A practical Environmental Management System developed specifically for office conditions, the Green Office initiative aims to reduce greenhouse gas emissions and decrease the ecological footprint at the workplace by reducing electricity consumption and paper waste. Furthermore, JS Bank continued to play its role in “Tree a thon” - a project by WWF to plant over 1.3 million saplings as part of its Rung Do Pakistan campaign in 2020. Fight Against COVID 2019 In the wake of the pandemic, JS Bank along with its partners donated over PKR 110 Million to counter and combat the impact of theCorona Virus (COVID-19) in Pakistan. Based on a pledge matching initiative wherein JS Bank equally matched all support pledges made by its partners, this fund was rooted in JS Bank’s philanthropic philosophy of collaborative efforts and focused on addressing some of the immediate and long-term issues related to the pandemic.These funds were deployedusing athree-tiered strategy centered around on providing immediate relief, pandemic control and future response capacity building. JS Bank also took the initiative to support the establishment of a Robot operated COVID-19 testing lab in Islamabad. Built in the United Kingdom by Opencell UK, the laboratory is a Biosafety Level 2 plus (BSL-2+) facility built to ISO 15189 standards. The state-of-art lab is specified to meet the requirements for high throughput Covid-19 RT-qPCR testing. Due to the use of 5 liquid handling robots, this lab requires as little as 6 staff members to operate all the shifts and has the ability toprocess over 2,000 tests per day. The facility was inaugurated by British High Commissioner Dr. Christian Turner. Annual Report 2020
  96. Business Model Key Inputs FINANCIAL CAPITAL Share Capital Rs .10,119 million Total Equity Rs.20,592 million Deposits Rs.433,062 million Subordinated Debts Rs.7,493 million INTELLECTUAL CAPITAL Clear Vision and Mission and policies Diversified and experienced Board Well directed and competent Management Efficient Infrastructure framework HUMAN CAPITAL Staff Strength 5,311 Place where talented people thrive Great values and work ethics practices INSTITUTIONAL CAPITAL Long-term credit rating AAShort-term credit rating A1+ MANUFACTURED CAPITAL Branches network 308 Intangible assets Rs.2,487 million ATMS 334 Property and equipments Rs.250,199 million SOCIAL AND RELATIONSHIP CAPITAL Active Social media Platform Well managed website Proactive Complaint handling mechanism NATURAL CAPITAL Health and Safety policies implemented at all premises Annual Report 2020 94
  97. Business activities Our Principles to Operate Key Outputs Melioration of Customer Experience Innovation and Digitalization Adroit Risk Management Compliance with regulatory framework Employee Training and Development Green Office Initiatives TO SHAREHOLDERS Profit after tax Rs .1,150 million Earnings per Share Rs. 0.89 Return on Equity 5.6% CAR 12.77% Return on Assets 0.32% TO CUSTOMERS Deposits Growth 17.11% Advances Growth 3.12% TO HUMAN CAPITAL Salaries and Benefit Rs.6,262 million Training and Development Employees trained in service Internship programs Strong team building and motivational activities TO REGULATOR Compliance with all regulatory requirements Employee Satisfaction and Motivation Adding value to society through CSR D & I at workplace TO SOCIETY Contribution to CSR Rs.118 million Customer relations Safety and health Improving workplace culture and environment Ethics, values & integrity 95 Annual Report 2020 Good corporate governance policies and their implementation
  98. Stakeholders Engagement Shareholders We engage with our shareholders in several ways . This includes quarterly earnings statements and Director’s Reports, annual reports, annual general meetings (AGMs) with shareholders and through our online presence such as our website and on social media. Regulators Our principal regulator is the State Bank of Pakistan (SBP). JS Bank is committed to meeting its regulatory compliance obligations in an effective manner and fulfilling the regulators’ expectations in this regard. For this purpose, the Bank has a well-structured and comprehensive Compliance Program in place and ensures its effective implementation. The Bank is in constant contact with SBP and is committed to providing them with complete and accurate information as and when required. Our senior management commits a significant amount of their time to meeting with SBP for their guidance and support and to keep them well informed on current market events. The regulator is provided with full access to the Bank’s records and information in line with the regulatory framework, and the Bank pro-actively seeks SBP’s feedback regarding any clarifications or information that is required. Our other regulators are Securities and Exchange Commission of Pakistan (SECP) and Pakistan Stock Exchange (PSX) and we are also complying with their directives. Clients/ We welcome feedback from our customers and use various forums for them to make suggestions so that we can evaluate and improve upon our own performance. The Bank’s Complaint Handling Policy and Grievance Redressal Mechanism ensures that complaints are resolved in a timely & fair manner and the recurrence of complaints is prevented where possible. Customers have the option of registering their complaints at the JS Bank’s branches, 24/7 phone banking center, its website, via email and post mail. Customers The bank performs various exercises such as rolling out SMS & emails to customers and awareness through social media in order to maximize the utilization of these channels to further increase the visibility & accessibility. Communities We are committed to the communities where we are our present. From providing meals during the Holy Month of Ramadan to supporting social and cultural events to making sure that we live in a cleaner and greener country. JS Bank is an active participant in ensuring that we are responsible community members and global citizens. Employees Our most important stakeholders are our employees. We engage with them through town hall forums, bank-wide events and by providing them with learning-and-development opportunities Annual Report 2020 96
  99. Step to Encourage Minority Shareholders ’ Participation in AGMs JS Bank Limited always provides a forum for two-way engagement with the shareholders, particularly the minority shareholders. To ensure meaningful participation of minority shareholders in AGM, the Bank takes the following measures: • • • • Notice of AGM is sent to every member of the Bank at least 21 days before the meeting. The notice was published in both English & Urdu newspapers having nationwide circulation. Annual Report of the Bank is sent to each member of the Bank on their registered address before AGM in electronic (CD, email) or hard form (on request). During AGM, a detailed briefing on the Bank’s performance and future plans is given to the shareholders. The shareholders are encouraged to raise queries and give suggestions relating to the Bank’s operations. Investor’s Relations Section on Corporate Website Corporate information including quarterly, semiannual and annual reports of the Bank can be accessed on following URL; https://jsbl.com/ knowledge-centre/investor-relations/ The Company disseminates information to its investors and shareholders through a mix of information exchange platforms, including its corporate website, maintained in both English and Urdu Languages under the applicable regulatory framework. The website is updated regularly to provide detailed and latest company information including but not limited to financial highlights, investor information, dividend and other requisite information. 2. The Bank uses its website as an additional primary communications channel. 3. The Bank proactively addresses reports and rumors, to avoid unnecessary speculation in its securities. 4. The Bank endeavors to meet with its shareholders at least once in each fiscal year as to inform them and obtain feedback on the Bank. Quarterly reports of interim financial results are issued to the Exchange on the day of approval by the Board, in the format required by the Exchange. The Annual Report is published and distributed to the shareholders. A summary of financial results and other information is announced at PSX. An electronic copy of the Annual Report is also be made available on the Bank’s website. Notice for the Annual General Meeting (AGM) are announced on the Exchange and in a daily newspaper according to the Listing Requirements. The AGM provide an opportunity for shareholders to engage with the Board and senior management, and to gain a fuller understanding of the Bank’s affairs. Corporate Briefing Session Bank has the practice to conduct annual corporate and investor’s briefing session. During the year 2020, an online session was held on Dec 31, 2020. Notice was issued to the stakeholders through Pakistan stock exchange’s website to encourage them to attend online session. JS bank by complying the regulatory requirement has made presentation available on the website https:// jsbl.com/knowledge-centre/investor-information/. Investor Relations Policy The Bank has a very proactive and interactive Investor Relations Policy that is driven by the following principles: 1. The Bank reports its financial results and material developments to the Exchange, its shareholders, and other stakeholders in an open and comprehensive manner. 97 Annual Report 2020
  100. Excellence in Corporate Reporting Unreserved Compliance of International Financial Reporting Standards (IFRS) The management of the Bank strongly believes in adherence to unreserved compliance with all the applicable International Financial Reporting Standards (IFRSs) issued by International Accounting Standards Board (IASB) for true and fair presentation of financial statements. Financial statements for the year have been prepared in accordance with the accounting and reporting standards, issued by IASB as are applicable in Pakistan. IFRS adoption status is detailed in note 2 of the unconsolidated financial statements. Annual Report 2020 Adoption and Statement of Adherence with the International Integrated Reporting Framework To deliver relevant and useful information to the Bank’s stakeholders, the Bank’s reporting encompasses its strategic focus and future direction. In order to achieve this the reporting incorporates organizational overview and external environment, governance, risks and opportunities, strategy and resource and allocation including outlook. The adoption of integrated thinking approach has resulted in a periodic and wholistic report by the Bank and its value creation over time. The reporting links financial and non-financial information to give complete view on the Bank’s performance for all relevant stakeholders. 98
  101. Statement and Distribution of Value Added Value Added Net mark-up / interest income Non mark-up / interest income 2020 Rs. in million 9,777 6,676 2019 Rs. in million 7,028 3,943 Operating expenses excluding Staff cost, depreciation, amortization, donation and WWF Provision against advancs, lending, Investments and others (4,895) (3,776) (1,280) 92 Value added availble for addition 10,279 7,287 Distribution of Value added 2020 Rs. in million To Employees Remuneration , provident fund and other benefits To Government Worker Welfare Fund Income Tax To Society Donations To Growth and expansion Depreciation Amortization Retained Earnings 99 % 2019 Rs. in million % 6,263 60.92% 5,237 71.87% 40 873 913 0.39% 8.49% 8.89% 1 108 109 0.01% 1.49% 1.50% 118 1.15% 3 0.04% 1,590 113 1,282 2,986 10,279 15.47% 1.10% 12.47% 29.04% 100.00% 1,681 93 163 1,938 7,287 23.07% 1.28% 2.24% 26.59% 100.00% Annual Report 2020
  102. Statement of Compliance with Listed Companies (Code of Corporate Governance) Regulations, 2019 (the ‘Regulations’) Name of company: Year ended: JS Bank Limited (the ‘bank’) December 31, 2020 The Bank has complied with the requirements of the Regulations in the following manner: 1. The total number of directors are nine as per the following: a. Male: b. Female: Eight (Including CEO) One 7. The meetings of the Board were presided over by the Chairman and, in his absence, by a director elected by the Board for this purpose. The Board has complied with the requirements of Act and the Regulations with respect to frequency, recording and circulating minutes of meeting of the Board. 8. The Board have a formal policy and transparent procedures for remuneration of directors in accordance with the Act and the Regulations. 2. The composition of the Board is as follows: Category Companies Act, 2017 (Act) and the Regulations. Names Independent Directors Mr. G.M. Sikander Ms. Nargis Ghaloo Mr. Sohail Aman Non-Executive Mr. Kalim-ur-Rahman - Chairman Directors Mr. Adil Matcheswala Mr. Ashraf Nawabi Mr. Hassan Afzal Mr. Munawar Alam Siddiqui Executive Mr. Basir Shamsie – Director President & CEO (Non-elected deemed director) Female Director Ms. Nargis Ghaloo (Independent Director) 3. The directors have confirmed that none of them is serving as a director on more than seven listed companies, including this Bank. 4. The Bank has prepared a code of conduct and has ensured that appropriate steps have been taken to disseminate it throughout the Bank along with its supporting policies and procedures. 5.The Board has developed a vision/mission statement, overall corporate strategy and significant policies of the Bank. The Board has ensured that complete record of particulars of the significant policies along with their date of approval or updating is maintained by the Bank. 9. Out of nine directors, six directors have completed Director’ Training Program and two directors of the Bank are exempted from the requirement of Directors’ Training Program in accordance with the Regulations. Whereas, remaining one director will certify himself in due course. 10. The Board has approved appointment of CFO, Company Secretary and Head of Internal Audit, including their remuneration and terms and conditions of employment and complied with relevant requirements of the Regulations. No new appointment has been made during the financial year except that of CFO. Mr. Hasan Shahid has been appointed CFO of the Bank in place of Mr. Muhammad Yousuf Amanullah w.e.f. July 01, 2020. 11. Chief Financial Officer and Chief Executive Officer duly endorsed the financial statements before approval of the Board. 12.The Board has formed committees comprising of members given below a. Audit Committee: Ms. Nargis Ghaloo (Independent Director) Chairperson Mr. Adil Matcheswala (Non-Executive Director) Member 6. All the powers of the Board have been duly exercised and decisions on relevant matters have been taken by the Board/ shareholders as empowered by the relevant provisions of the Mr. G.M. Sikander (Independent Director) Member Mr. Munawar Alam Siddiqui (Non-Executive Director) Member 101 Annual Report 2020
  103. b . HR Remuneration & Nomination Committee: Mr. Sohail Aman (Independent Director) Chairman Mr. Adil Matcheswala (Non-Executive Director) Member Mr. G.M. Sikander (Independent Director) Member Mr. Kalim-ur-Rahman (Non-Executive Director) Member c. Risk Management Committee: Mr. Ashraf Nawabi (Non-Executive Director) Chairman Mr. Munawar Alam Siddiqui (Non-Executive Director) Member Ms. Nargis Ghaloo (Independent Director) Member Mr. Basir Shamsie (Executive Director and CEO) Member d. IT Committee: Mr. Hassan Afzal (Non-Executive Director) Chairman Mr. Kalim ur Rehman (Non-Executive Director) Member Mr. Sohail Aman (Independent Director) Member Mr. Basir Shamsie (Executive Director and CEO) Member 13. The terms of reference of the aforesaid committees have been formed, documented and advised to the committees for compliance. 14. The frequency of meetings of the committee was as per following: Committees Meetings held during the year Audit Committee Four HR Remuneration & Nomination Committee 15.The Board has set up an effective internal audit function comprising of suitably qualified and experienced for the purpose and are conversant with the policies and procedures of the Bank. 16. The statutory auditors of the Bank have confirmed that they have been given a satisfactory rating under the Quality Control Review program of the Institute of Chartered Accountants of Pakistan and registered with Audit Oversight Board of Pakistan, that they and all their partners are in compliance with International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by the Institute of Chartered Accountants of Pakistan and that they and the partners of the firm involved in the audit are not a close relative (spouse, parent, dependent and non-dependent children) of the chief executive officer, chief financial officer, head of internal audit, company secretary or director of the Bank. 17.The statutory auditors or the persons associated with them have not been appointed to provide other services except in accordance with the Act, these Regulations or any other regulatory requirement and the auditors have confirmed that they have observed IFAC guidelines in this regard. 18. We confirm that all requirements of regulations 3, 6, 7, 8, 27, 32, 33 and 36 of the Regulations have been complied with. For and behalf of the Board Basir Shamsie President & CEO Kalim-ur-Rehman Chairman Karachi: February 24, 2021 Seven Risk Management Committee Four IT Committee Four Annual Report 2020 102
  104. Unconsolidated Financial Statements
  105. INDEPENDENT AUDITORS ’ REPORT
  106. Unconsolidated Statement of Financial Position As at December 31 , 2020 2020 2019 ----- USD in ‘000 ----- Note 2020 2019 ----- Rupees in ‘000 ----- ASSETS 190,330 6,919 145,398 1,261,922 1,565,365 47,546 15,558 91,835 4,625 3,329,498 160,099 2,896 189,700 891,976 1,519,976 60,642 14,211 55 101,320 2,340 2,943,215 Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Assets held for sale 6 7 8 9 10 11 12 18 13 11.3 30,421,231 1,105,969 23,239,672 201,698,473 250,199,166 7,599,538 2,486,725 14,678,428 739,200 532,168,402 25,589,349 462,836 30,320,540 142,568,470 242,944,509 9,692,701 2,271,360 8,756 16,194,444 374,000 470,426,965 14 15 16 4,981,983 48,303,412 433,062,593 7,492,800 1,194,252 16,541,154 511,576,194 3,804,491 54,468,283 369,789,964 7,494,800 17,536,172 453,093,710 20,592,208 17,333,255 10,119,242 1,991,170 2,334,123 6,147,673 20,592,208 10,119,242 1,749,673 636,700 4,827,640 17,333,255 LIABILITIES 31,170 302,209 2,709,445 46,879 7,472 103,488 3,200,663 23,803 340,779 2,313,582 46,891 109,715 2,834,770 128,835 108,445 Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities Other liabilities 17 18 19 NET ASSETS REPRESENTED BY 63,311 12,458 14,603 38,463 128,835 63,311 10,947 3,983 30,204 108,445 Share capital - net Reserves Surplus on revaluation of assets Unappropriated profit 20 21 22 CONTINGENCIES AND COMMITMENTS The annexed notes from 1 to 50 and annexure I & annexure II form an integral part of these unconsolidated financial statements. __________________ President and Chief Executive Officer ___________________ Chief Financial Officer 109 ___________ Director ___________ Director Annual Report 2020 ___________ Chairman
  107. Unconsolidated Profit and Loss Account For the year ended December 31 , 2020 2020 2019 ----- USD in ‘000 ----269,648 208,476 61,172 260,236 216,263 43,973 Note Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income 2020 2019 ----- Rupees in ‘000 ----- 24 25 43,098,990 33,321,699 9,777,291 41,594,699 34,566,342 7,028,357 26 3,595,952 97,844 1,010,345 29,374 1,873,047 69,795 6,676,357 2,859,942 300,497 963,190 47,120 (711,145) 483,600 3,943,204 16,453,648 10,971,561 NON MARK-UP / INTEREST INCOME 22,498 612 6,321 184 11,719 437 41,771 17,893 1,880 6,026 295 (4,449) 3,026 24,671 Fee and commission income Dividend income Foreign Exchange Income Income from derivatives Gain / (loss) on securities Other income Total non mark-up / interest income 102,943 68,644 Total Income 27 28 NON MARK-UP / INTEREST EXPENSES Operating expenses Workers’ welfare fund Other charges Total non-mark-up / interest expenses Profit before provisions 29 30 31 13,019,000 40,460 91,639 13,151,099 3,302,549 10,791,708 1,065 137,643 10,930,416 41,145 (575) - Provisions and write offs - net Extraordinary / unusual items 32 1,279,608 - (91,930) - 12,658 833 PROFIT BEFORE TAXATION 2,022,941 133,075 5,461 678 Taxation 872,881 108,422 7,197 155 PROFIT AFTER TAXATION 1,150,060 24,653 81,453 253 573 82,279 20,664 67,518 7 861 68,386 258 8,006 - 33 ----- US Dollar ----0.0055 0.0001 ----- Rupee ----Basic and diluted earnings per share 34 0.8864 0.0004 The annexed notes from 1 to 50 and annexure I & annexure II form an integral part of these unconsolidated financial statements. __________________ President and Chief Executive Officer ___________________ Chief Financial Officer Annual Report 2020 ___________ Director 110 ___________ Director ___________ Chairman
  108. Unconsolidated Statement of Comprehensive Income For the year ended December 31 , 2020 2020 2019 ----- USD in ‘000 ----155 7,197 2020 2019 ----- Rupees in ‘000 ----Profit after taxation 1,150,060 24,653 11,485 32,571 1,688,237 1,721,854 79,793 1,768,030 1,779,515 (58,510) 1,663,344 1,695,915 2,929,575 1,720,568 290,980 (11,160) - 30,985 38,398 329,378 19,825 3,258,953 1,740,393 Other comprehensive income / (loss) Items that may be reclassified to profit and loss account in subsequent periods 72 204 10,562 10,773 499 11,061 11,133 (366) 10,407 10,611 18,330 10,766 Effect of translation of net investment in foreign branch Movement in surplus on revaluation of investments - net of tax Movement in general provision under IFRS 9 - net of tax Items that will not be reclassified to profit and loss account in subsequent periods 1,821 (70) - 194 240 2,061 124 20,391 10,890 Remeasurement gain / (loss) on defined benefit obligations - net of tax Movement in surplus on revaluation of operating fixed assets - net of tax Movement in surplus on revaluation of non-banking assets - net of tax Total comprehensive income The annexed notes from 1 to 50 and annexure I & annexure II form an integral part of these unconsolidated financial statements. __________________ President and Chief Executive Officer ___________________ Chief Financial Officer 111 ___________ Director ___________ Director Annual Report 2020 ___________ Chairman
  109. Unconsolidated Statement of Changes in Equity For the year ended December 31 , 2020 Reserves Share capital Statutory reserve * Surplus/(deficit) on revaluation of Exchange translation reserve Investments Fixed Assets Non Banking Assets Unappropriated profit Total ----------------------------------------------------------------- Rupees in ‘000 ----------------------------------------------------------------10,119,242 1,641,237 70,934 (2,180,113) 1,051,666 92,858 4,821,202 15,617,026 Profit after taxation Other comprehensive income / (loss) - net of tax - - 32,571 32,571 1,663,344 1,663,344 30,985 30,985 - 24,653 (11,160) 13,493 24,653 1,715,740 1,740,393 Transfer to statutory reserve - 4,931 - - - - (4,931) - Fixed assets - - - - (21,958) - 21,958 - Non-banking assets acquired in satisfaction of claims - - - - - (82) 82 - - - - - - - (24,164) (24,164) 10,119,242 1,646,168 103,505 (516,769) 1,060,693 92,776 4,827,640 17,333,255 Profit after taxation Other comprehensive income - net of tax - - 11,485 11,485 1,768,030 1,768,030 - 38,398 38,398 1,150,060 290,980 1,441,040 1,150,060 2,108,893 3,258,953 Transfer to statutory reserve - 230,012 - - - - (230,012) - Fixed assets - - - - (16,785) - 16,785 - Non-banking assets acquired in satisfaction of claims - - - - - (94) 94 - Assets held for sale - - - - (92,126) - 92,126 - 10,119,242 1,876,180 114,990 1,251,261 951,782 131,080 6,147,673 20,592,208 Balance as at December 31, 2018 Transfer from surplus on revaluation of assets to unappropriated profit - net of tax Transaction with owners recorded directly in equity Preference dividend for the year ended December 31, 2018 @ 12% p.a. Balance as at December 31, 2019 Transfer from surplus on revaluation of assets to unappropriated profit - net of tax Balance as at December 31, 2020 * This represents reserve created under Section 21(i)(a) of the Banking Companies Ordinance, 1962. The annexed notes from 1 to 50 and annexure I & annexure II form an integral part of these unconsolidated financial statements. __________________ President and Chief Executive Officer ___________________ Chief Financial Officer Annual Report 2020 ___________ Director 112 ___________ Director ___________ Chairman
  110. Unconsolidated Cash Flow Statement For the year ended December 31 , 2020 2020 2019 ----- USD in ‘000 ----12,658 (612) 12,046 833 (1,880) (1,047) 4,344 18 5,588 707 4,814 11 5,695 584 2,539 998 3,174 843 (5) (95) 16 (132) 409 8,006 253 9 (6) (405) 22,360 34,406 (413) (577) 7 (3,026) 10,996 9,949 44,302 191,420 (49,734) 11,815 197,803 (177,560) (89,046) 54,364 (33,933) (246,175) 7,367 (35,483) 395,864 (2,075) 365,673 597,882 (950) (2,013) 1,780 (264,184) 302,668 17,889 58,153 (178,073) (641) (2,129) 594,919 (180,843) CASH FLOW FROM OPERATING ACTIVITIES Note Profit before taxation Less: Dividend income 2020 2019 ----- Rupees in ‘000 ----2,022,941 (97,844) 1,925,097 133,075 (300,497) (167,422) 29 29 29 694,312 2,862 893,148 113,052 769,378 1,713 910,321 93,316 25 37.5 405,879 159,436 507,361 134,712 (805) (15,148) 2,618 (21,126) 65,409 1,279,608 40,460 1,368 (1,000) (64,805) 3,573,776 5,498,873 (65,955) (92,245) 1,065 (483,600) 1,757,558 1,590,136 7,080,905 30,595,500 (7,949,193) 1,888,368 31,615,580 (28,380,143) (14,232,574) 8,689,282 (5,423,592) (39,347,027) 1,177,492 (5,671,449) 63,272,629 (331,624) 58,447,048 95,561,501 (151,882) (321,687) 284,567 (42,225,743) 48,376,701 2,859,250 9,294,775 (28,462,116) (102,494) (340,273) 95,087,932 (28,904,883) (84,112,230) (3,249,717) (40,828) 97,844 (747,229) (328,417) 12,839 375,000 11,485 (87,981,253) 13,509,954 9,857,050 (21,239) 91,549 (1,837,181) (194,799) 1,337,287 32,571 22,775,192 Payment of lease liability against right of use assets Subordinated debt Dividend paid to preference shareholders Net cash used in financing activities (1,135,860) (2,000) (1,137,860) (1,006,797) (2,000) (24,164) (1,032,961) Increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 5,968,819 25,415,261 31,384,080 (7,162,652) 32,577,913 25,415,261 Adjustments: Depreciation Depreciation on non-banking assets Depreciation - Right of use assets Amortisation of intangible assets Mark-up / return / interest expense on lease liability against right-of-use assets Charge for defined benefit plan Unrealised (gain) / loss on revaluation of investments classified as held-for-trading - net Unrealised gain on revaluation of derivative instruments - net Unrealised loss / (gain) on revaluation of forward foreign exchange contracts Provisions and write offs - net Provision for workers welfare fund Loss / (gain) on sale of fixed assets - net Gain on sale of assets held for sale Gain on termination of leases 32 30 28 28 28 Decrease / (increase) in operating assets Lendings to financial institutions Held-for-trading securities Advances Other assets (excluding advance taxation) Increase / (decrease) in operating liabilities Bills payable Borrowings Deposits Other liabilities Gratuity paid Income tax paid 37.5 Net cash flow from / (used in) operating activities CASH FLOW FROM INVESTING ACTIVITIES (526,246) (20,332) (255) 612 (4,675) (2,055) 80 2,346 72 (550,453) 84,525 61,670 (133) 573 (11,494) (1,219) 8,367 204 142,493 Net investments in available-for-sale securities Net investments in held-to-maturity securities Investment in associated companies Dividends received Investment in fixed assets Investment in intangible assets Proceeds from sale of fixed assets Proceeds from sale of assets held for sale Effect of translation of net investment in foreign branch Net cash flow (used in) / from investing activities CASH FLOWS FROM FINANCING ACTIVITIES (7,106) (13) (7,119) (6,299) (13) (151) (6,463) 37,347 159,010 196,357 (44,813) 203,823 159,010 35 The annexed notes from 1 to 50 and annexure I & annexure II form an integral part of these unconsolidated financial statements. __________________ President and Chief Executive Officer ___________________ Chief Financial Officer 113 ___________ Director ___________ Director Annual Report 2020 ___________ Chairman
  111. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 1. STATUS AND NATURE OF BUSINESS 1.1 JS Bank Limited (the Bank / JSBL) is a banking company incorporated in Pakistan as a public limited company on March 15, 2006. The Bank is a subsidiary company of Jahangir Siddiqui & Co. Ltd. (JSCL) and its shares are listed on Pakistan Stock Exchange Limited (PSX). The Bank commenced its banking operations on December 30, 2006 and its registered office is situated at Shaheen Commercial Complex, Dr. Ziauddin Ahmed Road, Karachi. The Bank is a scheduled bank, engaged in commercial banking and related services as described in the Banking Companies Ordinance, 1962 and is operating through 307 (2019: 359) branches / sub-branches in Pakistan and one wholesale banking branch in Bahrain (2019: one). The Pakistan Credit Rating Agency Limited (PACRA) has assigned the long-term entity rating of the Bank to AA- (Double A Minus) whereas short-term rating is maintained at ‘A1+’ (A One Plus), which is the highest possible short-term rating. The ratings denote a very low expectation of credit risk and indicate very strong capacity for timely payment of financial commitments. 1.2 Jahangir Siddiqui Investment Bank Limited, JSIBL, (formerly Citicorp Investment Bank Limited which was acquired by JSCL on February 01, 1999), and its holding company, JSCL, entered into a Framework Agreement with American Express Bank Limited, New York (AMEX) on November 10, 2005 for acquisition of its American Express Bank Limited - Pakistan Branches, (AEBL). Consequently, a new banking company, JSBL was incorporated on March 15, 2006 and a restricted Banking License was issued by the State Bank of Pakistan (SBP) on May 23, 2006. A Transfer Agreement was executed on June 24, 2006 between JSIBL and JSBL for the transfer of entire business and undertaking of JSIBL to JSBL and a separate Transfer Agreement was also executed on June 24, 2006, between AMEX and JSBL for the transfer of AEBL’s commercial banking business in Pakistan with all assets and liabilities (other than certain excluded assets and liabilities) (AEBL business). The shareholders of JSIBL and JSBL in their respective extra-ordinary general meetings held on July 31, 2006 approved a Scheme of Amalgamation (the Scheme) under Section 48 of the Banking Companies Ordinance, 1962. The Scheme was initially approved by the Securities and Exchange Commission of Pakistan (SECP) vide its letter No. SC/ NBFC(J)-R/JSIBL/2006/517 dated September 28, 2006. Subsequently, the Scheme was sanctioned by the SBP vide its order dated December 02, 2006 and, in accordance therewith, the effective date of amalgamation was fixed at December 30, 2006. 1.3 The Bank is the holding company of JS Investments Limited, JS Global Capital Limited and JS ABAMCO Commodities Limited (Indirect subsidiary). 2. BASIS OF PRESENTATION These unconsolidated financial statements are separate financial statements of the Bank in which the investments in subsidiaries and associates are stated at cost and are accounted for on the basis of direct equity interest rather than on the basis of reported results. The consolidated financial statements of the Bank are being issued separately. These unconsolidated financial statements have been presented in Pakistan Rupees (PKR), which is the currency of the primary economic environment in which the Bank operates and functional currency of the Bank, in that environment as well. The amounts are rounded to nearest thousand except as stated otherwise. The US Dollar amounts shown on the statement of financial position, profit and loss account, statement of comprehensive income and cash flow statement are stated as additional information solely for the convenience of readers and have not been subject to audit by the external auditors. For the purpose of conversion to US Dollars, the rate of Rs. 159.8344 to 1 US Dollar has been used for 2020 and 2019 as it was the prevalent rate as on December 31, 2020. 2.1 Statement of compliance These unconsolidated financial statements have been prepared in accordance with the accounting and reporting standards as applicable in Pakistan. These comprise of: Annual Report 2020 114
  112. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 - International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Act, 2017; - Provisions of and directives issued under the Banking Companies Ordinance, 1962; - Provisions of and directives issued under the Companies Act, 2017; and - Directives issued by the SBP and the SECP from time to time. Whenever the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017, or the directives issued by the SBP and the SECP differ with the requirements of IFRS, the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the said directives shall prevail. The SBP has deferred the applicability of International Accounting Standard (IAS) 39, ‘Financial Instruments: Recognition and Measurement’ and International Accounting Standard (IAS) 40, ‘Investment Property’ for banking companies vide BSD Circular Letter No. 10 dated August 26, 2002 till further instructions. Further, the SECP has deferred the applicability of International Financial Reporting Standard (IFRS) 7, ‘Financial Instruments: Disclosures’ on banks vide its notification S.R.O 411(I)/2008 dated April 28, 2008. Accordingly, the requirements of these standards have not been considered in the preparation of these unconsolidated financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by the SBP through various circulars. IFRS10 “Consolidated Financial Statements” was made applicable from period beginning on or after January 01, 2015 vide S.R.O 633(I)/2014 dated July 10, 2014 by SECP. However, SECP has directed through S.R.O56(I)/2016 dated January 28, 2016, that the requirement of consolidation under section 228 of the Companies Act, 2017 and IFRS-10 “Consolidated Financial Statements” is not applicable in case of investment by companies in mutual funds established under trust structure. Accordingly, the requirements of these standards have not been considered in the preparation of these unconsolidated financial statements. Through S.R.O. 229 (I)/2019 dated February 14, 2019, the SECP has deferred the applicability of the IFRS 9 ‘Financial Instruments’ for all companies required to prepare their financial statements in accordance with the requirements of IFRS for reporting period/year ending on or after June 30, 2019 (earlier application is permitted). However, SBP has extended the effective date of applicability of IFRS 9 to annual periods beginning on or after January 01, 2021 vide SBP BPRD Circular No.4 dated October 23, 2019. Therefore, the Bank has not considered the impact of IFRS 9 for its Pakistan operations in these unconsolidated financial statements. Further, the Bank considers that as the Prudential Regulations and other SBP directives currently provide the accounting framework for the measurement and valuation of investments and provision against non-performing loans and advances, the implementation of IFRS 9 may require changes in the regulatory regime and for this SBP would issue guidance and instruction on the application of IFRS 9 for the banking sector of Pakistan. 2.2 Standards, interpretations of and amendments to published approved accounting standards that are effective in the current year The Bank has adopted the following accounting standards, interpretations and amendments of IFRSs and the improvements to accounting standards which became effective for the current year: - Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The amendments were intended to make the definition of material in IAS 1 easier to understand and are not intended to alter the underlying concept of materiality in IFRS Standards. In addition, the IASB has also issued guidance on how to make materiality judgements when preparing their general purpose financial statements in accordance with IFRS Standards. 115 Annual Report 2020
  113. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 - Amendment to IFRS 3 ‘Business Combinations’ – Definition of a Business. IASB has issued amendments aiming to resolve the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The amendments clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The amendments include an election to use a concentration test. - IFRS 14 ‘Regulatory Deferral Accounts’ permits an entity to continue to account, with some limited changes, for ‘regulatory deferral account balances’ in accordance with its previous reporting framework, both on initial adoption of standard and in subsequent financial statements. Regulatory deferral account balances, and movements in them, are presented separately in the statement of financial position and profit and loss account and statement of other comprehensive income, and specific disclosures are required. - IASB has also issued the revised Conceptual Framework for Financial Reporting (the Conceptual Framework) in March 2018 which became effective during the year for preparers of financial statements who develop accounting policies based on the Conceptual Framework. The revised Conceptual Framework is not a standard, and none of the concepts override those in any standard or any requirements in a standard. The purpose of the Conceptual Framework is to assist IASB in developing standards, to help preparers develop consistent accounting policies if there is no applicable standard in place and to assist all parties to understand and interpret the standards. The adoption of the above standards / amendments to accounting standards are not considered to be relevant or did not have any significant effect on the Bank’s operations. 2.3 Standards, interpretations of and amendments to published approved accounting standards that are not yet effective The following standards, amendments and interpretations of approved accounting standards will be effective for accounting periods beginning on or after January 01, 2021: - IFRS 9 ‘Financial Instruments’ - SBP vide its BPRD Circular No. 04 of 2019 dated 23 October 2019 directed the banks in Pakistan to implement IFRS 9 with effect from 01 January 2021. IFRS 9 replaced the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. The Bank has been complying with the requirement of BPRD Circular Letter No. 15 of 2020 to have parallel run of IFRS 9 from July 01, 2020. - COVID-19-Related Rent Concessions (Amendment to IFRS 16) – the International Accounting Standards Board (the Board) has issued amendments to IFRS 16 (the amendments) to provide practical relief for lessees in accounting for rent concessions. The amendments are effective for periods beginning on or after June 01, 2020, with earlier application permitted. Under the standard’s previous requirements, lessees assess whether rent concessions are lease modifications and, if so, apply the specific guidance on accounting for lease modifications. This generally involves remeasuring the lease liability using the revised lease payments and a revised discount rate. In light of the effects of the COVID-19 pandemic, and the fact that many lessees are applying the standard for the first time in their financial statements, the Board has provided an optional practical expedient for lessees. Under the practical expedient, lessees are not required to assess whether eligible rent concessions are lease modifications, and instead are permitted to account for them as if they were not lease modifications. Rent concessions are eligible for the practical expedient if they occur as a direct consequence of the COVID-19 pandemic and if all the following criteria are met: - the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; - any reduction in lease payments affects only payments originally due on or before 30 June 2021; and Annual Report 2020 116
  114. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 - there is no substantive change to the other terms and conditions of the lease. - Interest Rate Benchmark Reform – Phase 2 which amended IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 is applicable for annual financial periods beginning on or after January 01, 2021, with earlier application permitted. The amendments introduce a practical expedient to account for modifications of financial assets or financial liabilities if a change results directly from IBOR reform and occurs on an ‘economically equivalent’ basis. In these cases, changes will be accounted for by updating the effective interest rate. A similar practical expedient will apply under IFRS 16 for lessees when accounting for lease modifications required by IBOR reform. The amendments also allow a series of exemptions from the regular, strict rules around hedge accounting for hedging relationships directly affected by the interest rate benchmark reforms. The amendments apply retrospectively with earlier application permitted. Hedging relationships previously discontinued solely because of changes resulting from the reform will be reinstated if certain conditions are met. - Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) effective for the annual period beginning on or after January 01, 2022 amends IAS 1 by mainly adding paragraphs which clarifies what comprise the cost of fulfilling a contract, Cost of fulfilling a contract is relevant when determining whether a contract is onerous. An entity is required to apply the amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments (the date of initial application). Restatement of comparative information is not required, instead the amendments require an entity to recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings or other component of equity, as appropriate, at the date of initial application. The following annual improvements to approved accounting standards 2018-2020 are effective for annual reporting periods beginning on or after January 01, 2022. - - IFRS 9 – The amendment clarifies that an entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other’s behalf, when it applies the ‘10 percent’ test in paragraph B3.3.6 of IFRS 9 in assessing whether to derecognize a financial liability. - IFRS 16 – The amendment partially amends Illustrative Example 13 accompanying IFRS 16 by excluding the illustration of reimbursement of leasehold improvements by the lessor. The objective of the amendment is to resolve any potential confusion that might arise in lease incentives. - IAS 41 – The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flows when measuring the fair value of a biological asset using a present value technique. Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) effective for the annual period beginning on or after 1 January 2022. Clarifies that sales proceeds and cost of items produced while bringing an item of property, plant and equipment to the location and condition necessary for it to be capable of operating in the manner intended by management e.g. when testing etc., are recognized in profit or loss in accordance with applicable Standards. The entity measures the cost of those items applying the measurement requirements of IAS 2. The standard also removes the requirement of deducting the net sales proceeds from cost of testing. An entity shall apply those amendments retrospectively, but only to items of property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments. The entity shall recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of that earliest period presented. 117 Annual Report 2020
  115. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 - Reference to the Conceptual Framework (Amendments to IFRS 3) - Reference to the Conceptual Framework, issued in May 2020, amended paragraphs 11, 14, 21, 22 and 23 of and added paragraphs 21A, 21B, 21C and 23A to IFRS 3. An entity shall apply those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 01, 2022. Earlier application is permitted if at the same time or earlier an entity also applies all the amendments made by Amendments to References to the Conceptual Framework in IFRS Standards, issued in March 2018. - Classification of liabilities as current or non-current (Amendments to IAS 1) effective for the annual period beginning on or after January 01, 2022. These amendments in the standards have been added to further clarify when a liability is classified as current. The standard also amends the aspect of classification of liability as non-current by requiring the assessment of the entity’s right at the end of the reporting period to defer the settlement of liability for at least twelve months after the reporting period. An entity shall apply those amendments retrospectively in accordance with IAS 8. - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) – The amendment amends accounting treatment on loss of control of business or assets. The amendments also introduce new accounting for less frequent transaction that involves neither cost nor full step-up of certain retained interests in assets that are not businesses. The effective date for these changes has been deferred indefinitely until the completion of a broader review. Further, following new standards have been issued by IASB which are yet to be notified by the SECP for the purpose of applicability in Pakistan. IASB Effective date (annual periods beginning on or after) Standard 2.4 IFRS 1 – First time adoption of IFRSs January 01, 2004 IFRS 17 – Insurance Contracts January 01, 2023 Critical accounting estimates and key sources of estimation uncertainty The preparation of financial statements in conformity with approved accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Bank’s accounting policies. Estimates and judgments are continually evaluated and are based on historic experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions in accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The areas where various assumptions and estimates are significant to the Bank’s financial statements or where judgment was exercised in application of accounting policies are as follows: i) Classification of investments - In classifying investments as ‘held-for-trading’ the Bank has determined securities which are acquired with an intention to trade by taking advantage of short-term market / interest rate movements and are to be sold within 90 days of acquisition. - In classifying investments as ‘held-to-maturity’ the Bank follows the guidance provided in SBP circulars on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity. - The investments which are not classified as ‘held-for-trading’ or ‘held-to-maturity’ are classified as ‘available-for-sale’. Annual Report 2020 118
  116. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 ii) Provision against non performing loans and advances The Bank reviews its loan portfolio to assess amount of non-performing loans and advances and provision required there-against. While assessing this requirement various factors including the delinquency in the account, financial position of the borrowers, the value of securities and the requirements of the Prudential Regulations are considered. For portfolio impairment / provision on consumer advances, the Bank follows requirements set out in Prudential Regulations. iii) Impairment on investments The Bank determines that investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in securities price. In addition, impairment may be appropriate when there is an evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology and operational and financing cash flows. iv) Income taxes In making the estimates for income taxes currently payable by the Bank, the management considers the current income tax laws and the decisions of appellate authorities on certain issues in the past. In making the provision for deferred taxes, estimates of the Bank’s future taxable profits are taken into account. v) Depreciation of fixed assets and amortization of intangible assets In making estimates of the depreciation / amortisation method, the management uses a method which reflects the pattern in which economic benefits are expected to be consumed by the Bank. The method applied is reviewed at each financial year end and if there is a change in the expected pattern of consumption of the future economic benefits embodied in the underlying assets, the method is changed to reflect the change in pattern. Such change is accounted for as change in accounting estimates in accordance with International Accounting Standard - 8, “Accounting Policies, Changes in Accounting Estimates and Errors”. vi) Defined benefits plans and other benefits Liability is determined on the basis of actuarial advice using the Projected Unit Credit Method. vii) Impairment of Goodwill Impairment testing involves a number of judgmental areas which are subject to inherent significant uncertainty, including the preparation of cash flow forecasts for the periods that are beyond the normal requirements of management reporting and the assessment of the discount rate appropriate to the business. The carrying amount of goodwill at the balance sheet date was Rs.1,464 million. The detailed assumptions underlying impairment testing of goodwill are given in note 12.5 to these unconsolidated financial statements. viii) Lease term The Bank applies judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options.The assessment of whether the Bank is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised and its recoverable amount which is determined as higher of value-in-use and fair value less cost to sell. 3. BASIS OF MEASUREMENT These unconsolidated financial statements have been prepared under the historical cost convention except for: 119 Annual Report 2020
  117. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 4. - Certain classes of fixed assets and non-banking assets acquired in satisfaction of claims which are stated at revalued amounts less accumulated depreciation. - Investments classified as held-for-trading and available-for-sale and derivative financial instruments, which are measured at fair value. - Net obligations in respect of defined benefit schemes which are carried at their present values. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these unconsolidated financial statements are consistent with those of previous financial year. 4.1 Cash and cash equivalents Cash and cash equivalents represent cash and balances with treasury banks and balances with other banks net of any overdrawn nostro accounts. 4.2 Lendings to / borrowings from financial institutions The Bank enters into transactions of lendings to / borrowings from financial institutions at contracted rates for a specified period of time. These are recorded as under: )a( Sale under repurchase obligation Securities sold subject to a repurchase agreement (repo) are retained in the financial statements as investments and liability to counter party is included in borrowings. The difference in sale and repurchase value is accrued over the period of the contract and recorded as an expense using effective interest rate method. )b( Other lendings Other lendings include term lendings and unsecured lendings to financial institutions. These are stated net of provision. Mark-up on such lendings is charged to profit and loss account on a time proportionate basis using effective interest rate method except mark-up on impaired/delinquent lendings, which are recognized on receipt basis in accordance with the requirements of the Prudential Regulations of the SBP. )c( Purchase under resale obligation Securities purchased under agreement to resell (reverse repo) are not included in statement of financial position as the Bank does not obtain control over the securities. Amount paid under these agreements is included in lendings to financial institutions or advances as appropriate. The difference between the contracted price and resale price is amortised over the period of the contract and recorded as income using effective interest method. )d( Other borrowings Other borrowings include borrowings from the SBP and unsecured call borrowings which are recorded at the proceeds received. Mark-up paid on such borrowings is charged to the profit and loss account over the period of borrowings on time proportionate basis using effective interest method. Annual Report 2020 120
  118. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 4.3 Investments 4.3.1 Initial recognition and measurement 4.3.1.1 The Management determines the appropriate classification of its investments at the time of purchase in held-fortrading, available-for-sale or held-to-maturity as per SBP guidelines vide BSD circular No. 10 of 2004 dated July 13, 2004. These are initially recognised at cost, being the fair value of the consideration given plus, in the case of investments not held-for-trading, directly attributable acquisition costs. )a( Held-for-trading These are securities which are either acquired for generating profit from short-term fluctuations in market prices, interest rate movements, dealer’s margin or are securities included in a portfolio in which a pattern of short-term profit taking exists. These securities are carried at fair value with any related gain or loss being recognized in profit and loss account. )b( Held-to-maturity These are securities with fixed or determinable payments and fixed maturities that are held with the intention and ability to hold till maturity. Investments classified as held-to-maturity are carried at amortised cost. )c( Available-for-sale These are investments that do not fall under the held-for-trading or held-to-maturity categories. These are initially recognised at cost, being the fair value of the consideration given including the acquisition cost. These securities are carried at fair value with any related surplus or deficit on revaluation shall be taken to other comprehensive income. 4.3.1.2 Associates Associate is an entity over which the Bank has significant influence but not control. Investment in associate is carried at cost less accumulated impairment losses, if any. 4.3.1.3 Subsidiaries Subsidiary is an entity over which the Bank has control. Investment in subsidiary is carried at cost less accumulated impairment losses, if any. 4.3.1.4 Regular way contracts All ‘regular way’ purchases and sales of financial assets are recognised on the trade date, i.e. the date on which commitment to purchase / sale is made by the Bank. Regular way purchases or sales of financial assets are those, the contract for which requires delivery of assets within the time frame generally established by regulation or convention in the market place. 4.3.1.5 Premium or discount on acquisition of investments Premium or discount on acquisition of investments is capitalised and amortised through the profit and loss account using effective yield over the remaining period of the investment. 121 Annual Report 2020
  119. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 4.3.2 Subsequent measurement In accordance with the requirements of the SBP, quoted securities other than those classified as ‘held-tomaturity’ and investment in associates and subsidiaries, are subsequently remeasured on portfolio basis i.e. in case of government securities at PKRV and PKFRV rates whereas in case of other securities at market value. Investments classified as ‘held-to-maturity’ are carried at amortised cost using the effective interest method (less impairment, if any). Further, in accordance with the requirements of the SBP, gain or loss on revaluation of the Bank’s held-for-trading investments is taken to the profit and loss account. In case of investments classified as available-for-sale, surplus or deficit is taken directly to equity. The surplus or deficit arising on these securities is taken to the profit and loss account when actually realised upon disposal. Unquoted equity securities, excluding investment in subsidiaries and associates are valued at lower of cost and the break-up value in accordance with the requirements of the Prudential Regulations issued by the SBP. Breakup value of equity securities is calculated with reference to the net assets of the investee company as per the latest available audited financial statements. Investment in subsidiaries and associates are carried at cost, less accumulated impairment losses, if any. 4.3.3 Impairment / diminution in the value of securities Impairment loss in respect of quoted equity securities classified as available for sale, associates, subsidiaries and held to maturity is recognised based on management’s assessment of objective evidence of impairment as a result of one or more events that may have an impact on the estimated future cash flows of the investments. Objective evidence that the cost may not be recovered, in addition to qualitative impairment criteria, includes a significant or prolonged decline in the fair value below average cost. A decline to be considered as: - Significant if the fair value is below the weighted average cost by more than 30 percent. Prolonged if the fair value is below the weighted average cost for a period of more than one year. )a( Available-for-sale If an available-for-sale equity security is impaired, the cumulative loss that had been recognised in equity, shall be reclassified from equity to profit and loss as a reclassification adjustment even though the financial asset has not been derecognised, any further decline in the fair value at subsequent reporting dates is recognised as impairment. Therefore, at each reporting period, for an equity security that was determined to be impaired, additional impairments is recognised for the difference between the fair value and the original cost basis, less any previously recognised impairment. If, in subsequent period, impairment losses recognised in profit and loss for an investment in an equity instrument classified as available for sale shall not be reversed through profit and loss except in case of derecognition. )b( Held to maturity, subsidiaries and associates Impairment losses are incurred if, and only if, there is objective evidence of impairment after initial recognition of the investment. The impairment loss is recognised in the profit and loss account. If, in a subsequent period, any indication that an impairment loss recognised in prior periods no longer exist or may have decreased, the impairment loss shall be reversed, with the amount of the reversal recognised in profit or loss. )c( Debt Securities PTCs, TFCs, Sukuk and other debt securities will be classified on the valuation date on the basis of default in their repayment in line with the criteria prescribed for classification of short, medium and long-term facilities in accordance with the requirements of the Prudential Regulations issued by the SBP. Annual Report 2020 122
  120. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 4.4 Financial instruments 4.4.1Financial assets and financial liabilities Financial assets and financial liabilities are recognized at the time when the Bank becomes party to the contractual provision of the instrument. Financial assets are de-recognized when the contractual right to future cash flows from the asset expires or is transferred along with the risk and reward of the asset. Financial liabilities are de-recognized when obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on de-recognition of the financial asset and liability is recognized in the profit and loss account at the time of de-recognition. The particular recognition and subsequent measurement method for significant financial assets and financial liabilities are disclosed in the individual policy statements associated with them. 4.4.2Derivative financial instruments Derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently re-measured at fair value using valuation techniques. All derivative financial instruments are carried as assets when fair value is positive and liabilities when fair value is negative. Any change in the fair value of derivative financial instruments is taken to the profit and loss account. 4.5 Off-setting of financial assets and financial liabilities Financial assets and financial liabilities are set off and the net amount is reported in the financial statements when there is a legally enforceable right to set off and the Bank intends either to settle the assets and liabilities on a net basis or to realise the assets and to settle the liabilities simultaneously. Income and expenses arising from such assets and liabilities are accordingly offset. 4.6 Advances 4.6.1 Loan and advances Advances are stated net of general and specific provisions. General and specific provisions against funded loans are determined in accordance with the requirements of the Prudential Regulations issued by the SBP and charged to the profit and loss account. Advances are written off when there are no realistic prospects of recovery. 4.6.2 Finance lease receivables Leases, where the bank transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee are classified as finance leases. A receivable is recognised at an amount equal to the present value of the lease payment including any guaranteed residual value, if any. Net investment in finance lease is included in loans and advances to customers. 4.7 Fixed assets 4.7.1 Property and equipment Operating fixed assets except office premises are shown at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditures that are directly attributable to the acquisition of the items. Office premises (which includes leasehold land and buildings) are stated at revalued amount less accumulated depreciation and impairment loss, if any. 123 Annual Report 2020
  121. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Depreciation is calculated and charged to profit and loss account using the straight-line method so as to write down the cost of the assets to their residual values over their estimated useful lives at the rates given in note 11. A full month’s depreciation is charged from the month in which assets are brought into use and no depreciation is charged for the month in which the disposal is made. The residual values, useful lives and depreciation methods are reviewed and changes, if any, are treated as change in accounting estimates, annually. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is de-recognised. All other repairs and maintenance are charged to the profit and loss account during the period in which they are incurred. An item of property and equipment is de-recognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset is recognised in the profit and loss account in the year the asset is de-recognised. 4.7.2 Surplus / deficit on revaluation of fixed assets The surplus arising on revaluation is credited to other comprehensive income. However, the increase shall be recognised in profit and loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit and loss account. The deficit arising on a particular property as a result of a revaluation is recognised in profit and loss account as an impairment. However, the decrease to be recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. Depreciation on buildings which are revalued is determined with reference to the value assigned to such assets on revaluation and depreciation charge for the year is taken to the profit and loss account; and an amount equal to incremental depreciation for the year net of deferred taxation is transferred from “Surplus on Revaluation of Fixed Assets Account” to unappropriated profit through Statement of Changes in Equity to record realization of surplus to the extent of the incremental depreciation charge for the year. Gains or losses on disposal of assets are included in the profit and loss account currently, except that the related surplus on revaluation of fixed assets (net of deferred tax) is transferred directly to equity. 4.7.3 Capital work-in-progress Capital work-in-progress is stated at cost less impairment losses, if any. These are transferred to specified assets as and when assets are available for use. 4.8 Intangible assets Intangible assets are stated at cost less accumulated amortisation and impairment, if any. Intangible assets are amortised from the month when the assets are available for use, using the straight line method, whereby the cost of the intangible asset is amortised over its estimated useful life over which economic benefits are expected to flow to the Bank. The useful life and amortisation method are reviewed and adjusted, if appropriate, annually. Intangible assets having an indefinite useful life are carried at cost less any impairment in value and are not amortised. However, these are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Annual Report 2020 124
  122. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 4.9 Non-banking assets acquired in satisfaction of claims 4.9.1 Non-banking assets acquired in satisfaction of claims under Debt Property Swap (DPS) transactions, against the loans in category of loss, are initially carried at cost and subsequently at revalued amounts at each year-end date of the statement of financial position, being the fair value at the date of revaluation less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any. The valuation of properties acquired are conducted regularly, so as to ensure that their net carrying value does not materially differ from their fair value. All direct cost including legal fees, valuation and transfer costs of acquiring title to property shall be expensed when incurred through profit and loss account. Subsequent costs are included in the asset’s carrying amounts only when it is probable that future benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other subsequent costs including repair and maintenance are charged to the profit and loss account as and when incurred. Depreciation on assets acquired in satisfaction of claims is charged to the profit and loss account in line with the depreciation charged on operating fixed assets. Any reductions in non-performing loans and corresponding reductions in provisions held against non-performing loans, as a result of the recognition of such assets, are disclosed separately in the notes to these unconsolidated financial statements. These assets are generally intended for sale. Gains and losses realised on the sale of such assets are disclosed separately from gains and losses realised on the sale of operating fixed assets in the notes to these unconsolidated financial statements. If such asset is subsequently used by the Bank for its own operations, the asset, along with any related surplus, is transferred to operating fixed assets. 4.9.2 Surplus / deficit on revaluation of non banking assets Revaluation of non-banking assets acquired in satisfaction of claims under DPS transactions is carried out under criteria given in regulations for DPS issued by SBP vide BPRD Circular 01 dated January 01, 2016 i.e. valuation of property shall be done on individual property basis and not on portfolio basis, whereas accounting treatment of revaluation is accounted for in accordance with applicable financial reporting standards i.e. International Accounting Standard (IAS) 16 as referred in note no. 4.7.2. Furthermore, revaluation surplus on such assets shall not be admissible for calculating Bank’s Capital Adequacy Ratio and exposure limits under the Prudential Regulations. However, the surplus can be adjusted upon realization of sale proceeds. 4.10 Impairment other than investments and deferred tax At each balance sheet date, the Bank reviews the carrying amounts of its assets (other than investment and deferred tax asset) to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss, if any. Recoverable amount is the higher of net selling price (being fair value less cost to sell) and value-in-use. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the assets is reduced to its recoverable amount. Impairment losses are recognised as an expense in profit and loss account immediately. 125 Annual Report 2020
  123. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Where impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised recoverable amount but limited to the extent of the amount which would have been determined had there been no impairment. Reversal of impairment loss is recognized as income. 4.11 Borrowings / Deposits and their cost Borrowing / deposits are initially recorded at the amount of proceeds received. Borrowing / deposits are recognised as an expense in the period in which these are incurred. 4.12 Subordinated debt Subordinated debt is recorded at the amount of proceeds received. Mark-up accrued on subordinated debt is recognised separately as part of other liabilities and is charged to the profit and loss account over the period on an accrual basis. 4.13 Taxation 4.13.1 Current The charge for current taxation is based on taxable income at the current rate of taxation after taking into account applicable tax credit, rebates and exemptions available, if any, or minimum tax on turnover, whichever is higher. The charge for current tax also includes adjustments, where considered necessary, relating to prior years arising from assessments made during the year. 4.13.2 Deferred Deferred tax is recognised using the balance sheet liability method on all temporary differences arising between tax bases of assets and liabilities and their carrying amounts appearing in the financial statements. Deferred tax liability is recognized on taxable temporary differences. Deferred tax asset is recognised for all deductible temporary differences and carry forward of unused tax losses, if any only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefits will be realised. Deferred tax is calculated at the rates that are expected to apply to the period when the differences are expected to reverse, based on tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited to the profit and loss account. Deferred tax, if any, on revaluation of investments is recognised as an adjustment to surplus / (deficit) arising on revaluation in accordance with the requirements of IAS-12 “Income Taxes”. 4.14 Provisions Provisions are recognised when the Bank has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and are adjusted to reflect the current best estimate. Provision against identified non-funded losses is recognised when intimated and reasonable certainty exists for the Bank to settle the obligation. The loss is charged to profit and loss account net of expected recovery. Annual Report 2020 126
  124. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 4.15 Staff retirement benefits 4.15.1 Defined contribution plan The Bank has established a provident fund scheme for all permanent employees effective from January 01, 2007. Equal monthly contributions are made, both by the Bank and the employees, to the fund at the rate of 7.1 percent with effect from July 01, 2015 due to change in salary structure. Contribution by the Bank is charged to profit and loss account. 4.15.2 Defined benefit plan The Bank operates an approved funded gratuity scheme covering all its eligible employees who have completed minimum qualifying period. An actuarial valuation of defined benefit scheme is conducted at the end of every year or on occurrence of any significant change. The most recent valuation in this regard was carried out as at December 31, 2020, using the projected unit credit actuarial valuation method. Under this method cost of providing for gratuity is charged to profit and loss account so as to spread the cost over the service lives of the employees in accordance with the actuarial valuation. Past-service costs are recognised immediately in profit and loss account and actuarial gains and losses are recognised immediately in other comprehensive income. 4.16 Revenue recognition Revenue is recognized to the extent that economic benefits will flow to the Bank and the revenue can be reliably measured. These are recognized as follows: - Advances and investments Mark-up income / interest / profit on performing advances and debt securities is recognized on a time proportion basis as per the terms of the contract. Mark-up income / interest / profit on non-performing advances and debt securities is recognized on a receipt basis in accordance with the requirements of the Prudential Regulations issued by the State Bank of Pakistan. Interest / returns / mark-up income/ profit on rescheduled / restructured advances and debt securities are recognised as permitted by the State Bank of Pakistan or by the regulatory authorities of the countries where the Bank operates, except where, in the opinion of the management, it would not be prudent to do so. Premium or discount on acquisition of debt investments is capitalised and amortised through the profit and loss account over the remaining maturity of the debt security using the effective yield method. - Lease financing Financing method is used in accounting for income from lease financing. Under this method, the unearned lease income (defined as the excess of the sum of total lease rentals and estimated residual value over the cost of leased assets) is deferred and taken to income over the term of the lease period so as to produce a constant periodic rate of return on the outstanding net investment in lease. Unrealised finance income in respect of non-performing lease finance is held in suspense account, where necessary, in accordance with the requirements of the Prudential Regulations issued by the SBP. Gains / losses on termination of lease contracts, documentation charges, front-end fees and other lease income are recognized as income on receipt basis. 127 Annual Report 2020
  125. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 4.17 - Non Mark-up / interest income - Commission is recognised as income at the time of affecting the transaction to which it relates. Fees are recognised when earned. - Financial advisory fee is recognised when the right to receive the fee is established. - Dividend income from investments is recognised when the Bank’s right to receive the dividend is established. Dividend and appropriation to reserves Dividend and appropriation to reserves, except for statutory reserves, are recognised in the financial statements in the periods in which these are approved. 4.18 Foreign currencies 4.18.1 Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the Bank operates. The financial statements are presented in Pakistani Rupees, which is the Bank’s functional and presentation currency. 4.18.2 Transactions and balances Transactions in foreign currencies are translated into Pakistani rupees at the exchange rates prevailing on the transaction date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account. Forward contracts relating to foreign currency deposits are valued at forward rates applicable to the respective maturities of the relevant foreign exchange contract. The forward cover received / paid on forward purchase contracts relating to foreign currency deposits are realised / charged directly to profit and loss account. 4.18.3 Foreign operations Assets and liabilities of foreign operations are translated into rupees at the exchange rate prevailing at the reporting date. The results of foreign operations are translated at average rate of exchange for the year. 4.18.4 Translation gains and losses Translation gains and losses arising on revaluations of net investment in foreign operations are taken to Exchange Translation Reserve in the statement of comprehensive income. These are recognised in the profit and loss account on disposal. 4.18.5 Commitments Commitments for outstanding forward foreign exchange contracts disclosed in these financial statements are translated at contracted rates. Contingent liabilities/commitments for letters of credit and letters of guarantee denominated in foreign currencies are expressed in rupee terms at the rates of exchange ruling on the balance sheet date. Annual Report 2020 128
  126. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 4.19 Goodwill Goodwill acquired in a business combination before July 01, 2009 is initially measured at cost, being the excess of the cost of the business combination over the Bank’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Bank’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquirer are assigned to those units or groups of units. 4.20 Earnings per share The Bank presents basic and diluted earnings per share (EPS). Basic EPS is calculated by dividing the profit or loss attributable to ordinary equity holders of the Bank (less preferrence dividend, if any) by the weighted average number of ordinary shares outstanding during the period / year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary equity holders of the Bank by dividing the weighted average number of shares outstanding, for the effects of all dilutive potential ordinary shares, if any. 4.21 Non-current assets held for sale and associated liabilities The Bank classifies an asset as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and its sale must be highly probable. For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and an active programme to locate a buyer and complete the plan must have been initiated. Further, the asset must be actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. A held for sale asset is carried at the lower of its carrying amount and the fair value less costs to sell. Impairment losses are recognised in the unconsolidated profit and loss account for any initial or subsequent write down of the asset to fair value less costs to sell. Subsequent gains in fair value less costs to sell are recognised to the extent these do not exceed the cumulative impairment losses previously recorded. An asset is not depreciated while classified as held for sale. 4.22 Segment reporting A segment is a distinguishable component of the Bank that is subject to risks and rewards that are different from those of other segments. A business segment is one that is engaged either in providing certain products or services, whereas a geographical segment is one engaged in providing certain products or services within a particular economic environment. Segment information is presented as per the Bank’s functional structure and the guidance given under International Financial Reporting Standard (IFRS) 8. For management purposes, the Bank has been organised into five operating segments based on products and services, as follows: 129 Annual Report 2020
  127. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 4.22.1 Business segments Corporate finance This includes investment banking activities such as mergers and acquisitions, underwriting, privatization, securitization, Initial Public Offers (IPOs), specialised financial advice and trading and secondary private placements. Trading and sales This segment undertakes the Bank’s treasury, money market and capital market activities. Retail banking Retail banking provides services to small borrowers i.e. consumers, small and medium enterprises (SMEs) and agricultural sector. It includes loans, deposits and other transactions with retail customers. Commercial banking This includes loans, deposits and other transactions with corporate customers. Others This includes the head office related activities and other functions which canot be classified in any of the above segments. The Executive Management Committee (ManCom) monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profits or losses and is measured consistently with operating profits or losses in the unconsolidated financial statements. However, income taxes are managed on a group basis and are not allocated to operating segments. Interest income is reported net as management primarily relies on net interest revenue as a performance measure, along with the gross income and expense. Transfer prices between operating segments are based on the Bank’s internal pricing framework. No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Bank’s total revenue in 2019 or 2020. 4.22.2 Geographical segment The Bank operates with 307 (December 31, 2019: 359) branches / sub-branches in Pakistan region and one wholesale banking branch in Bahrain (December 31, 2019: one). 4.23 Fiduciary assets Assets held in a fiduciary capacity are not treated as assets of the Bank in statement of financial position. 5. FINANCIAL RISK MANAGEMENT The financial risk management objectives and policies adopted by the Bank are consistent with those disclosed in the unconsolidated financial statements for the year ended December 31, 2019 except for the following additional considerations due to the COVID-19. 5.1 COVID - 19 outbreak and it’s impact The COVID-19 and the measures to reduce its spread has impacted the economy of Pakistan significantly. Regulators and governments across the globe have introduced fiscal and economic stimulus measures to mitigate its impact. Annual Report 2020 130
  128. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 The State Bank of Pakistan (SBP) has responded to the crisis by cutting the policy rate by 625 basis points to 7 percent and by introducing regulatory measures to maintain banking system’s soundness and to sustain economic activity. These include: (i) (ii) (iii) (iv) (v) reducing the capital conservation buffer by 100 basis points to 1.5 percent; increasing the regulatory limit on extension of credit to SMEs by 125 million to Rs 180 million; relaxing the debt burden ratio for consumer loans from 50 percent to 60 percent allowing banks to defer clients’ payment of principal and profit on financing obligations by one year; and relaxing regulatory criteria for restructured/rescheduled loans for borrowers who require relief beyond the extension of principal repayment for one year. (vi) Relaxing credit requirements for exporters and importers; and (vii) Refinance schemes to support employment to prevent layoff of workers and health sector to combat COVID-19 Pandemic. COVID 19 has impacted the banks in Pakistan from various facets which includes increase in overall credit risk pertaining to loans and advances portfolio in certain sectors, reduced fee income due to slowdown in economic activity, operational issues such as operations of Branches, managing cyber security threat and managing investment banking activities including arrangement of syndicate loans, debt and capital advisory services etc. We have discussed below the major aspects of COVID 19 on the Bank’s risk management policies. 5.1.1 Assets quality and credit risk The Risk department of the Bank is regularly conducting assessments to identify borrowers operating in various sectors which are most likely to get affected. The Bank has further strengthened its credit review procedures in the light of COVID-19. The Bank has conducted various stress tests on the Credit portfolio and is confident that the CAR buffer currently maintained is sufficient. 5.1.2 Liquidity management Bank has received applications for deferral of principal and / or restructuring / rescheduling and is expected to receive further such applications. These applications are being reviewed by the Bank as per its established policies. The Asset and Liability Committee (ALCO) of the Bank is continuously monitoring the liquidity position and is taking due precautionary measures where needed. The Bank has conducted various stress testing on its liquidity ratios and is confident that the liquidity buffer currently maintained by the Bank is sufficient to cater any adverse movement in cash flow maturity profile. 5.1.3 Equity investments SBP has given relaxation in recognition of impairment on equity securities in phased manner equally on quarterly basis during calendar year ending on December 31, 2020. The Bank has taken the impact of impairment on the basis of that relaxation in these unconsolidated financial statements. 5.1.4 Foreign Exchange Risks Due to recent economic slowdown, the PKR has devalued against USD significantly from December 31, 2019 and the USD / PKR parity stood at Rs.159.8344 as at December 31, 2020. The exchange rate is expected to remain volatile till the uncertainty around COVID-19 resolves. The Bank has reviewed its Net Open Position and has had no significant impact on profitibility. 5.1.5 Operations The Bank is closely monitoring the situation and has invoked required actions to ensure safety and security of Bank staff and an uninterrupted service to our customers. The senior management of the Bank is continuously monitoring the situation and is taking timely decisions to resolve any concerns. Business Continuity Plans (BCP) 131 Annual Report 2020
  129. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 for respective areas are in place and tested. The Bank has significantly enhanced monitoring for all cyber security risk during these times from its information security protocols. The remote work capabilities were enabled for staff and related risk and control measures were assessed to make sure they are fully protected using virtual private network (“VPN”) connections. Further, the Bank has also ensured that its remote access systems are sufficiently resilient to any unwanted cyber attacks. The Bank is communicating with its customers on how they can connect with the Bank through its full suite of channels including digital and online channels. The Bank has taken all measures to ensure that service levels are maintained, customer complaints are resolved as per SLAs and the Bank continues to meet the expectations of their clients as they would in a normal scenario. 5.1.6 Capital Adequacy Ratio Under the current scenario, the banks are under pressure to extend further credit to its borrowers, while overall deteriorating credit risk and increased NPL may also put additional pressures on the Bank from Capital Adequacy Ratio perspective. The SBP has relaxed the Capital Conversion Buffer (CCB) requirements for the Banks to 1.5%, resulting in an overall CAR requirement of 11.5%. The reduced CCB has also provided an additional limit to the bank for its tier 2 capital. Further, the regulatory limit for retail loans has also increased by SBP to 180 million, which will now result in reduced Risk Weighted Assets for some of its loans. In addition to the measures by SBP, the Senior management of the Bank is continuously monitoring the impacts of various decisions on its CAR and taking further lending decisions based on the overall impacts on RWA. The Bank also believes that it has buffer in its CAR requirement to meet any adverse movements in credit, market or operational risks. 6. CASH AND BALANCES WITH TREASURY BANKS Note In hand Local currency Foreign currencies With State Bank of Pakistan in: Local currency current account Foreign currency current account - non remunerative Foreign currency deposit account - remunerative 6.1 6.2 6.3 With National Bank of Pakistan in: Local currency current accounts National Prize Bonds 2020 2019 ----- Rupees in ‘000 ----- 6,337,089 1,301,503 7,638,592 5,572,604 896,523 6,469,127 16,268,165 1,086,874 2,261,337 19,616,376 13,292,331 831,532 2,566,714 16,690,577 2,609,635 2,286,205 556,628 143,440 30,421,231 25,589,349 6.1 These include local currency current accounts maintained with SBP as per the requirements of Section 22 of the Banking Companies Ordinance, 1962. 6.2 As per BSD Circular No. 9 dated December 03, 2007, cash reserve of 5% is required to be maintained with the State Bank of Pakistan in deposits held under the New Foreign Currency Accounts Scheme (FE-25 deposits). 6.3 This represents deposit accounts maintained with SBP under the requirements of BSD Circular No. 14 dated June 21, 2008 and mandatory reserve maintained to facilitate collection and settlement of foreign currency accounts under FE-25, as prescribed by the SBP, carrying a mark-up rate 0% (2019: 0.70%) as per specific circular issued by SBP at year end. Annual Report 2020 132
  130. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Note 7. 2020 2019 ----- Rupees in ‘000 ----- BALANCES WITH OTHER BANKS In Pakistan In current accounts In deposit accounts 125,677 73 125,750 143,754 67 143,821 Outside Pakistan In current accounts 7.1 980,669 319,083 Less: General provision under IFRS 9 7.2 1,106,419 (450) 462,904 (68) 1,105,969 462,836 Balances with other banks - net of provision 7.1 This includes amount held in Automated Investment Plans. The Bank is entitled to earn interest from the correspondent banks at agreed upon rates when the balance exceeds a specified amount which comes 0% per annum (2019: 1.05% per annum). 7.2 This represents general provision held under IFRS 9 by Bahrain branch of the Bank. Note 8. LENDINGS TO FINANCIAL INSTITUTIONS Call money lendings Repurchase agreement lendings (Reverse Repo) 8.2 8.3 2,237,682 21,003,215 23,240,897 283,887 30,037,915 30,321,802 Less: General provision under IFRS 9 8.4 (1,225) (1,262) 23,239,672 30,320,540 21,003,215 2,237,682 23,240,897 30,037,915 283,887 30,321,802 Lending to Financial Institutions - net of provision 8.1 2020 2019 ----- Rupees in ‘000 ----- Particulars of lendings - gross In local currency In foreign currencies 8.2 These represent unsecured call money lendings to financial institutions carrying interest at the rates ranging from 1% to 1.1% (2019: 2.50% to 4.52%) per annum. These will mature between January 11, 2021 and January 28, 2021 (2019: January 30, 2020 and September 22, 2020). 8.3 These are secured short-term lendings to various financial institutions, carrying mark-up rate from 6.75% to 7.40% (2019: 12.00% to 13.60%) per annum. These are collateralized by Market Treasury Bills and Pakistan Investment Bonds as shown in note 8.3.1 below. 133 Annual Report 2020
  131. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 8.3.1 Market value of securities held as collateral against Lending to financial institutions 2020 2019 Further Further Held by given as bank collateral Total Held by given as bank collateral Total --------------------------------------------- Rupees in ‘000 --------------------------------------------Market Treasury Bills Pakistan Investment Bonds 8.4 - - - 24,252,002 - 21,160,868 - 21,160,868 2,081,639 3,673,117 24,252,002 5,754,756 21,160,868 - 21,160,868 26,333,641 3,673,117 30,006,758 This represents general provision held under IFRS 9 by Bahrain branch of the Bank. 2019 2020 9. INVESTMENTS 9.1 Investments by type Cost / Amortised cost Provision for diminution Surplus / (Deficit) Carrying Value Cost / Amortised cost Provision for diminution Surplus / (Deficit) Carrying Value -------------------------------------------------------------- Rupees in ‘000 ---------------------------------------------------------------- Held-for-trading securities Federal Government Securities 25,002,969 - 805 25,003,774 55,601,087 - (2,618) 55,598,469 Available-for-sale securities Federal Government Securities 127,308,516 - 97,527 127,406,043 47,828,618 - (809,244) 47,019,374 Shares 2,995,123 (411,955) 1,692,166 4,275,334 2,092,667 (136,589) 20,675 1,976,753 Non Government Debt Securities 3,020,950 (370,051) (1,142) 2,649,757 3,367,738 (370,051) (6,461) 2,991,226 Foreign Securities 4,079,070 (122,758) 136,466 4,092,778 2,406 - - 2,406 137,403,659 (904,764) 1,925,017 138,423,912 53,291,429 (506,640) (795,030) 51,989,759 36,109,599 - - 36,109,599 32,859,882 - - 32,859,882 242,067 - - 242,067 201,239 - - 201,239 1,919,121 - - 1,919,121 1,919,121 - - 1,919,121 200,677,415 (904,764) 1,925,822 201,698,473 143,872,758 (506,640) (797,648) 142,568,470 Held-to-maturity securities Federal Government Securities Associates Subsidiaries Total Investments 9.1.1 Investments include certain approved / government securities which are held by the Bank to comply with the Statutory Liquidity Requirement determined on the basis of the Bank’s demand and time liabilities as set out under section 29 of the Banking Companies Ordinance, 1962. Annual Report 2020 134
  132. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Note 9.2 Investments by segments: Held-for-trading securities Federal Government Securities Market Treasury Bills Pakistan Investment Bonds 2020 2019 Cost / Cost / Provision for Surplus / Carrying Provision for Surplus / Amortised Amortised Carrying Value diminution (Deficit) Value diminution (Deficit) cost cost ------------------------------------------------------------ Rupees in ‘000 -------------------------------------------------------------- 9.4.1 9.4.1 25,002,969 25,002,969 - 805 805 25,003,774 25,003,774 55,601,087 55,601,087 - (2,618) (2,618) 55,598,469 55,598,469 9.5.1 9.5.1 90,027,949 37,280,567 127,308,516 - 20,041 77,486 97,527 90,047,990 37,358,053 127,406,043 12,071,266 35,757,352 47,828,618 - (364) (808,880) (809,244) 12,070,902 34,948,472 47,019,374 9.5.2 9.5.2 2,847,534 136,589 (275,366) (136,589) 1,692,166 - 4,264,334 - 1,945,078 136,589 (136,589) 20,675 - 1,965,753 - 9.5.2.3 11,000 2,995,123 (411,955) 1,692,166 11,000 4,275,334 11,000 2,092,667 (136,589) 20,675 11,000 1,976,753 Available-for-sale securities Federal Government Securities: Market Treasury Bills Pakistan Investment Bonds Shares: Listed Companies Ordinary shares Preference shares Unlisted Companies Ordinary shares Non Government Debt Securities Listed Term Finance Certificates Sukuk Certificates Unlisted Term Finance Certificates Sukuk Certificates Preference shares 9.5.3.1 9.5.3.2 305,182 308,583 (155,169) - (13) (1,129) 150,000 307,454 305,183 396,750 (155,169) - (14) (6,447) 150,000 390,303 9.5.3.3 9.5.3.3 9.5.3.4 1,014,348 1,365,104 27,733 3,020,950 (214,882) (370,051) (1,142) 799,466 1,365,104 27,733 2,649,757 1,179,739 1,458,333 27,733 3,367,738 (214,882) (370,051) (6,461) 964,857 1,458,333 27,733 2,991,226 Foreign Securities Government Debt Securities * Non Government Debt Securities * Ordinary shares 9.5.4.1 9.5.4.2 9.5.2 3,633,601 379,654 65,815 4,079,070 (120,619) (2,139) (122,758) 130,420 (3,628) 9,674 136,466 3,643,402 373,887 75,489 4,092,778 2,406 2,406 - - 2,406 2,406 9.6.1 36,109,599 - - 36,109,599 32,859,882 - - 32,859,882 Held-to-maturity securities Federal Government Securities: Pakistan Investment Bonds Associates Omar Jibran Engineering Industries Limited Veda Transit Solutions (Private) Limited Intercity Touring Company (Private) Limited 9.7 9.7 9.7 180,000 41,800 20,267 242,067 - - 180,000 41,800 20,267 242,067 180,000 972 20,267 201,239 - - 180,000 972 20,267 201,239 Subsidiaries JS Global Capital Limited JS Investments Limited 9.7 9.7 1,357,929 561,192 1,919,121 - - 1,357,929 561,192 1,919,121 1,357,929 561,192 1,919,121 - - 1,357,929 561,192 1,919,121 200,677,415 (904,764) 1,925,822 201,698,473 143,872,758 (506,640) (797,648) 142,568,470 Total Investments * Provision for diminution against foreign debt securities represents expected credit loss provisioning under IFRS 9 on portfolio pertaining to Bahrain Branch. 135 Annual Report 2020
  133. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 2019 2020 Cost 9.2.1 Investments given as collateral Market value Cost Market value --------------------------- Rupees in ‘000 -------------------------- Held-for-trading securities Federal Government Securities Market Treasury Bills 4,864,464 4,864,680 - - 4,902,054 4,902,054 4,902,811 4,902,811 4,453,165 22,232,264 26,685,429 4,452,597 21,475,720 25,928,317 9,766,518 9,767,491 26,685,429 25,928,317 Available-for-sale securities Federal Government Securities Market Treasury Bills Pakistan Investment Bonds 9.3 Note Provision for diminution in value of investments Opening balance 506,640 851,940 Charge during the year Reversal during the year Charge/ (reversal) during the year Impairment under IFRS 9 in Bahrain branch 276,202 (836) 275,366 122,758 251,675 (596,975) (345,300) - 904,764 506,640 32 Closing Balance 9.3.1 2020 2019 ----- Rupees in ‘000 ----- Particulars of provision against debt securities 2019 2020 Category of classification NPI Provision NPI Provision --------------------------- Rupees in ‘000 -------------------------Domestic Other assets especially mentioned Substandard Doubtful Loss Annual Report 2020 370,051 370,051 136 370,051 370,051 370,051 370,051 370,051 370,051
  134. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 9.4 Quality of Held-for-Trading Securities Details regarding quality of Held-for-Trading (HFT) securities are as follows: 9.4.1 Federal Government Securities Government guaranteed Market Treasury Bills 9.4.1.1 Cost Note 2020 Market value Cost 2019 Market value --------------------------- Rupees in ‘000 -------------------------25,002,969 9.4.1.1 55,601,087 25,003,774 55,598,469 Principal terms of investment in Federal Government Securities Name of investment Market treasury bills Note Maturity Redemption Coupon 9.4.1.2 January 14, 2021 to January 28, 2021 On maturity On maturity 9.4.1.2 Market Treasury Bills are for the period of three to twelve months. The effective rates of profit on Market Treasury Bills range from 7.07% to 7.12% per annum (2019: 13.04% to 13.70% per annum). 9.5 Quality of Available-for-Sale Securities Details regarding quality of Available-for-Sale (AFS) securities are as follows: 9.5.1 Federal Government Securities Government guaranteed Market Treasury Bills Pakistan Investment Bonds 9.5.1.1 Note 2020 2019 Cost Market value Cost Market value --------------------------- Rupees in ‘000 --------------------------- 90,027,949 37,280,567 8.5.1.1 127,308,516 12,071,266 35,757,352 47,828,618 90,047,990 37,358,053 127,406,043 12,070,902 34,948,472 47,019,374 Principal terms of investment in Federal Government Securities Name of investment Maturity Note Market treasury bills 9.5.1.2 January 14, 2021 to June 03, 2021 Pakistan investment bonds 9.5.1.3 April 21, 2021 to September 19, 2029 Redemption Coupon On maturity On maturity On maturity Half yearly 9.5.1.2 Market Treasury Bills are for the period of three to twelve months. The effective rates of profit on Market Treasury Bills range from 6.90% to 11.77% per annum (2019: 13.02% to 13.75% per annum). 9.5.1.3 Pakistan Investment Bonds (PIBs) are for the period of three to twenty years. The rates of profit ranging from 7% to 12% per annum (2019: 6.40% to 14.27% per annum). 137 Annual Report 2020
  135. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Rating Industry Sector Shares 2020 9.5.2 Cost 2019 ------- Number ------- Shares Market value Cost 2020 Market value 2019 ------------------------ Rupees in ‘000 ------------------------ Listed Companies Ordinary shares Matco Foods Limited A- Food & Personal Care Products Shifa International Hospitals AA- Miscellaneous Pakistan Petroleum Limited Unrated Oil & Gas Marketing Companies National Foods Limited - - 1,078,500 - - 31,795 264,300 264,300 68,273 52,857 68,273 88,509 841,800 949,800 123,382 76,041 139,212 130,256 - 742,968 - - 153,492 164,946 Food & Personal Care Products 27,707 Investment in related parties EFU General Insurance Limited AA+ Insurance 5,455,675 5,440,575 647,129 654,681 645,414 600,095 EFU Life Assurance Limited AA+ Insurance 1,189,600 1,189,600 250,735 248,650 250,735 275,476 A+ Chemical Sitara Chemical Industries Limited TRG Pakistan Limited Unrated Technology & Communication Hum Network Limited A+ Technology & Communication 1,790,250 1,790,250 548,781 554,978 548,781 534,318 24,583,760 5,883,760 566,875 2,247,202 107,376 144,446 79,030,303 - 642,359 429,925 - - 2,847,534 4,264,334 1,945,078 1,965,753 Foreign securities Deutche Post AG A3 Microsoft Corporation Limited AAA Logistics Technology & Communication 8,100 - 56,525 64,706 - - 220 - 6,884 8,377 - - 63,409 73,083 - - Preference Shares Agritech Limited (note 9.5.2.1 & 9.5.2.3) Unrated Chemical Chenab Limited (note 9.5.2.2 & 9.5.2.3) Unrated Textile Composite Break-up value per share Unlisted Companies 2020 4,823,746 4,823,746 48,236 - 48,236 - 12,357,000 12,357,000 88,353 - 88,353 - 136,589 - 136,589 - Cost Breakup value Name of Chief Executive / Managing Director 2019 Shares 2019 2020 ------- Rupee ------- Breakup value Cost 2019 2020 ------- Number ------- ------------------ Rupees in ‘000 ------------------ Ordinary shares - ISE Towers REIT Management Limited (formerly Islamabad Stock Exchange Limited) (note 9.5.2.4) * 15.45 14.49 **786,254 638,551 Mr. Sagheer Mushtaq 1,213,841 1,213,841 11,000 18,754 11,000 17,592 6 6 2,406 4,718 2,406 3,831 Foreign securities Ordinary shares - Society for Worldwide Interbank Mr. Javier Pervez Tasso Financial Telecommunication (SWIFT) (note 9.5.2.5) * Based on audited accounts as of June 30, 2020 ** Based on audited accounts as of December 31, 2019 Annual Report 2020 138
  136. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 9.5.2.1 These are non-voting cumulative preference shares, carrying preference dividend @ 10% p.a and are convertible into ordinary shares at the option of the Bank after five years from the date of issuance i.e. February 2012. The investee company also has the option to redeem these preference shares plus any unpaid dividend in full or in part, within ninety days after expiry of each anniversary of the issue date. The Bank has recognised full impairment on these shares amounting to Rs. 48.236 million (2019: Rs. 48.236 million) due to weak financial position of the company. 9.5.2.2 These are cumulative preference shares, carrying preference dividend @ 9.25% p.a and are redeemable in part after four years from the date of issuance i.e. August 2008. The investee company also has an option to redeem, in part, cumulative preference shares after August 2008. The Bank has recognized full impairment on these shares amounting to Rs. 88.353 million (2019: Rs. 88.353 million) due to weak financial position of the company. 9.5.2.3 Surplus arising due to re-measurement of these shares to the market value has not been recognized as the management believes that the market value may not be realized while selling them in open market. 9.5.2.4 In accordance with the requirements of the Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012 (the Act), the Bank has received 3,034,603 shares of Rs.10 each including trading right entitlement certificate (TREC) of the Islamabad Stock Exchange (ISE), in lieu of its Membership Card held by the Bank. Further, upon integration of Islamabad Stock Exchange under the “ISE Scheme of Integration” in 2016 TRE Certificates holders of ISE have been issued 1,213,841 shares of “ISE Towers REIT Management Limited”. 9.5.2.5 The Bank qualified as a member based on the financial contribution to SWIFT for network-based services. The Bank has made an investment as per the requirements of By-Laws of SWIFT, under the Share Re-allocation Process, as a result becoming entitled to invest in for six shares. The participation is mandatory to avail the desired network-based services for financial message transmission for cross-border payments and receipt. Further, the share re-allocation occurs every three years and will result in either an increase, decrease, or a status quo in individual shareholding. 9.5.3 Non Government Debt Securities / Preference Shares (Debt Securities) Listed Unrated A AAA Unlisted AAA AA+, AA, AAA+, A, AUnrated 139 Annual Report 2020 Cost 2020 2019 ----- Rupees in ‘000 ----- 155,169 150,013 308,583 613,765 155,169 150,014 396,750 701,933 71,429 200,037 1,749,104 386,615 2,407,185 142,857 1,992,333 530,615 2,665,805 3,020,950 3,367,738
  137. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Certificates 2019 2020 9.5.3.1 Term finance certificates - listed * Worldcall Telecom Limited (note 9.5.3.1.2) Soneri Bank Limited Rating 2019 2020 Market value Cost ---- Numbers ---- 90,650 30,000 2019 2020 Market value Cost ---------------- Rupees in ‘000 ---------------- 90,650 30,000 Unrated A Unrated A 155,169 150,013 150,000 155,169 150,014 150,000 305,182 150,000 305,183 150,000 * Secured and have a face value of Rs.5,000 each unless specified otherwise. 9.5.3.1.1 Other particulars of listed term finance certificates are as follows: Name of the company Worldcall Telecom Limited Soneri Bank Limited 9.5.3.1.2 Note Repayment frequency Profit rate per annum Maturity date 9.5.3.1.2 Semi-annually Semi-annually 6 Month KIBOR ask rate plus 1.60% 6 Month KIBOR ask rate plus 2.00%. September 20, 2026 December 06, 2028 Due to weak financial position of the company the Bank has recognised full impairment loss on these term finance certificates. Certificates 2020 9.5.3.2 2019 2020 2019 AAA AAA 5,290 5,290 Market Market Cost value value -------------- Rupees in ‘000 -------------- Cost 308,583 307,454 396,750 390,303 308,583 307,454 396,750 390,303 Unlisted sukuk certificates are as follows: Name of the company Repayment frequency Byco Petroleum Pakistan Limited Certificate Term finance certificates - unlisted Azgard Nine Limited - related party (note 9.5.3.3.1) Agritech Limited (note 9.5.3.3.1) Pakistan Water & Power Development Authority (WAPDA) Khushhali Microfinance Bank Limited Airlink Communication Private Limited Secure Logistics Group Private Limited Bank Al Habib Limited 2020 2019 ----- Numbers ----- Profit rate per annum 3 Month KIBOR ask rate plus 1.05%. Quarterly (Chief Executive: Mr. Amir Abbassciy) 9.5.3.3 2019 2020 ---- Numbers ---- Sukuk certificates - listed Byco Petroleum Pakistan Limited 9.5.3.2.1 Rating Rating January 18, 2022 Face value per certificate 2020 2019 Maturity date ----- Rupees ----- Cost 2020 2019 ---- Rupees in ‘000 ---- 29,998 30,000 29,998 30,000 Unrated Unrated Unrated Unrated 5,000 5,000 65,022 149,860 65,022 149,860 100,000 384 288 40,000 100,000 1,500 384 288 - AAA AUnrated AA- AAA A AUnrated - 5,000 100,000 1,000,000 1,000,000 5,000 71,429 384,000 144,000 200,037 142,857 150,000 384,000 288,000 - 1,014,348 1,179,739 Annual Report 2020 140
  138. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 9.5.3.3.1 Due to weak financial position of the company the Bank has recognised full impairment loss on these term finance certificates. 9.5.3.3.2 Other particulars of unlisted term finance certificates are as follows: Name of the company Repayment frequency Profit rate per annum Maturity date Azgard Nine Limited - related party (Chief Executive: Mr. Ahmed H. Shaikh) Semi-annually 6 Month KIBOR ask rate plus 1.75%. December 04, 2017 Agritech Limited (Chief Executive: Mr. Faisal Muzammil) Semi-annually 6 Month KIBOR ask rate plus 1.75%. November 29, 2019 Pakistan Water & Power Development Authority (WAPDA) (Chairman: Lieutenant General Muzammil Hussain (Retd.)) Semi-annually 6 Month KIBOR ask rate plus 1.00%. September 27, 2021 Airlink Communication Private Limited (President & CEO: Mr. Muzaffar Hayat Piracha) Quarterly 3 Month KIBOR ask rate plus 1.00%. January 7, 2022 Secure Logistics Group Private Limited (see note 9.5.3.3.2.1) (President & CEO: Mr. Gulraiz A. Khan) Quarterly 3 Month KIBOR ask rate minus 1.00%. January 2, 2024 Semi-annually 3 Month KIBOR ask rate plus 1.50%. December 20, 2027 Bank Al Habib Limited (President & CEO: Mr. Mansoor Ali Khan ) 9.5.3.3.2.1 During the year, the borrower has taken the deferment of payment as per the guidelines of SBP circular letter No. 13 dated March 26, 2020. Certificates 9.5.3.3 Sukuk certificates - unlisted Ghani Gases Limited Pakistan Services Limited 9.5.3.3.1 Note 9.5.3.3.2.1 9.5.3.3.2.1 2020 2019 --------- Numbers --------2,000 1,350 2,000 1,350 2020 Rating 2019 Face value per certificate 2020 2019 --------- Rupees --------- A A AA 87,500 90,000 100,000 1,265,104 1,365,104 108,333 1,350,000 1,458,333 Other particulars of unlisted sukuk certificates are as follows: Name of the company Repayment frequency Profit rate per annum Maturity date Ghani Gases Limited (Chief Executive: Mr. Atique Ahmad Khan) Quarterly 3 Month KIBOR ask rate plus 1.00%. February 03, 2023 Pakistan Services Limited (Chief Executive: Mr. Murtaza Hashwani) Semi-annually 6 Month KIBOR ask rate plus 1.00%. January 17, 2024 Certificates 9.5.3.4 Cost 2020 2019 ---- Rupees in ‘000 ---- Preference shares - unlisted Intercity Touring Company Private Limited (associated company) 2020 2019 --------- Numbers --------1,848,888 1,848,888 141 Rating 2020 2019 - - Face value per certificate Cost 2020 2019 2020 2019 ------------------ Rupees in ‘000 -----------------100,000 Annual Report 2020 100,000 27,733 27,733
  139. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 9.5.4 Foreign Securities Name of Bond 9.5.4.1 Date of Maturity 2020 % BBBBa3 B+ B+ B+ B B B+ B2 Ba3 Caa1 5.50% 5.63% 6.88% 6.00% 4.88% 6.13% 7.63% 6.59% 7.60% 7.25% 6.50% 5.63% 5.75% October 13, 2021 December 5, 2022 December 5, 2027 August 1, 2029 October 9, 2026 October 24, 2028 April 26, 2029 February 21, 2028 March 1, 2029 February 28, 2028 November 28, 2027 January 17, 2028 April 18, 2023 - 6.00% 6.84% March 1, 2026 October 23, 2029 2020 2019 Market Market Cost Value Value --------------- Rupees in ‘000 --------------Cost 159,186 161,516 163,296 163,443 508,091 498,909 419,735 411,374 158,289 161,350 313,692 340,588 90,973 92,129 510,058 525,769 350,286 366,718 257,393 268,347 248,288 257,666 243,815 244,036 210,499 151,557 3,633,601 3,643,402 - - Non Government debt securities Bank of Ireland Petroleos Mexicanos 9.6 Coupon rate per annum Government debt securities The Third Pakistan International Sukuk Co Ltd The Third Pakistan International Sukuk Co Ltd Islamic Republic Of Pakistan Oman Government International Bond Republic of Turkey Republic of Turkey Republic of Turkey Arab Republic of Egypt Arab Republic of Egypt Republic of Kenya Republic of Nigeria Oman Government International Bond Republic of Srilanka 9.5.4.2 Rating Ba2 Ba2 39,828 339,826 42,502 331,385 - - 379,654 373,887 - - Quality of Held to Maturity Securities Details regarding quality of Held to Maturity (HTM) securities are as follows 9.6.1 Federal Government Securities - Government guaranteed 36,109,599 Pakistan Investment Bonds 9.6.1.1 32,859,882 Principal terms of investment in Federal Government Securities Security type Pakistan investment bonds 9.6.1.2 Cost 2020 2019 ---- Rupees in ‘000 ---- Maturity Redemption Coupon April 21, 2021 to August 22, 2029 On maturity Half yearly Pakistan Investment Bonds (PIBs) having maturity of five to fifteen years. The rates of profits ranging from 7.75% to 12% per annum (2019: 7.75% to 14.69% per annum). The market value of securities as at December 31, 2020 amounted Rs. 35,862.699 million (2019: Rs. 31,341.410 million). Annual Report 2020 142
  140. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 9.7 Investment in subsidiary and associated companies Shares Note Percentage holding 2019 2020 2020 2019 -------- Numbers -------- Cost 2020 2019 ------ Rupees in ‘000 ------ Subsidiary companies JS Global Capital Limited JS Investments Limited 9.7.1 25,525,169 25,525,169 83.53% 83.53% 1,357,929 9.7.2 & 9.7.3 52,236,978 52,236,978 84.56% 84.56% 561,192 1,357,929 561,192 1,919,121 1,919,121 Associated company - unlisted companies Omar Jibran Engineering Industries Limited 9.7.4 7,200,000 7,200,000 9.60% 9.60% 180,000 180,000 9.7.4 & 9.7.4.1 2,064,187 48,000 9.12% 8.00% 41,800 972 9.7.4 1,351,111 1,351,111 9.12% 9.12% 20,267 20,267 242,067 201,239 Veda Transit Solutions Private Limited Intercity Touring Company Private Limited 9.7.1 The Bank acquired effective controlling interest in JS Global Capital Limited (JSGCL) on December 21, 2011, April 15, 2016 and October 01, 2019 of 51.05%, 16.11% and 16.37% respectively. The ownership interest has increased by 32.42%, without any change in the cost of investment, due to the fact that JSGCL has bought back its 11,993,000 shares in April 15, 2016 and 7,450,000 shares in October 02, 2019. 9.7.2 The Bank acquired effective controlling interest in JS Investments Limited (JSIL) on November 01, 2012, December 22, 2015 and August 31, 2019 of 52.24%,12.92% and 19.40% respectively. The ownership interest has increased by 32.32% without any change in the cost of investment, due to the fact that JSIL has bought back its 19,828,182 shares in December 22, 2015 and 18,397,562 shares in August 31, 2019. 9.7.3 The Bank also controls JS ABAMCO Commodities Limited (JSACL) indirectly through its subsidiary JS Investments Limited which has 100% holding in JSACL. 9.7.4 The investments classified as asscociate on account of it’s significant influence over the investee company. 9.7.4.1 During the year, Veda Transit Solutions Private Limited, an associate of the Bank, has issued shares against advance subscription of Rs. 40.828 million made by the Bank. Resultantly, shareholding of the Bank increased to 9.12% (2019: 8%). The Bank has classified the investment as associate on account of it’s significant influence over the investee company. 9.7.5 All subsidiaries and associated companies are incorporated in Pakistan. 9.7.6 The following is summarised audited financial information before inter-company eliminations with other companies in the group. 143 Annual Report 2020
  141. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Subsidiary companies JS Global Capital Limited JS Investments Limited December 31, December 31, December 31, December 31, 2019 2020 2019 2020 -------------------------- Rupees’ in 000 -------------------------Total income / sales 727,409 718,541 348,467 408,539 Profit / (loss) after tax 206,954 47,248 (39,801) (86,645) 5,932 (2,649) - - Other comprehensive (loss) / income Total assets 5,390,731 4,091,855 2,305,289 2,562,025 Total liabilities 2,944,292 1,858,302 530,302 747,237 Net assets 2,446,439 2,233,553 1,774,987 1,814,788 (158,745) Cash flow from / (used in) operating activities 798,327 (308,598) (18,808) Cash flow (used in) / from investing activities (471,364) 427,747 324,209 522,027 Cash flow from / (used in) financing activities 91,523 (487,693) (309,407) (372,856) 418,486 (368,544) (4,006) (9,574) AA AA AM2 AM2 Net increase / (decrease) in cash and cash equivalents Rating Associated companies Omar Jibran Engineering Industries Limited Veda Transit Solutions Private Limited Intercity Touring Company Private Limited June 30, June 30, June 30, June 30, June 30, June 30, 2020 2019 2020 2019 2020 2019 ------------------------------- Rupees’ in 000 ------------------------------Total income / sales 1,950,375 2,628,975 785,016 922,200 3,796 290 (Loss) / profit after tax (137,700) 117,796 19,797 47,436 (38,961) (21,636) 7,560 343,881 - - - - 3,752,367 3,727,961 609,304 688,142 404,028 191,414 Other comprehensive income Total assets Total liabilities 2,043,290 1,888,745 429,690 743,324 302,129 50,879 Net assets 1,709,077 1,839,216 179,614 (55,182) 101,899 140,535 Cash flow from / (used in) operating activities 108,972 (73,759) 85,040 152,254 (2,105) (62,405) Cash flow (used in) / from investing activities (75,100) (233,038) (10,237) (189) - (141,183) Cash flow (used in) / from financing activities (39,955) 212,791 (54,777) (137,300) - 219,994 (6,083) (94,006) 20,026 14,765 (2,105) 16,406 Net increase / (decrease) in cash and cash equivalents Annual Report 2020 144
  142. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 10. ADVANCES Note Loans, cash credits, running finances, etc. Bills discounted and purchased Advances - gross 10.1 Provision against advances General General provision - under IFRS-9 Specific Performing Non Performing Total 2020 2019 2020 2019 2020 2019 ----------------------------------------------- Rupees in ‘000 ----------------------------------------------231,066,384 11,602,390 242,668,774 224,986,858 11,113,114 236,099,972 11,733,555 11,733,555 10,353,164 10,353,164 242,799,939 11,602,390 254,402,329 235,340,022 11,113,114 246,453,136 (21,327) (21,327) (161,166) (7,520) (168,686) (4,181,836) (4,181,836) (3,339,941) (3,339,941) (21,327) (4,181,836) (4,203,163) (161,166) (7,520) (3,339,941) (3,508,627) 242,647,447 235,931,286 7,551,719 7,013,223 250,199,166 242,944,509 10.4.4 10.4 Advances - net of provision 2019 2020 Not later than one year 10.1 10.2 Later than one and less than five years Over five years Later than one Not later than and less than one year five years Total Total ----------------------------------------------------------- Rupees in ‘000 ----------------------------------------------------------- Particulars of net investment in finance lease Lease rentals receivable Guaranteed residual value Minimum lease payments 4,923,114 1,008,381 5,931,495 5,173,453 2,449,909 7,623,362 2,318 2,248 4,566 10,098,885 3,460,538 13,559,423 6,860,218 1,599,605 8,459,823 6,637,949 2,538,848 9,176,797 3,527 10,783 14,310 13,501,694 4,149,236 17,650,930 Finance charges for future periods (991,822) (1,286,416) (1,443) (2,279,681) (1,468,867) (1,098,697) (259) (2,567,823) Present value of minimum lease payments 4,939,673 6,336,946 3,123 11,279,742 6,990,956 8,078,100 14,051 15,083,107 2020 2019 ----- Rupees in ‘000 ----- Particulars of advances (gross) In local currency In foreign currencies 10.3 Over five years 245,005,622 9,396,707 254,402,329 237,733,122 8,720,014 246,453,136 Advances include Rs. 11,733.555 million (2019: Rs. 10,353.164 million) which have been placed under nonperforming status as detailed below: Category of Classification 2020 2019 Non Non Performing Provision Performing Provision Loans Loans ---------------------- Rupees in ‘000 ---------------------- Domestic Other Assets Especially Mentioned Substandard Doubtful Loss Total 296,799 1,177,804 3,264,335 6,994,617 11,733,555 145 394 156,095 724,426 3,300,921 4,181,836 Annual Report 2020 841,058 1,159,072 2,442,270 5,910,764 10,353,164 1,721 64,681 426,283 2,847,256 3,339,941
  143. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 10.4 Particulars of provision against advances 2019 2020 Specific General provision under IFRS-9 General Specific Total General provision under IFRS-9 General Total Note ------------------------------------------------------------- Rupees in ‘000 ------------------------------------------------------------Opening balance Exchange adjustments Charge for the year Reversals 10.4.1 Amounts written off 10.5 Closing balance 3,339,941 - 161,166 - 7,520 71 3,508,627 71 2,989,888 - 155,661 - 10,746 1,095 3,156,295 1,095 1,087,212 (245,317) 841,895 (161,166) (161,166) 13,736 13,736 1,100,948 (406,483) 694,465 880,994 (526,146) 354,848 5,505 5,505 (4,321) (4,321) 886,499 (530,467) 356,032 - - - - (4,795) - - (4,795) 4,181,836 - 21,327 4,203,163 3,339,941 161,166 7,520 3,508,627 10.4.1 This includes reversal of provision of Rs. 8.604 million (2019: Rs. 277.078 million) against non-performing loans of certain borrowers under ‘Debt Property Swap’ transactions, as disclosed in note 13.2. 10.4.2 Particulars of provision against advances In local currency In foreign currency 2020 2019 Specific General Total Specific General Total --------------------------------------- Rupees in ‘000 --------------------------------------4,181,836 4,181,836 21,327 21,327 4,181,836 21,327 4,203,163 3,339,941 3,339,941 161,166 7,520 168,686 3,501,107 7,520 3,508,627 10.4.3 The Bank, in accordance with BPRD circular letter No. 31 of 2020 dated July 10, 2020, has taken the benefit of general provision to make good the specific provision requirement of the consumer financing portfolio till December 31, 2021. 10.4.4 This represents general provision held under IFRS 9 by Bahrain branch of the Bank. 10.4.5 The State Bank of Pakistan through various circulars has allowed benefit of the forced sale value (FSV) of Plant and Machinery under charge, pledged stock and mortgaged residential, commercial and industrial properties (land and building only) held as collateral against non-performing loans (NPLs) for a maximum of five years from the date of classification. As at December 31, 2020, the Bank has availed cumulative benefit of FSV of Rs.4,655.818 million (2019: Rs. 4,120.009 million) under the directives of the SBP. Had the benefit not been taken the unappropriated profit after tax would have reduced by Rs. 3,026.282 million (2019: Rs. 2,678.006 million). Further, as required by the SBP directives, this unappropriated profit will not be available for distribution as dividend or other appropriations. Annual Report 2020 146
  144. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 10.4.6 Advances - Deferred & Restructured / Rescheduled The SBP vide BPRD circular letter number 13 of 2020 dated March 26, 2020, has relaxed certain classification criteria of SBP Prudential Regulation R-8 (Classification and Provisioning of Assets). Accordingly, certain exposures as at December 31, 2020 relating to facilities of customers have not been classified as non-performing on account of such relaxation. 2020 2019 ----- Rupees in ‘000 ----- 10.5 Particulars of Write Offs 10.5.1 Against provisions Directly charged to profit and loss account - 4,795 315 5,110 10.5.2 Write offs of Rs.500,000 and above - Domestic Write offs of below Rs.500,000 - 4,795 315 5,110 10.6 Details of loan write 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 rupees five hundred thousand or above allowed to a person(s) during the year ended is given in Annexure-1. 11. Note FIXED ASSETS Capital work-in-progress Property and equipment Right-of-use assets 11.1 11.1 11.2 &11.3 11.4 2020 2019 ---- Rupees in ‘000 ---291,402 4,925,430 2,382,706 7,599,538 138,167 5,961,042 3,593,492 9,692,701 225,220 1,013 61,794 3,375 291,402 116,365 290 21,512 138,167 Capital work-in-progress Civil works Advance for purchase of furniture and fixtures Advance for purchase of equipment Advance for purchase of vehicle 147 Annual Report 2020
  145. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 11.2 Property and equipment 2020 Leasehold land At January 1, 2020 Cost / Revalued amount Accumulated depreciation Net book value Year ended December 2020 Opening net book value Additions Note Disposals Cost Accumulated Depreciation Depreciation charge Exchange rate adjustments Cost Accumulated Depreciation Write offs Cost Accumulated Depreciation Transferred / other adjustments Cost Accumulated Depreciation Closing net book value At December 31, 2020 Cost / Revalued amount Accumulated depreciation Net book value Rate of depreciation (percentage) 11.3 Building on leasehold land Leasehold improvements Furniture and fixture Electrical, office and computer equipment Vehicles Total -------------------------------------------------- Rupees in ‘000 -------------------------------------------------1,520,254 1,520,254 2,093,587 (190,898) 1,902,689 1,499,313 (701,210) 798,103 623,007 (341,029) 281,978 3,310,440 (1,956,984) 1,353,456 131,961 (27,399) 104,562 9,178,562 (3,217,520) 5,961,042 1,520,254 - 1,902,689 - 798,103 168,683 281,978 49,910 1,353,456 378,028 104,562 49 5,961,042 596,670 - (71,747) (1,852) (399) (2,251) (119,046) (14,146) 10,089 (4,057) (60,398) (45,929) 40,566 (5,363) (425,702) (4,313) 1,777 (2,536) (17,419) (66,240) 52,033 (14,207) (694,312) - - (885) 280 (605) (276) 101 (175) (210) 105 (105) (152) 58 (94) (1,523) 544 (979) - - (246,248) 134,307 (111,941) (35,053) 20,480 (14,573) (158,301) 104,869 (53,432) (2,904) 963 (1,941) (442,506) 260,619 (181,887) (739,200) (739,200) 781,054 (2,126) 429 (1,697) 1,829,245 732,943 252,685 1,246,882 82,621 (741,326) 429 (740,897) 4,925,430 781,054 781,054 - 2,091,461 (262,216) 1,829,245 1.01 - 4.78 1,419,011 (686,068) 732,943 10 623,442 (370,757) 252,685 12.5 3,484,028 (2,237,146) 1,246,882 12.5 - 33.3 124,641 (42,020) 82,621 20 8,523,637 (3,598,207) 4,925,430 Annual Report 2020 148
  146. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 2019 Leasehold land Note Building on leasehold land Leasehold improvements Furniture and fixture Electrical, office and computer equipment Vehicles Total -------------------------------------------------- Rupees in ‘000 -------------------------------------------------- At January 1, 2019 Cost / Revalued amount Accumulated depreciation Net book value 1,457,289 1,920,603 1,285,074 547,573 2,846,077 1,064,359 9,120,975 - (167,577) (591,448) (286,876) (1,661,236) (330,703) (3,037,840) 1,457,289 1,753,026 693,626 260,697 1,184,841 733,656 6,083,135 1,457,289 1,753,026 693,626 260,697 1,184,841 733,656 6,083,135 - 649,228 221,721 78,546 559,189 349,137 1,857,821 62,965 (49,200) - - - - 13,765 (1,391,906) Year ended December 2019 Opening net book value Additions Movement in surplus on assets revalued during the year 21.2 Disposals Cost - - (10,382) (4,034) (95,467) (1,282,023) Accumulated Depreciation - - 7,444 3,493 87,218 440,064 538,219 - - (2,938) (541) (8,249) (841,959) (853,687) - (76,365) (116,392) (57,353) (382,678) (136,591) (769,379) Depreciation charge Exchange rate adjustments Cost - - 2,900 922 641 488 4,951 Accumulated Depreciation - - (814) (293) (288) (169) (1,564) - - 2,086 629 353 319 3,387 Cost - (427,044) - - - - (427,044) Accumulated Depreciation - 53,044 - - - - 53,044 - (374,000) - - - - (374,000) 1,520,254 1,902,689 798,103 281,978 1,353,456 104,562 5,961,042 1,520,254 2,093,587 1,499,313 623,007 3,310,440 131,961 9,178,562 - (190,898) (701,210) (341,029) (1,956,984) (27,399) (3,217,520) 1,520,254 1,902,689 798,103 281,978 1,353,456 104,562 5,961,042 - 1.01 - 4.78 10 12.5 12.5 - 33.3 20 Transferred / other adjustments 11.3 Closing net book value At December 31, 2019 Cost / Revalued amount Accumulated depreciation Net book value Rate of depreciation (percentage) 149 Annual Report 2020
  147. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 11.2.1 The cost of fully depreciated property and equipment still in use Leasehold improvements Furniture and fixture Electrical, office and computer equipment Vehicles 2020 2019 ---- Rupees in ‘000 ---265,850 156,677 1,135,788 2,258 1,560,573 323,271 139,146 992,625 11,921 1,466,963 11.2.2 The details of disposals of assets to related parties are given in Annexure II to these unconsolidated financial statements. 11.2.3 The properties of the Bank were revalued by independent professional valuers as at December 31, 2019. The revaluation was carried out by M/s. Tristar International Consultants Pvt Ltd. on the basis of professional assessment of present market values. Had there been no revaluation, the carrying value of revalued land and building on land as at December 31, 2020 would have been lower by Rs. 505.342 million and Rs. 686.830 million respectively, and net surplus on revaluation of fixed assets, deferred tax liability and incremental depreciation expense would have been lower by Rs. 951.782 million, Rs. 240.391 million and Rs. 25.823 million respectively. 11.3 Note Assets held for sale Leasehold land Building on leasehold land 11.3.1 11.3.1 11.3.2 2020 2019 ---- Rupees in ‘000 ---739,200 - 374,000 739,200 374,000 In 2020, the Board of Directors accorded its in-principle approval and authorised the management of the Bank to explore the possibility to sell a land located at Plot No. 201, situated at Upper Mall, Lahore, Pakistan of the following reasons: i) The property is available for immediate sale and can be sold in its current condition subject to completion of certain legal formalities. ii) The actions to complete the sale were initiated and expected to be completed within one year from the date of classification. iii) The Bank expects the legal and procedural formalities for the sale to be completed by the end of 2021. Immediately before the classification of the property as a held for sale, the Property was revalued by independent professional valuer by M/s. Tristar International Consultants (Private) Limited as at December 31, 2020 and resulted no significant change is observed in valuations of the property. 11.3.2 In 2019, Bank had entered into an agreement to sell the Bank property located at 13th floor of Ocean Tower, plot No. G-3, Khayaban-e-Iqbal, Block 9, KDA Scheme No. 5, Clifton Karachi, Pakistan (“Property”) of Rs. 375 million and therefore, measured the property as a non-current asset held for sale. In this respect, during the period end the sale proceeds were realised on August 11, 2020. Annual Report 2020 150
  148. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 11.4 The carrying amounts of right-of-use assets Opening balance Additional impact arised during the year - net Termination impact arised during the year - net Depreciation 12. 12.2 29 3,593,492 31,080 (348,718) (893,148) 2,382,706 4,461,250 42,563 (910,321) 3,593,492 213,312 809,789 1,463,624 2,486,725 97,744 709,992 1,463,624 2,271,360 213,312 97,744 INTANGIBLE ASSETS Capital work-in-progress Computer software Goodwill 12.1 2020 2019 ---- Rupees in ‘000 ---- Note 12.1 12.2 12.2 &12.4 Capital work-in-progress Advance for purchase of software 2020 Computer Goodwill Total software ----------------- Rupees in ‘000 ----------------- Computer software and goodwill At January 1, 2020 Cost Accumulated amortisation and impairment Net book value Year ended December 2020 Opening net book value Additions: - directly purchased Amortisation charge Exchange rate adjustments Cost Accumulated Amortisation Write offs Cost Accumulated Amortisation Closing net book value At December 31, 2020 Cost Accumulated amortisation and impairment Net book value Rate of amortisation (percentage) Useful life (year) 151 1,152,900 (442,908) 709,992 1,463,624 1,463,624 2,616,524 (442,908) 2,173,616 709,992 1,463,624 2,173,616 212,692 (113,052) - 212,692 (113,052) 230 (73) 157 - 230 (73) 157 68 (68) 809,789 1,463,624 68 (68) 2,273,413 1,365,754 (555,965) 809,789 10 10 1,463,624 1,463,624 2,829,378 (555,965) 2,273,413 See note 12.4 Annual Report 2020
  149. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 2019 Computer Goodwill Total software --------- Rupees in ‘000 --------- At January 1, 2019 Cost Accumulated amortisation and impairment Net book value Year ended December 2019 Opening net book value Additions: - directly purchased Amortisation charge Exchange rate adjustments Cost Accumulated Amortisation Closing net book value At December 31, 2019 Cost Accumulated amortisation and impairment Net book value 979,872 (349,379) 630,493 1,463,624 1,463,624 2,443,496 (349,379) 2,094,117 630,493 172,381 (93,316) 1,463,624 - 2,094,117 172,381 (93,316) 647 (213) 434 709,992 1,463,624 647 (213) 434 2,173,616 1,152,900 (442,908) 709,992 1,463,624 1,463,624 2,616,524 (442,908) 2,173,616 10 10 See note 12.4 Rate of amortisation (percentage) Useful life (year) 2020 2019 ---- Rupees in ‘000 ---160,694 146,687 12.3 The cost of fully amortised computer software still in use 12.4 Goodwill is recorded by the Bank upon the event fully disclose in note 1.2. For impairment testing, goodwill has been allocated to ‘Trading and Sales’ Segment as Cash Generating Unit (CGU), which is also a reportable segment. 12.5 Key assumptions used in value in use calculation The recoverable amount of the CGU has been determined based on value in use calculation, using cash flow projections based on business plan approved by the Board of Directors of the Bank covering a five year period. The discount rates applied to cash flows beyond five years are extrapolated using a terminal growth rate. The following rates are used by the Bank. 2020 2019 Percentages Discount rate Terminal growth rate 17.41 12.51 22.87 10.00 The calculation of value in use is most sensitive to following assumptions: a) Interest margins Interest margins are based on prevailing industry trends and anticipated market conditions. b) Discount rates Discount rates reflect management estimates of the rate of return required for each business and are calculated after taking into account the prevailing risk free rate, industry risk and business risk. Discount rates are calculated by using cost of equity of the Bank. Annual Report 2020 152
  150. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 c) Key business assumptions The assumptions are important as they represent management assessment of how the unit’s position might change over the projected period. Based on the expansion plans, management expects aggressive growth in advances, investments and deposits during the projected periods and thereafter stabilisation in line with industry trends. Management believes that any significant change in key assumptions, on which CGU’s recoverable amount is based, may impact the carrying amount to further exceed its recoverable amount. Value in use calculation of the CGU are sensitive to changes in assumptions for interest rate spreads, Non Funded Income (NFI), long term growth rates and discount rates. d) Sensitivity to changes in assumption The estimated recoverable amount of the ‘Trading and Sales’ CGU exceeds its carrying amount by approximately Rs. 5,345 million (2019: 5,554 million). Management has identified two key assumptions for which there could be a reasonably possible change that could cause the carrying amount to exceed the recoverable amount. The following table shows the amount that these two assumptions are required to change individually in order for the estimated recoverable amount to be equal to the carrying amount. Changes required for carrying amount to equal recoverable amount (%) 2020 2019 - Discount rate - Terminal growth rate 13. 3.16 (4.88) Note OTHER ASSETS Income / mark-up accrued in local currency Income / mark-up accrued in foreign currencies Advances, deposits, advance rent and other prepayments Acceptances Dividend receivable Taxation (payments less provision) Defined benefit plan assets - net Receivable against bancassurance / bancatakaful Stationery and stamps in hand Receivable in respect of home remittance Due from State Bank of Pakistan Rebates receivable from SBP and others Non-banking assets acquired in satisfaction of claims Mark to market gain on derivative instruments Mark to market gain on forward foreign exchange contracts Advance for subscription of shares Inter bank fund transfer settlement Credit card settlement Insurance Others Less: Provision held against other assets Other assets (net of provisions) 37.5 13.1 13.2 & 13.3 23.2 13.4 Surplus on revaluation of non-banking assets acquired in satisfaction of claims Other assets - total 153 Annual Report 2020 4.85 9.00 2020 2019 ---- Rupees in ‘000 ---6,879,923 93,950 477,717 3,603,192 84,522 317,581 30,660 22,730 30,656 245,310 305,331 1,176,143 175,454 334,735 140,899 7,636 628,121 14,554,560 (11,241) 14,543,319 8,731,263 48,511 446,321 3,221,212 208,948 573,873 67,952 23,290 37,139 116,489 465,965 1,088,682 22,899 441,182 40,828 14,477 29,924 39,100 496,226 16,114,281 (13,580) 16,100,701 135,109 93,743 14,678,428 16,194,444
  151. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 13.1 This includes an amount of Rs. 297.218 million (2019: Rs. 455.370 million) receivable from State Bank of Pakistan in respect of home remittance services provided by the Bank. 13.2 During the year, the Bank acquired a property of Rs. 90.178 million (2019: Rs. 998.848 million) against debt swap transaction with a borrower resulting in reversal of provision of Rs. 8.604 million (2019: 277.078 million) (refer note 10.4.1). Note 13.3 Market value of non-banking assets acquired in satisfaction of claims 13.3.1 Movement of Non banking assets acquired in satisfaction of claims at market value As at January 01 Addition during the year Surplus recognised during the year Transferred during the year Depreciation during the year 13.3.2 13.2 21.3 29 2020 2019 ---- Rupees in ‘000 ---1,311,252 1,182,425 1,182,425 90,178 41,511 (2,862) 1,311,252 185,290 998,848 (1,713) 1,182,425 Non-banking assets acquired in satisfaction of claims are carried at revalued amount according to the requirements of the ‘Regulation for Debt Property Swap’ (the regulations) issued by SBP vide the BPRD Circular No. 1 of 2016, dated January 01, 2016. Non-banking assets acquired in satisfaction of claims have been revalued by independent professional valuers as at December 31, 2020. The revaluation was carried out by M/s. bfa (Pvt) Ltd. and Engineering Pakistan International (Pvt) Ltd. on the basis of professional assessment of present market values. Had there been no revaluation, the carrying value of non-banking assets acquired in satisfaction of claims would have been lower by Rs. 135.254 million (2019: Rs. 93.743 million), and surplus on revaluation of assets net, deferred tax liability and depreciation expense would have been lower by Rs. 131.080 million (2019: Rs. 92.776 million), and Rs. 0.145 million (2019: Rs. 0.126 million) respectively. 13.3.3 Note Particulars of Non banking assets Leasehold land Building on leasehold land 13.4 2020 2019 ----- Rupees in ‘000 ----944,946 231,197 1,176,143 866,695 221,987 1,088,682 13,580 100 (2,439) (2,339) 11,241 15,860 (2,280) (2,280) 13,580 Movement in provision held against other assets Opening balance Charge for the year Reversal for the year Net charge for the year Closing balance Annual Report 2020 32 154
  152. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Note 14. BILLS PAYABLE In Pakistan Outside Pakistan 15. 4,752,985 228,998 4,981,983 3,583,500 220,991 3,804,491 21,496,075 1,985,038 17,792,778 1,877,760 193,029 433,085 32,900 11,543,118 166,032 133,633 775 - 96,192 229,984 33,901 51,871 12,614,080 36,095,193 300,440 16,849,097 36,820,075 9,667,181 2,397,468 12,064,649 12,746,732 1,961,128 14,707,860 48,159,842 51,527,935 143,570 143,570 2,303,356 636,992 2,940,348 48,303,412 54,468,283 48,159,842 143,570 48,303,412 51,527,935 2,940,348 54,468,283 BORROWINGS Secured Borrowings from State Bank of Pakistan under: Export Refinancing Scheme (ERF) Long-Term Finance Facility (LTFF) Other borrowings Financing Facility for Storage of Agricultural Produce (FFSAP) Financing Facility for Renewable Energy Projects Refinance and credit guarantee scheme for women entrepreneurs Refinance for Wages & Salaries Refinance facility for modernization of Small and Medium Enterprises (SMEs) Refinance facility for combating COVID-19 Refinance facility for working capital of SMEs Temporary economic refinance facility (TERF) Repurchase agreement borrowings Borrowing from financial institutions Repurchase agreement borrowings Refinancing facility for mortgage loans 15.2.1 15.2.2 15.2.3 15.2.4 15.2.5 Total secured Unsecured Call borrowings Overdrawn nostro accounts Total unsecured 15.1 2020 2019 ---- Rupees in ‘000 ---- Particulars of borrowings In local currency In foreign currencies 155 Annual Report 2020
  153. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 15.2.1 The Bank has entered into agreement with the SBP for extending export finance to customers. As per the terms of the agreement, the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of finances by directly debiting the current account maintained by the Bank with SBP. These borrowings are repayable on a quarterly basis and to be matured between January 04, 2021 and February 08, 2027 (2019: January 02, 2020 and February 08, 2027). These carry mark-up at the rate from1% to 3% (2019: 1% to 3%) per annum. 15.2.2 These borrowings have been obtained from the SBP for providing financing facilities to exporters for adoption of new technologies and modernization of their plant and machinery. These borrowings will mature between November 04, 2021 and November 18, 2030 (2019: November 30, 2020 and August 08, 2029). These carry mark-up at rates ranging from 2.00% to 3.50% (2019: 2.00% to 3.50%) per annum. 15.2.3 Other borrowings have been obtained from SBP under various facilities on particulars mentioned below: Markup rate Matured Per annum From To Financing Facility for Storage of Agricultural Produce (FFSAP) 2% January 1, 2022 October 27, 2027 Financing Facility for Renewable Energy Projects 2% August 1, 2021 August 29, 2029 Refinance and credit guarantee scheme for women entrepreneurs 0% October 30, 2021 February 28, 2026 Refinance for Wages & Salaries 0% October 1, 2022 December 31, 2022 Refinance facility for modernization of Small and Medium Enterprises (SMEs) 0% October 1, 2022 June 16, 2025 Refinance facility for combating COVID-19 0% April 1, 2025 October 1, 2025 Refinance facility for working capital of SMEs 0% September 16, 2021 October 1, 2022 Temporary economic refinance facility (TERF) 1% November 22, 2025 November 22, 2025 15.2.4 This represents borrowing against Market Treasury Bills (2019: Market Treasury Bills, Pakistan Investment Bonds and Bai Muajjal) carrying mark-up at the rates ranging upto 6.70% (2019:12.70% to 13.19%) per annum and will be matured between January 11, 2021 and January 12, 2021 (2019: January 02, 2020 and March 26, 2020). The cost and market value of securities given as collateral of amounting to Rs. 9,766,518 million (2019: Rs. 9,200.503 million) and Rs. 9,767,491 million (2019: Rs. 9,122.620 million) respectively. 15.2.5 The Bank has entered into agreement with the Pakistan Mortgage Refinance Company Limited (PMRC) for extending housing finance facilities to the Bank’s customers on the agreed terms and conditions. The borrowing carries mark-up rate of 3 years PKRV less 100bps and will be matured on February 28, 2022 and December 09, 2025. Annual Report 2020 156
  154. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 16. DEPOSITS AND OTHER ACCOUNTS 2019 2020 In Local Currency Customers Current deposits Savings deposits Term deposits Margin deposits Financial Institutions Current deposits Savings deposits Term deposits 16.1 In Foreign Currencies Total In Local Currency 17. 90,714,627 98,103,956 186,691,026 5,920,595 381,430,204 9,668,068 3,944,797 15,203,881 163 28,816,909 100,382,695 102,048,753 201,894,907 5,920,758 410,247,113 70,341,319 73,442,779 164,602,876 5,455,786 313,842,760 6,412,941 2,898,794 11,409,815 15,234 20,736,784 76,754,260 76,341,573 176,012,691 5,471,020 334,579,544 1,281,700 12,831,324 8,266,773 22,379,797 435,683 435,683 1,717,383 12,831,324 8,266,773 22,815,480 859,151 13,450,440 20,900,829 35,210,420 - 859,151 13,450,440 20,900,829 35,210,420 403,810,001 29,252,592 433,062,593 349,053,180 20,736,784 369,789,964 2020 2019 ---- Rupees in ‘000 ---- Composition of deposits 147,143,479 92,317,151 52,156,536 2,950,286 19,865,194 118,629,947 433,062,593 135,583,867 73,503,161 37,475,517 2,926,436 32,283,984 88,016,999 369,789,964 This includes deposits eligible to be covered under insurance arrangements amounting to Rs. 143,210.503 million (2019: Rs. 87,425.180 million). 2020 2019 Note ----- Rupees in ‘000 ----SUBORDINATED DEBT Term Finance Certificates - First Issue Term Finance Certificates - Second Issue Term Finance Certificates - Third Issue 17.1 Total ---------------------------------------- Rupees in ‘000 ---------------------------------------- - Individuals - Government (Federal and Provincial) - Public Sector Entities - Banking Companies - Non-Banking Financial Institutions - Private Sector 16.2 In Foreign Currencies 17.1 17.2 17.3 2,995,200 1,997,600 2,500,000 7,492,800 2,996,400 1,998,400 2,500,000 7,494,800 In 2016, the Bank has issued Rs. 3 billion of rated, privately placed, unsecured and subordinated term finance certificates (“TFCs” or “the Issue”) as an instrument of redeemable capital under Section 120 of the Companies Ordinance, 1984 and as outlined by State Bank of Pakistan, SBP, under the BPRD circular No. 06 dated August 15, 2013 and Basel III guidelines. Summary of terms and conditions of the issue are: Purpose: To contribute toward the Bank’s Tier II Capital for complying with the Capital Adequacy Ratio requirement and to utilize the funds in the Bank’s business operations as permitted by its Memorandum & Articles of Association. 157 Annual Report 2020
  155. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Issue date: December 14, 2016 Tenure: Up to Seven years from the Issue date. Maturity Date: December 14, 2023 Rating: A + (Single A Plus) Profit Rate: Floating rate of return at Base rate + 1.4 percent per annum; Base rate is defined as the average six months KIBOR prevailing on the Base Rate setting date. The Base Rate will be set for the first time on the last working day prior to the Issue Date and subsequently on the immediately preceding business day before the start of each six monthly period. 17.2 Profit payment: Semi-annual Redemption: The instrument is structured to redeem 0.24% of the Issue amount during the first six years after the Issue date and the remaining Issue amount of 99.76% in two equal semi-annual installments of 49.88% each in the last year. Security: The Issue is unsecured and subordinated as to payment of Principal and profit to all other indebtedness of the Bank. Call Option: Exercisable in part or in full on or after the 10th redemption, subject to SBP’s approval. Lock-in-clause: Principal and profit will be payable subject to compliance with MCR or CAR set by SBP. Loss absorbency clause: Upon the occurrence of a Point of Non-Viability event as defined by SBP’s Basel III Capital Rule vide BPRD Circular # 6 of 2013 dated August 15, 2013, SBP may at its option, fully and permanently convert the TFCs into common shares of the Bank and/or have them immediately written off (either partially or in full). Number of shares to be issued to TFC holders at the time of conversion will be equal to the ‘Outstanding Face Value of the TFCs’ divided by market value per share of the Bank’s common share on the date of trigger as declared by SBP of the non-viability event as declared by SBP, subject to a cap of 467,836,257 shares. In 2017, the Bank has issued Rs. 2 billion of rated, privately placed and listed, unsecured and subordinated term finance certificates (“TFCs” or “the Issue”) as an instrument of redeemable capital under Section 66 of the Companies Act, 2017 and as outlined by State Bank of Pakistan, SBP, under the BPRD circular No. 06 dated August 15, 2013 and Basel III guidelines. Summary of terms and conditions of the Issue are: Purpose: To contribute toward the Bank’s Tier II Capital for complying with the capital adequacy requirement and to utilize the funds in the Bank’s business operations as permitted by its Memorandum & Articles of Association. Issue date: December 29, 2017 Tenure: Up to Seven years from the Issue date. Maturity Date: December 29, 2024 Annual Report 2020 158
  156. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Rating: A + (Single A Plus) Profit Rate: Floating rate of return at Base rate + 1.4 percent per annum; Base rate is defined as the average six months KIBOR prevailing on the Base Rate setting date. The Base Rate will be set for the first time on the last working day prior to the Issue Date and subsequently on the immediately preceding business day before the start of each six monthly period. 17.3 Profit payment: Semi-annual Redemption: The instrument is structured to redeem 0.24% of the Issue amount during the first six years after the Issue date and the remaining Issue amount of 99.76% in two equal semi-annual installments of 49.88% each in the last year. Security: The Issue is unsecured and subordinated as to payment of Principal and profit to all other indebtedness of the Bank. Call Option: Exercisable in part or in full on or after the 10th redemption, with prior approval of SBP. Lock-in-clause: Principal and profit will be payable subject to compliance with MCR or CAR set by SBP. Loss absorbency clause: Upon the occurrence of a Point of Non-Viability event as defined under SBP BPRD Circular # 6 of 2013 dated August 15, 2013, SBP may at its option, fully and permanently convert the TFCs into common shares of the Bank and/or have them immediately written off (either partially or in full). Number of shares to be issued to TFC holders at the time of conversion will be equal to the ‘Outstanding Face Value of the TFCs’ divided by market value per share of the Bank’s common share on the date of trigger of Point of Non-Viability (PONV) as declared by SBP, subject to a cap of 319,982,544 shares. In 2018, the Bank has issued Rs. 2.5 billion of rated, privately placed and listed, unsecured, subordinated, perpetual and non-cumulative additional Tier I capital term finance certificates (“TFCs” or “the Issue”) as an instrument of redeemable capital under Section 66(1) of the Companies Act, 2017 and as outlined by State Bank of Pakistan, SBP, under the BPRD circular No. 06 dated August 15, 2013 (the “Circular”) and Basel III guidelines. Summary of terms and conditions of the Issue are: Purpose: To contribute toward the Bank’s Tier I Capital for complying with the capital adequacy requirement and to utilize the funds in the Bank’s business operations as permitted by its Memorandum & Articles of Association. Issue date: December 31, 2018 Maturity date: Perpetual Rating: A (Single A) Profit Rate: Floating rate of return at Base rate + 2.25 percent per annum; Base rate is defined as the average six months KIBOR prevailing on the Base Rate setting date. The Base Rate will be set for the first time on the last working day prior to the Issue Date and subsequently on the immediately preceding business day before the start of each six monthly period. 159 Annual Report 2020
  157. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Profit payment frequency: Semi-annually on a non-cumulative basis Redemption: Not applicable Security: The Issue is unsecured and subordinated as to payment of Principal and profit to all other claims except common shares. Call Option: Exercisable in part or in full at a par value on or after five years from the issue date, with prior approval of SBP. The Bank shall not exercise the call option unless the called instrument is replaced with capital of same or better quality. Lock-in-clause: Payment of profit will be made from current year’s earning and subject to compliance with MCR or CAR set by SBP. Loss absorbency clause: Pre-Specified Trigger (“PST”) Upon the occurrence of a Pre-Specified Trigger as defined under SBP BPRD Circular # 6 of 2013 dated August 15, 2013 which stipulates that if an Issuer’s Common Equity Tier 1 (“CET 1”) ratio falls to or below 6.625% of Risk Weighted Assets (“RWA”), the Issuer will have full discretion to determine the amount of TFCs to be permanently converted into common shares or written off, subject to SBP regulations / instructions, and the cap specified below. The Bank will be able to exercise this discretion subject to: - If and when Bank’s CET 1 reaches the loss absorption trigger point, the aggregate amount of Additional Tier-1 capital to be converted must at least be the amount sufficient to immediately return the CET 1 ratio to above 6.625% of total RWA (if possible); - The converted amount should not exceed the amount needed to bring the CET 1 ratio to 8.5% of RWA (i.e. minimum CET 1 of 6.0% plus capital conservation buffer of 2.5%); and - In case, conversion of Additional Tier-1 capital Instrument is not possible following the trigger event, the amount of the Instrument must be written off in the accounts resulting in increase in CET 1 of the Issuer. Point of NonViability (“PONV”) Upon the occurrence of a Point of Non-Viability event as defined under SBP BPRD Circular # 6 of 2013 dated August 15, 2013, which stipulates that SBP may, at its option, fully and permanently convert the TFCs into common shares of the Issuer and / or have them immediately written off (either partially or in full). Number of shares to be issued to TFC holders at the time of conversion will be equal to the ‘Outstanding Value of the TFCs’ divided by market value per share of the Issuer’s common / ordinary share on the date of the PONV trigger event as declared by SBP, subject to the cap specified below: The PONV trigger event is the earlier of: - A decision made by SBP that a conversion or temporary / permanent write-off is necessary without which the Issuer would become non-viable; - The decision to make a public sector injection of capital, or equivalent support, without which the Issuer would have become non-viable, as determined by SBP; and - The maximum number of shares to be issued to TFC holders at the Pre-Specified Trigger and / or Point of Non Viability (or otherwise as directed by SBP) will be subject to a specified cap of 329,595,476 ordinary shares, or such other number as may be agreed to in consultation with SBP. Annual Report 2020 160
  158. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 18. DEFERRED TAX (ASSETS) / LIABILITIES 2020 Recognised Balance as at in other December 31, comprehensive 2020 income ------------------------- Rupees in ‘000 ------------------------- Balance as at January 01, 2020 Note Deferred tax debits arising from: Provision against investments Provision against loans and advances General provision under IFRS-9 Intangible other than Goodwill Mark to market gain / (loss) on forward foreign exchange contracts Other assets Deferred tax credits arising due to: Fixed assets Goodwill Surplus on revaluation of operating fixed assets Surplus on revaluation of non-banking assets acquired in satisfaction of claims Unrealized gain on revaluation of derivative instruments Unrealised (loss) / gain on revaluation of investments classified as held for trading (Deficit) / surplus on revaluation of investments classified as available for sale 21 21 21 Recognised in profit and loss account (57,149) (132,305) (3,097) (2,514) (155,535) (40,455) (390) - (57,149) (287,840) (43,552) (2,904) 23,085 (628,569) (800,549) (45,978) 628,569 386,211 - (22,893) (414,338) 250,858 512,268 299,034 (78,296) (58,643) - 172,562 512,268 240,391 967 8,145 (51) (2,843) 3,113 - 4,029 5,302 (1,218) 1,500 - 282 (278,261) 791,793 (138,332) 952,017 955,130 673,756 1,608,590 (8,756) 247,879 955,130 1,194,252 2019 Recognised Balance as at in other December 31, comprehensive 2019 income ---------------------------- Rupees in ‘000 ---------------------------- Balance as at January 01, 2019 Recognised in profit and loss account (57,149) (34,278) (124,078) (36,820) (2,246) (98,027) (504,491) 33,723 (268) - (57,149) (132,305) (628,569) (3,097) (2,514) (4,517) 3,299 - (1,218) (1,173,907) (1,432,995) (565,764) 895,646 895,646 (278,261) (1,103,113) 21 225,855 512,268 328,079 25,003 (11,825) (17,220) 250,858 512,268 299,034 21 1,010 (43) - 967 74,177 (51,092) - 23,085 4,544 1,145,933 3,601 (34,356) (17,220) 8,145 1,094,357 (287,062) (600,120) 878,426 (8,756) Deferred tax debits arising from: Provision against investments Provision against loans and advances Other assets General provision under IFRS-9 Intangible other than Goodwill Unrealised loss on revaluation of investments classified as held for trading Deficit on revaluation of investments classified as available for sale Deferred tax credits arising due to: Fixed assets Goodwill Surplus on revaluation of operating fixed assets Surplus on revaluation of non-banking assets acquired in satisfaction of claims Mark to market gain on forward foreign exchange contracts Unrealized gain on revaluation of derivative instruments 21 161 Annual Report 2020
  159. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 19. Note OTHER LIABILITIES Mark-up / return / interest payable in local currency Mark-up / return / interest payable in foreign currencies Unearned income on guarantees Accrued expenses Acceptances Unclaimed dividends Mark to market loss on derivative instruments Mark to market loss on forward foreign exchange contracts Payable in respect of defined benefit obligation - net Withholding taxes payable Government challan collection Donation payable Security deposits against leases, lockers and others Sindh Workers’ Welfare Fund Payable in respect of home remittance Retention money payable Lease liability against right-of-use assets Advance against assets held for sale Insurance payable Payable to vendors against SBS goods Debit card settlement Inter bank fund transfer settlement Others 19.1 37.5 29.2.1 33.2 19.1 11.3.2 2020 2019 ----- Rupees in ‘000 ----- 2,994,596 52,729 176,270 669,383 3,603,192 4,214 160,306 400,144 401,303 94,510 3,490,704 114,237 831,042 42,044 2,583,947 10,137 93,634 65,855 159,136 593,771 16,541,154 4,092,845 72,782 99,505 304,086 3,221,212 4,214 491 375,227 151,881 414,407 66,867 1,991 4,172,975 73,777 446,387 34,248 3,696,371 37,500 12,693 185 73,084 183,444 17,536,172 3,696,371 31,080 (417,536) 405,879 (1,131,847) 2,583,947 4,153,244 42,563 507,361 (1,006,797) 3,696,371 Lease liabilities The carrying amounts of lease liabilities and the movements during the year is as below: Opening balance Additional impact arised during the year - net Termination impact arised during the year - net Markup on Lease liability against right-of-use assets Payments Closing balance Annual Report 2020 25 162
  160. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 20. SHARE CAPITAL - NET 20.1 Authorised capital 20.1.1 Ordinary shares 2020 2019 ------ Number of shares ------ 2020 2019 ----- Rupees in ‘000 ----- 2,350,000,000 2,350,000,000 Ordinary shares of Rs.10 each 20.1.2 23,500,000 1,500,000 1,500,000 7,635,590 5,339,053 12,974,643 (2,855,401) 10,119,242 7,635,590 5,339,053 12,974,643 (2,855,401) 10,119,242 Preference shares 150,000,000 20.2 23,500,000 150,000,000 Convertible preference shares of Rs.10 each Issued, subscribed and paid-up capital Ordinary shares 763,558,965 763,558,965 Fully paid in cash 533,905,297 533,905,297 Issued for consideration other than cash 1,297,464,262 1,297,464,262 - Less: Discount on issue of shares 1,297,464,262 1,297,464,262 20.3 As at December 31, 2020, Jahangir Siddiqui & Co. Limited (the parent company) held 973,307,324 (December 31, 2019: 973,307,324) ordinary shares of Rs.10 each i.e. 75.02% holding (December 31, 2019: 75.02%). 21. SURPLUS ON REVALUATION OF ASSETS Note Surplus / (deficit) on revaluation of Available-for-sale securities Fixed assets Non-banking assets acquired in satisfaction of claims 9.1 & 21.1 21.2 21.3 Deferred tax on surplus / (deficit) on revaluation of Available-for-sale securities Fixed assets Non-banking assets acquired in satisfaction of claims 163 Annual Report 2020 2020 2019 ----- Rupees in ‘000 ----- 1,925,017 1,192,173 135,109 3,252,299 (795,030) 1,359,727 93,743 658,440 (673,756) (240,391) (4,029) (918,176) 2,334,123 278,261 (299,034) (967) (21,740) 636,700
  161. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 21.1 21.2 This includes general provision under IFRS 9 of Rs. 122.758 million held on foreign bonds (2019: Rs. Nil) by Bahrain branch of the Bank. Note Fixed assets Surplus on revaluation as at January 01 Recognised during the year - net Less: Transferred to unappropriated profit Incremental depreciation during the year Related deferred tax liability Realised on disposal of asset classified under held for sale Related deferred tax liability Surplus on revaluation as at December 31 21.2.1 Less: Related deferred tax liability on Surplus on revaluation as at January 01 Recognised / transfered during the year Transferred to profit and loss account on account of incremental depreciation Realised on disposal of asset classified under held for sale 2020 2019 ----- Rupees in ‘000 ----1,359,727 1,359,727 1,379,744 13,765 1,393,509 (16,785) (9,038) (92,126) (49,605) (167,554) 1,192,173 (21,958) (11,824) (33,782) 1,359,727 (299,034) - (328,078) 17,220 9,038 49,605 (240,391) 11,824 (299,034) 951,782 1,060,693 21.2.1 This includes Rs. 195.610 million (2019: Rs. 141.731 million) which relates to assets held for sale as disclosed in note 11.3. 21.3 Non-banking assets acquired in satisfaction of claims Surplus on revaluation as at January 01 Recognised during the year Less: Transferred to unappropriated profit Incremental depreciation during the year Related deferred tax liability Surplus on revaluation as at December 31 Less: Related deferred tax liability on Surplus on revaluation as at January 01 Transferred to profit and loss account on account of incremental depreciation Recognised during the year Annual Report 2020 164 2020 2019 ----- Rupees in ‘000 ----93,743 41,511 135,254 93,869 93,869 (94) (51) (145) 135,109 (82) (44) (126) 93,743 (967) (1,011) 51 (3,113) (4,029) 44 (967) 131,080 92,776
  162. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 22. Note CONTINGENCIES AND COMMITMENTS Guarantees Commitments 22.1 22.1.1 22.1 22.2 Guarantees Financial guarantees Performance guarantees Other guarantees 22.1.1 58,779,594 65,262,832 124,042,426 45,650,803 76,025,492 121,676,295 1,024,422 36,678,881 21,076,291 58,779,594 2,464,411 21,483,841 21,702,551 45,650,803 Included herein are outstanding guarantees of Rs. 29.054 million (2019: Rs.14.217 million) of related parties. Note 22.2 2020 2019 ----- Rupees in ‘000 ----- 2020 2019 ----- Rupees in ‘000 ----- Commitments Documentary credits and short-term trade-related transactions - letters of credit 22.2.1 21,111,360 13,965,258 Commitments in respect of - Forward foreign exchange contracts - Derivative instruments - Forward lending 22.2.2 22.2.3 22.2.4 38,178,262 5,362,948 384,230 55,111,366 6,745,592 72,183 Commitments for acquisition of - Fixed assets 22.2.5 226,032 65,262,832 131,093 76,025,492 22.2.1 Included herein are the outstanding letter of credits of Rs. 86.543 million (2019: Rs. 44.368 million) of related parties. 2020 2019 ----- Rupees in ‘000 ----- 22.2.2 Commitments in respect of forward foreign exchange contracts Purchase Sale 23,137,733 15,040,529 38,178,262 33,104,108 22,007,258 55,111,366 The Bank utilises foreign exchange instruments to meet the needs of its customers and as part of its asset and liability management activity to hedge its own exposure to currency risk. At year end, all foreign exchange contracts have a remaining maturity of less than one year. 22.2.3 2020 2019 ----- Rupees in ‘000 ----- Commitments in respect of derivative instruments Purchase Sale 22.2.3.1 Interest rate swaps (notional principal) Purchase Sale 165 Annual Report 2020 1,760,637 3,602,311 5,362,948 3,622,107 3,123,485 6,745,592 1,176,824 1,176,824 2,353,648 2,099,175 2,100,175 4,199,350
  163. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Note 22.2.3.2 Options (notional principal) Purchase Sale 22.2.3.3 Commitments in respect of forward securities Purchase 22.2.4 2020 2019 ----- Rupees in ‘000 ----582,419 2,425,487 3,007,906 1,023,310 1,023,310 2,046,620 1,394 499,622 384,230 72,183 Commitments in respect of forward lending Undrawn formal standby facilities, credit lines and other commitments to lend 21.2.4.1 22.2.4.1 These represent commitments that are irrevocable because they cannot be withdrawn at the discretion of the Bank without the risk of incurring significant penalty or expense. 226,032 22.2.5 Commitments for acquisition of fixed assets 22.2.6 Tax related contingencies are disclosed in notes 33.2 to 33.5. 23. DERIVATIVE INSTRUMENTS 131,093 Derivative instruments, such as Forward Exchange Contracts, Interest Rate Swaps and Options, are forward transactions that provide market making opportunities / hedge against the adverse movement of interest and exchange rates. Derivatives business also provides risk solutions for the existing and potential customers of the Bank. The Bank has entered into a Cross Currency Swap transaction with its customer on back-to-back basis with an Authorized Derivative Dealer (ADD) without carrying any open position in its books. Specific approvals for the transactions have been granted by State Bank of Pakistan. Policies in line with SBP instructions have been formulated and are operative. The Bank has also entered into Foreign Currency & Commodity Options from its Wholesale Banking Branch Bahrain for market making activities. These transactions cover the aspects of both market making and hedging. The risk management related to derivative is disclosed in note 45. Accounting policies in respect of derivative financial instruments are described in note 4.4.2. Annual Report 2020 166
  164. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 23.1 Product analysis With Banks for Hedging Market making 2020 Interest Rate Swaps Options Forward securities Notional Mark to Notional Mark to Notional Mark to principal Market principal Market principal Market ------------------------------------------ Rupees in ‘000 -----------------------------------------2,353,648 - 4,943 - 3,007,906 - 10,205 - - - - - - - 1,394 - 2,353,648 - 4,943 - 3,007,906 - 10,205 - 1,394 - With FIs other than banks Hedging Market making Total Hedging Market making With Banks for Hedging Market making 2019 Interest Rate Swaps Options Forward securities Notional Mark to Notional Mark to Notional Mark to principal Market principal Market principal Market ------------------------------------------ Rupees in ‘000 -----------------------------------------4,199,350 - 13,327 - - 8,885 - 499,622 196 - - - - - - 4,199,350 - 13,327 - - 8,885 - 499,622 196 With FIs other than banks Hedging Market making Total Hedging Market making 23.1.1 The notional value of options includes Nil (2019: Rs. 1,023.310 million) and the Bank has entered back to back arrangement to close the position at year end. 23.2 Maturity analysis 2020 Number of contracts Remaining maturity of Contracts Upto 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years 5 1 7 10 2 25 167 Mark to market Positive Negative Net ------------------------ Rupees in ‘000 -----------------------Notional principal 669,991 317,656 1,345,571 2,914,453 115,277 5,362,948 29,685 13,001 121,563 11,205 175,454 Annual Report 2020 (28,769) (889) (5,296) (114,748) (10,604) (160,306) 916 (889) 7,705 6,815 601 15,148
  165. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 2019 Remaining maturity of Contracts Number of contracts Upto 1 month 1 to 3 months 6 months to 1 year 1 to 2 years 2 to 3 years 24. 1 4 3 1 9 Mark to market Positive Negative Net ------------------------ Rupees in ‘000 -----------------------Notional principal 499,622 2,516,330 1,683,020 4,698,972 Note MARK-UP / RETURN / INTEREST EARNED On: Loans and advances Investments Lendings to financial institutions Balances with other banks Securities purchased under resale agreements 25. (491) (491) 196 8,885 7,785 5,542 22,408 2020 2019 ----- Rupees in ‘000 ----- 25,287,865 16,509,138 32,855 9,824 1,259,308 43,098,990 30,944,739 9,683,494 52,679 54,857 858,930 41,594,699 25.1 29,390,170 1,889,363 900,310 28,414,651 3,678,116 1,029,228 19.1 735,977 405,879 33,321,699 936,986 507,361 34,566,342 357,578 46,242 10,941 1,111,507 363,095 1,889,363 337,916 35,388 3,942 2,810,910 489,960 3,678,116 MARK-UP / RETURN / INTEREST EXPENSED Deposits Borrowings Subordinated debt Cost of foreign currency swaps against foreign currency deposits / borrowings Markup on Lease liability against right-of-use assets 25.1 196 9,376 7,785 5,542 22,899 Borrowings Export Refinancing Scheme (ERF) Long-Term Finance Facility (LTFF) Other Borrowings from State Bank Bank of Pakistan Securities sold under repurchase agreements Other borrowings Annual Report 2020 168
  166. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 26. Note FEE AND COMMISSION INCOME Branch banking customer fees Consumer finance related fees Card related fees (debit and credit cards) Credit related fees Investment banking fees Commission on trade Commission on guarantees Commission on cash management Commission on remittances including home remittances Commission on bancassurance Commission on distribution of mutual funds Commission on online Services Postage & Courier income Rebate income Rebate on primary dealership 26.1 26.1 27.1 Realised gain / (loss) on Federal government securities Market treasury bills Pakistan investment bonds Ijara sukuk certificates Shares Listed companies Non Government Debt Securities Term finance certificates Sukuk certificates Mutual fund units Foreign currency bonds 28. 174,723 21,098 594,713 328,927 47,997 570,108 266,999 5,966 111,288 180,770 117,298 186,396 22,143 224,598 6,918 2,859,942 2020 2019 ----- Rupees in ‘000 ----- GAIN / (LOSS) ON SECURITIES Realised Unrealised - held for trading 27.1 240,908 39,700 652,096 358,650 97,520 671,804 393,993 4,755 252,078 180,460 29,008 372,892 24,096 250,355 27,637 3,595,952 This includes Rs.149.305 million (2019: Rs. 82.373 million) in respect of commission income from home remittance services provided by the Bank. The amount is earned from State Bank of Pakistan at the rate of Saudi Riyal 20 (2019: Saudi Riyal 20) per transaction over USD 200 (2019: USD 200) and is shared between the Bank and various exchange companies as per terms of agreement with them. Note 27. 2020 2019 ----- Rupees in ‘000 ----- 1,872,242 805 1,873,047 (708,527) (2,618) (711,145) 76,894 1,379,114 71 3,518 (248,555) 633 1,456,079 (244,404) 414,716 (393,203) 450 (19) 150 450 131 4,355 (3,358) 1,872,242 3,272 (74,323) (708,527) (1,368) 1,000 64,805 5,358 69,795 483,600 483,600 OTHER INCOME - NET (Loss) / gain on sale of operating fixed assets - net Gain on sale of assets held for sale Gain on termination of leases Others 169 11.3.2 28.1 Annual Report 2020
  167. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 28.1 29. This represents, gain on termination of leases against closure of fifty one branches under the Bank’s branch rationalisation strategy. OPERATING EXPENSES Total compensation expense Property expense Rent & taxes Insurance Utilities cost Security (including guards) Repair & maintenance (including janitorial charges) Depreciation Depreciation - Right of Use Assets Depreciation on non banking assets Note 2020 2019 ----- Rupees in ‘000 ----- 29.1 6,262,594 5,237,267 24,555 2,638 343,963 335,688 213,589 190,794 893,148 2,862 2,007,237 28,522 10,550 345,722 295,201 176,677 192,757 910,321 1,713 1,961,463 749,848 176,495 204,326 113,052 121,682 1,365,403 233,349 166,549 173,734 93,316 115,973 782,921 19,950 166,570 281,757 152,468 90,010 45,199 299,192 19,121 99,622 171,275 259,670 452,925 117,841 13,011 200,842 59,970 17,148 18,802 57,739 6,906 4,975 55,905 128,144 73,303 67,988 239,732 124,516 10,556 76,415 52,214 3,383,766 13,019,000 12,050 114,265 203,412 131,109 93,640 40,394 402,887 33,742 81,069 119,523 271,491 324,628 2,609 10,804 220,510 63,284 55,533 21,870 33,786 8,662 5,306 30,949 139,761 63,921 66,161 69,625 65,861 8,124 79,858 35,223 2,810,057 10,791,708 11.4 13.3.1 Information technology expenses Software maintenance Hardware maintenance Depreciation Amortisation Network charges Other operating expenses Directors’ fees and allowances Legal & professional charges Insurance Outsourced services costs Travelling & conveyance NIFT clearing charges Depreciation Training & development Postage & courier charges Communication Stationery & printing Marketing, advertisement & publicity Donations Auditors’ Remuneration Staff Auto fuel & maintenance Bank Charges Stamp Duty Online verification charges Brokerage, fee and commission Card related fees (debit and credit cards) CDC and other charges Consultancy fee Deposit protection corporation Entertainment expenses Repair and maintenance Cash handling charges Fee and Subscription Employees social security Generator fuel & maintenance Others Annual Report 2020 36 29.2 29.3 29.4 170
  168. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 29.1 Note Total compensation expense Fees and Allowances etc. Managerial Remuneration i) Fixed ii) Variable of which; a) Cash Bonus / Awards etc. b) Commission Charge for defined benefit plan Contribution to defined contribution plan Leaving indemnity Medical Conveyance Insurance staff 29.1.1 2020 2019 ----- Rupees in ‘000 ----180,157 162,077 3,984,843 3,689,496 606,678 261,352 159,436 229,001 6,479 385,956 413,648 35,044 6,262,594 306,849 224,474 134,712 209,871 4,246 357,269 81,851 66,422 5,237,267 29.1.1 The Bank operates a short term employee benefit scheme which includes cash awards / special bonus for all employees. Under this scheme, the bonus for all employees, including the Chief Executive Officer (CEO) is determined on the basis of employees’ evaluation and the Bank’s performance during the year. 29.2 Donations Note Future Trust Hope Uplift Foundation Agha Khan Foundation 112,841 5,000 117,841 1,991 618 2,609 This represents donation to a related party, wherein below mentioned persons are trustees. The registered office of the donee is located at 20th Floor, The Centre, Plot No. 28, SB-5, Abdullah Haroon Road, Saddar, Karachi74400, Pakistan. 29.2.1 29.3 29.2.1 2020 2019 ----- Rupees in ‘000 ----- Mr. Suleman Lalani Mr. Kalim-ur-Rehman Mr. Hasan Shahid Mr. Najmul Hoda Khan Mr. Tariq Usman Bhatti Chief Executive Officer of the Jahangir Siddiqui & Co. Ltd. (the parent company) Chairman of the Bank Chief Financial Officer of the Bank and Director of JS Investments Limited, subsidiary company Chief Financial Officer of the Jahangir Siddiqui & Co. Ltd. (the parent company) Head of Money Market And Forex of JS Global Capital Limited, subsidiary company Note Auditors’ remuneration Audit fee - Pakistan Audit fee - Bahrain Half-yearly review Fee for audit of employees funds Fee for other statutory certifications Special certification and sundry advisory services Taxation services Out of pocket expenses and sales tax on services 171 29.3.1 Annual Report 2020 2020 2019 ----- Rupees in ‘000 ----1,794 1,717 619 143 1,010 5,413 270 2,045 13,011 1,794 1,640 619 143 591 4,103 275 1,639 10,804
  169. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 29.3.1 Note Geographical analysis Pakistan Bahrain 29.4 2020 2019 ----- Rupees in ‘000 ----10,406 2,605 13,011 8,651 2,153 10,804 Under the provision of section 5(2) of the Deposit Protection Corporation Act, 2016 (the Act), and DPC Circular No. 04 of 2018, the Bank is liable to pay annual premium, on quarterly basis, to the Deposit Protection Corporation, a subsidiary company of State Bank of Pakistan, @ 0.16% on eligible deposits as of December 31 of each preceding calendar year. The Bank’s eligible deposits as of December 31, 2019 are amounting to Rs. 87,425.180 million on which total premium is payable of Rs. 139.880 million per annum (Rs. 34.970 million per quarter). 30. 2020 2019 ----- Rupees in ‘000 ----- WORKERS’ WELFARE FUND 40,460 Charge during the year 30.1 31. Provision held at @ 2% of the higher of profit before tax or taxable income under Sindh Workers’ Welfare Act, 2014 and the Punjab Workers’ Welfare Fund Act, 2019. Note OTHER CHARGES Penalties imposed by State Bank of Pakistan Others 32. 2020 2019 ----- Rupees in ‘000 ----91,639 91,639 131,444 6,199 137,643 275,366 841,895 (161,166) 138,345 181,887 5,620 (2,339) 1,279,608 (345,300) 354,848 5,505 (105,018) (2,280) 315 (91,930) 384 (79) 124,303 13,737 (71) (3,434) (97,192) (4,321) (105,018) PROVISIONS AND WRITE OFFS - NET Provisions for diminution in value of investments Provisions against loans & advances - specific Provisions against loans & advances - general Provisions / (reversals) under IFRS-9 - general Fixed assets written off Other assets written off Other reversals Bad debts written off directly 32.1 1,065 9.3 10.4 10.4 32.1 11.2 13.4 Provisions / (reversals) under IFRS-9 - general Charge / (reversal) during the year Balances with other banks Lendings to financial institutions Investments Advances Annual Report 2020 138,345 172
  170. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 33. 2020 2019 ----- Rupees in ‘000 ----- TAXATION Current Prior years Deferred 33.1 708,542 (600,120) 108,422 2,022,941 133,075 708,029 32,074 140,471 (7,693) 872,881 46,576 46,005 20,559 (4,718) 108,422 Relationship between income tax expense and accounting profit Profit before taxation Tax on income @ 35% (2019: 35%) Effect of permanent differences Effects of prior year deferred taxation Effects of prior year current tax Others Tax charge for the year 33.2 623,291 1,711 247,879 872,881 Income Tax The income tax returns filed under Section 114 of the Income Tax Ordinance, 2001 for the tax years 2007 through 2020. These returns filed were deemed to have been assessed in terms the provisions prevailing under income tax laws as applicable in Pakistan. However, the Officers of Inland Revenue Services (OIR) conducted the proceedings for making certain amendments in the deemed assessments for tax years 2008 to 2017. This was done by taking recourse of conducting tax audit or alternatively a direct amendment in the assessment contending that certain matters in the deemed assessments were not admissible as not conforming to the law and prejudiced the interest of revenue. Based on the amended assessments in tax year 2008 to tax year 2018, the department had made certain disallowances of expenses and tax deductible claims besides creating minimum tax and Workers’ Welfare Fund liabilities in the tax years 2010, 2011 & 2012 and tax years 2009, 2012 & 2013 respectively. In respect of WWF, the Supreme Court of Pakistan has held in Judgement, PLD 2017 SC 28, that the amendments made in the WWF Ordinance through Finance Act, 2006 and 2008 were illegal and without lawful authority i.e. the banks do not fall into definition of Industrial Undertaking and thus, not liable to pay WWF. Therefore based on this, the Bank’s contention is mandated and it is likely that its pending appeals in this will be decided favorably. The Bank has obtained appeal effect orders of respective years except 2013 and resultantly no demand is payable in this respect. As a consequence of the 18th amendment to the Constitution, levy for the WWF was introduced by the Government of Sindh and Punjab through the Sindh WWF Act, 2014 (“the Act”) and the Punjab Workers Welfare Fund Act, 2019 respectively. As per the Acts, the Bank is liable to pay WWF in both provinces. However in this respect: - The Bank has challenged the issue of jurisdiction claimed by Sindh Revenue Board before the Honorable High Court of Sindh (SHC) through Constitutional Petition 1546/2017 on grounds that banking companies cannot be considered as industrial establishment and that the Act will be applied to trans-provincial entities to the extent that the obligation under the provincial law is to make distribution to the extent of the proportionate profit of the Sindh Province. The Court has restrained the Sindh Revenue Board to collect / recover Sindh WWF till the next date of hearing. - The Bank will challenge the recovery of Punjab WWF in the court of law on same grounds in case of SWWF. 173 Annual Report 2020
  171. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 In 2018, Based on decision of the Supreme Court of Pakistan, the Bank had reassessed the provision of WWF which was previously held on the entire operating results of the Bank (including all provinces, part of Pakistan, AJK and Bahrain Operations) and maintained WWF only to the extent of its operations within Sindh Province till 2019. In 2020 after promulgation of Punjab WWF, the Bank has again decided prudently to maintained provision on the entire results of the Bank. In respect of minimum tax, the Commissioner Inland Revenue-Appeals (the CIR(A)) has the not accepted the Bank’s contentions of gross loss position and also decided that non-mark-up income is the fall in the definition of turnover including capital gains and dividend income. As result the demand of Rs. 38.907 million has been payable. The Bank has contested the matter in further appeals before Appellate Tribunal Inland Revenue (ATIR) which are pending for hearing. For tax year 2008-2018, the Bank has not accepted the amendments of Rs. 6.57 billion and have filed appeals before the Commissioner Inland Revenue-Appeals (the CIRA). CIR(A) has admitted the contention of the Bank in case of tax year 2008 that the amended order is barred by time and decided that any addition made in impugned order is annulled and not required to be further adjudicated. However, the department has filed an appeal against the decision of CIR(A) in ATIR which has been partly heard. With regard to appeals filed for tax year 2009 to 2017, the CIR(A) has decided the appeals accepting the Bank’s contentions in respect of significant issues, and certain disallowance including amortization claim of goodwill have been decided in favor of department in all tax years. However, the Bank and the tax department are contesting the matters in further appeals before Appellate Tribunal Inland Revenue (ATIR) which are pending for adjudication. The tax department passed appeal effect/rectification orders and allowed deleted and set-aside issues in the light of CIR(A) orders for tax year 2008 to 2014. As a result of these orders, the Bank’s taxable losses has increased to Rs. 3.464 billion and reduced the demand of Rs. 1.212 billion in relevant tax years after adjustment of these losses. Further for the tax year 2013, the ATIR has decided appeal filed by tax department in respect of calculating the amount of provisions against advances as allowable under Rule 1(c) of Seventh Schedule to the Income Tax Ordinance, 2001 and has maintained the CIR(A) decision that the allowability of provision for advances to be calculated at 1% of gross amount of advances as against the tax department contention that the same is to be calculated on net advances after deducting the amount of provisions created and allowed against advances. The matter of allowability of amortization relating to goodwill is contentious issue, therefore based on the opinion of lawyer there are arguments available to contend that goodwill on merger is an allowable deduction for tax purposes. Especially in the recent decision given by the High Court of Sindh in the case of merger of another bank in Pakistan where the Court has ruled in favour of taxpayer that goodwill generated in merger is ‘intangible’ and amortization relating to goodwill is allowable deduction. The Sindh High Court has dismissed the Bank’s petitions for tax years 2016 through 2019 wherein the Bank alongwith other taxpayers challenged the levy of super tax on constitutional grounds. Based on the opinion of legal counsel, the Bank has appealed before the Supreme Court against the decision of the Sindh High Court. The Supreme Court has allowed interim relief to the taxpayers subject to the payment of 50% of the super tax liability. However, the Bank has adjusted full amount of super tax liability for Tax year 2016 and 2019 against the available tax refunds. Further, the bank has obtained stay from the Sindh High Court on other technical grounds regarding the levy of Super Tax for tax years 2017 and 2018. 33.3 Withholding tax monitoring Withholding tax monitoring was initiated against the Bank for tax year 2014-2019. Orders in respect of tax years 2014, 2015 and 2017 has been passed against which appeals have been filed before the CIR(A). CIR(A) has reminded back the matters for rectification in respect of tax years 2014 and 2015 against which rectified orders has been passed and demands have been rectified. Appeal for tax year 2017 has been heard and reserved for order. In respect of tax year 2018 and 2019, proceedings are pending. Annual Report 2020 174
  172. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 33.4 Sales tax The Bank as a registered person under Sindh Sales Tax on Services Act, 2011 has been issued a Sales Tax Order from the Sindh Revenue Board (SRB) creating a demand of Rs. 48.838 million (besides Rs. 4.440 million is charged as penalty) against the Bank for allegedly non-payment of Sindh sales tax on certain ‘presumed non-taxable services / incomes’(i.e. Bancassurance, Home Remittances under Pakistan Remittance Initiative Scheme, SBP rebates on Government securities, Rebates from foreign correspondent Banks, and FX gain on remittance by Western Union)’ on total amounting to Rs. 277.488 million for the tax periods July 2011 to December 2013. An appeal was filed before Commissioner (Appeals) Sindh Revenue Board, CA-SRB against the decision of AC-SRB which was decided in favor of the tax department except tax imposed on FX gain on remittance by Western Union. Thereafter, both the Bank and AC-SRB filed appeals before the Appellate Tribunal SRB against the decision of CA-SRB. Through its Order dated April 18, 2019, the Appellate Tribunal SRB quashedthe demandraised by deciding the Bank’s appeal in the Bank’s favour and dismissing the AC-SRB’s appeal.The Bank and tax department have filed appeals before Appellate Tribunal which are pending for hearing. The management of Bank is confident that the appeals filed in respect of the above matter will be decided in the Bank’s favor and accordingly no demand for payment would arise. 33.5 Azad Jammu & Kashmir Operations The Bank has commenced operations in Azad Jammu & Kashmir from tax year 2009 and has filed returns for the tax years 2009 to 2019 with the tax authorities of such region. The Commissioner has issued notices for amendment of assessment under section 122 of the Income Tax Ordinance, 2001 (as adopted in AJK Region) for the tax year 2011 to 2017. All assessments orders are rectified and no additional demand has been raised. 34. BASIC AND DILUTED EARNINGS PER SHARE 2020 2019 ----- Rupees in ‘000 ----- Note Profit after taxation for the year - attributable to ordinary equity holders of the Bank Preference dividend paid for the year December 31, 2018 @ 12% p.a Profit after taxation for the year - attributable to ordinary equity holders of the Bank 1,150,060 24,653 - (24,164) 1,150,060 489 ----- Numbers ----- Weighted average number of outstanding ordinary shares during the year 1,297,464,262 1,297,464,262 ----- Rupee ----Basic and diluted earnings per share 35. 0.8864 0.0004 30,421,231 1,106,419 (143,570) 25,589,349 462,904 (636,992) 31,384,080 (450) 31,383,630 25,415,261 (68) 25,415,193 CASH AND CASH EQUIVALENTS Cash and balances with treasury banks Balances with other banks Overdrawn nostro accounts 6 7 15 Less: General provision under IFRS 9 175 Annual Report 2020
  173. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 36. 2020 2019 ----------- Number ----------- STAFF STRENGTH Permanent On Bank’s contract Bank’s own staff strength at the end of the year Third party contract (other guards and janitorial) 36.1 3,773 1,055 4,828 483 5,311 3,607 825 4,432 472 4,904 5,304 7 5,311 4,897 7 4,904 Geographical segment analysis Pakistan Bahrain 37. DEFINED BENEFIT PLAN 37.1 General description The Bank operates a recognized gratuity fund for all employees who opted for this scheme introduced by the management with effect from January 01, 2007. The defined benefit is administered by a separate fund that is legally separate from the Bank. The plan is governed by the trust deed dated September 01, 2007. The trustees of the gratuity fund are composed of representatives from employers. The trustees of the gratuity fund are required by the trust deed to act in the interest of the fund and of all relevant stakeholders in the scheme, i.e. active employees, inactive employees, retirees and employers. The trustees of the gratuity fund are responsible for the investment policy with regard to the assets of the fund. 37.2 The plan in Pakistan typically exposes the Bank to actuarial risks such as: salary risk, discount rate risk, mortality risk and investment risk defined as follow: - Salary increase risk: The risk that the final salary at the time of cessation of services is greater than assumed. Since the benefit is calculated on the final salary (which will closely reflect inflation and other macroeconomic factors), the benefit amount increases as salary increases. - Discount rate risk The discount rate is based on the yield on government bonds. If the market yield of bonds varies, the discount rate would vary in the same manner and would affect the present value of obligation and fair value of assets. Annual Report 2020 176
  174. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 - 37.3 Demographic Risks - Withdrawal risk: The risk of actual withdrawals experience is different from assumed withdrawal probability. The significance of the withdrawal risk varies with the age, service and the entitled benefits of the beneficiary. - Longevity Risk The risk that the actual mortality experience is different than the assumed mortality. This effect is more pronounced in schemes where the age and service distribution is on the higher side. Investment risk This is the risk that the assets are under-performing and are not sufficient to meet the liabilities. Number of employees under the schemes The number of employees covered under defined benefit scheme (gratuity fund) is 3,756 (2019: 3,595). 37.4 Principal actuarial assumptions Principal actuarial assumptions at the end of the reporting period expressed as weighted averages. The actuarial valuations were carried out on December 31, 2020 based on the Projected Unit Credit Method, using the following significant assumptions: 2020 2019 Valuation discount rate for year end obligation per annum 9.75% 11.75% Interest cost on defined benefit obligation per annum 11.75% 13.75% Interest income on plan assets per annum 11.75% 13.75% Future salary increase rate upto one years from two to three years more than three years per annum per annum per annum 8.00% 10.00% 9.75% 8.00% 10.00% 11.75% The average duration of the defined benefit obligation years 10 10 Normal retirement age years 60 60 Moderate Moderate Withdrawal rates Mortality rates SLIC 2001SLIC 20012005, Setback 2005, Setback 1 Year 1 Year 177 Annual Report 2020
  175. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 37.5 Movement in defined benefit obligations, fair value of plan assets and their components Defined benefit obligations Fair value of plan assets 2019 2020 Net defined benefit liability / (asset) 2019 2020 2019 2020 ---------------------------------------- Rupees in ‘000 ---------------------------------------Balance as at January 01, 2020 844,212 649,062 692,331 546,568 151,881 102,494 148,693 125,676 - - 148,693 125,676 1,820 2,113 - - 1,820 2,113 97,343 87,892 88,420 80,969 8,923 6,923 247,856 215,681 88,420 80,969 159,436 134,712 14,025 (8,792) - - 14,025 (8,792) (266) 7,956 - - (266) 7,956 - - 490,776 (18,005) (490,776) 18,005 13,759 (836) 490,776 (18,005) (477,017) 17,169 (102,494) Included in profit or loss Current service cost Past service cost Interest cost / income Included in other comprehensive income Actuarial gains / losses arising from: - financial assumptions - experience adjustments Return on plan assets Other movements Contribution made during the year Benefits paid during the year Balance as at December 31, 2020 37.6 - - 151,881 102,494 (151,881) (31,529) (19,695) (31,529) (19,695) - - (31,529) (19,695) 120,352 82,799 (151,881) (102,494) 1,074,298 844,212 1,391,879 692,331 (317,581) 151,881 The composition of the plan assets at the end of the reporting period for each category, are as follows: Cost 2020 Fair value of plan assets 2019 2019 2020 2020 ------------------- Rupees in ‘000 -------------------- 2019 Percentage Cash and cash equivalents Cash at Bank Term deposits receipts 82,793 171,000 82,793 171,000 5.9% 150,000 - 161,806 - 11.6% 0.0% 232,793 171,000 244,599 171,000 17.6% 24.6% - - - Debt securities Pakistan Investment Bonds 24.6% 388,863 304,064 411,079 297,918 29.5% 42.9% Market treasury bills 53,815 114,508 53,660 117,399 3.9% 16.9% Term finance certificates 50,503 100,590 50,370 94,459 3.6% 13.6% 493,181 519,162 515,109 509,776 37.0% 73.4% 448,506 14,929 632,172 13,346 45.4% 1.9% 1,174,480 705,091 1,391,880 694,122 100% 100% Ordinary Shares of listed companies Annual Report 2020 178
  176. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 37.7 Maturity profile 37.7.1 Expected maturity analysis of undiscounted defined benefit obligation (benefit payments) for the gratuity fund is as follows: Over 10 and Up to Over Over Over above one year 1-2 years 2- 5 years 6-10 years years Total ---------------------------------------- Rupees in ‘000 ---------------------------------------Balance as at December 31, 2020 45,445 71,699 268,697 1,245,714 11,997,565 13,629,120 Balance as at December 31, 2019 37,261 44,550 217,395 901,479 14,564,443 15,765,128 37.8 Sensitivity analysis 37.8.1 Significant actuarial assumptions for the determination of the defined obligation are discount rate, and expected rate of salary increase. The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant: Present value of defined benefit obligation Rate Particulars Fair value of plan assets Net defined benefit liability / (asset) ------------------------ Rupees in ‘000 -----------------------Current results - 1,074,298 1,391,879 (317,581) Discount rate 1% Increase 1% Decrease 10.75% 8.75% 977,544 1,185,787 1,391,879 1,391,879 (414,335) (206,092) Salary Rate 1% Increase 1% Decrease 12.75% 10.75% 1,186,928 974,759 1,391,879 1,391,879 (204,951) (417,120) Moderate + one year Moderate - one year 1,046,507 1,104,543 1,391,879 1,391,879 (345,372) (287,336) 1,073,753 1,391,879 (318,126) 1,074,879 1,391,879 (317,000) Withdrawal rate 10% Increase 10% Decrease Mortality rate One year age set back One year age set forward Adjusted SLIC 20012005 - one year Adjusted SLIC 20012005 + one year Furthermore in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as applied in calculating the defined benefit obligation liability recognised in this unconsolidated statement of financial position. 37.9 Maturity profile The weighted average duration of the defined benefit obligation works out to 10 years. 179 Annual Report 2020
  177. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 37.10 Experience Adjustments The re-measurement gains / losses arise due to actual experience varying from the actuarial assumptions for the year. 2020 2019 2018 2017 2016 -------------------------------- Rupees in ‘000 -------------------------------- Particulars Defined benefit obligation Fair value of plan assets 1,074,298 (1,391,879) 844,212 (692,331) 649,062 (546,568) 550,729 (375,611) 367,635 (249,327) Net defined benefit liability (317,581) 151,881 102,494 175,118 118,308 Re-measurement loss / (gain) on obligation Re-measurement (gain) / loss on plan assets 13,759 (490,776) (836) 18,005 (52,391) 25,329 75,269 10,273 56,598 393 Other comprehensive income (477,017) 17,169 (27,062) 85,542 56,991 37.11 The average duration of the payment of benefit obligation at December 31, 2020 is within one year. 37.12 The Bank contributes to the gratuity fund as per actuarial’s valuation of the year. 37.13 Based on actuarial advice and management estimates, profit and loss account charge in respect of defined benefit obligation for the next one year works out to be Rs.139.866 million. The amount of re-measurements to be recognised in other comprehensive income for year ending December 31, 2020 will be worked out as at the next valuation. 38. DEFINED CONTRIBUTION PLAN The Bank operates a contributory provident fund for all permanent employees. The employer and employee both contribute 7.1% of the basic salaries (2019: 7.1% of the basic salaries) to the funded scheme every month. Number of employees covered under this plan are 3,164 (2019: 3,092). During the year, the Bank has made a contribution of Rs. 229.001 million (2019: Rs. 209.871 million) to the fund. The employees have also made a contribution of equal amount to the fund. 39. COMPENSATION OF DIRECTORS AND EXECUTIVES 39.1 The aggregate amount charged in the financial statements for the year in respect of the remuneration and benefits to the President and Chief Executive Officer, Directors and Executives are as follows: 2020 Directors Other Key Material Management NonRisk Takers/ Chairman Personnel Executives Controllers -------------------------------- Rupees in ‘000 -------------------------------- Items Fees and Allowances etc. Managerial Remuneration i) Fixed ii) Total Variable - Cash Bonus / Awards Charge for defined benefit plan Contribution to defined contribution plan Medical Conveyance Car allowance Others Total Number of persons Annual Report 2020 President / CEO 2,850 17,100 - - - 2,850 17,100 39,818 10,500 2,430 2,827 3,982 300 190 60,047 294,664 52,199 17,415 20,780 29,466 654 31,715 5,522 452,415 436,946 66,626 25,824 24,789 43,695 68,138 17,748 683,766 1 7 1 30 85 180
  178. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 2019 Directors Items Chairman NonExecutives President / CEO Key Other Material Management Risk Takers/ Personnel Controllers -------------------------------- Rupees in ‘000 -------------------------------Fees and Allowances etc. Managerial Remuneration i) Fixed ii) Total Variable - Cash Bonus / Awards Charge for defined benefit plan Contribution to defined contribution plan Medical Conveyance Car allowance Others Total Number of persons 1,950 10,100 - - - 1,950 10,100 32,727 1,934 3,279 3,273 667 300 42,180 249,705 14,757 20,306 24,934 11,196 4,924 912 326,734 365,567 1,440 20,606 30,326 36,557 32,466 11,852 1,885 500,699 1 7 1 24 87 39.1.1 The CEO and deputy CEO are provided with free use of Bank maintained cars in accordance with their entitlement. 39.1.2 Managerial remuneration includes joining related payments made to certain Executives in line with their terms of employment. 39.1.3 All Executives, including the CEO of the Bank, are also entitled to certain short term employee benefits which are disclosed in note 39.1 to these unconsolidated financial statements. 39.1.4 The SBP, vide its BPRD Circular No. 01 dated January 25, 2017, issued Guidelines on Remuneration Practices, where the Bank is required to defer a certain portion of variable compensation of the Material Risk Takers (MRTs) and Material Risk Controllers (MRCs) subject to mandatory deferrals for a defined period. In this respect, deferral amount shall be withheld for a period of three years whereas remaining portion of the variable compensation shall be paid upfront to the MRTs and MRCs. The deferred remuneration shall vest proportionately over the deferral period following the year of variable remuneration award. The deferred portion of the variable remuneration shall be paid to the MRTs and MRCs on vesting, proportionally through yearly instalments, during the deferred period, in case no malus triggers are applicable. Details of MRTs and MRCs are given below: 2020 2019 ---------- Numbers ---------- Employees Covered under: Marterial Risk Takers (MRTs) Marterial Risk Controllers (MRCs) 66 39 78 31 105 109 2020 2019 ---------- Rupees ‘000 ---------- Movement of deferred remuneration Opening Deferred during the year Paid during the year Closing 218 48,350 (73) 48,495 181 Annual Report 2020 218 218
  179. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 2020 Board Committees Board Meetings 39.2 Meeting Fees and Allowances Paid 1 2 3 4 5 6 7 8 Name of Director Mr. Kalim-ur-Rahman Mr. Adil Matcheswala Mr. Ashraf Nawabi Mr. G.M. Sikander Mr. Hassan Afzal Mr. Munawar Alam Siddiqui Ms. Nargis Ghaloo Mr. Sohail Aman Total amount paid Audit Committee Human Resource, Risk Remuneration Management & Nomination Committee Committee I.T Committee Total Amount Paid --------------------------------------------- Rupees in ‘000 --------------------------------------------- 1,500 1,500 1,250 1,500 1,500 1,500 1,500 1,500 11,750 500 500 500 500 2,000 850 850 750 850 3,300 400 500 500 1,400 500 500 500 1,500 1,350 1,350 400 1,250 500 1,000 1,000 1,350 8,200 2019 Board Committees Board Meetings Audit Committee Human Resource, Remuneration & Nomination Committee Risk Management Committee I.T Committee Total Amount Paid --------------------------------------------- Rupees in ‘000 --------------------------------------------Meeting Fees and Allowances Paid Name of Director 1 Mr. Kalim-ur-Rahman 1,250 - 200 200 300 700 2 Mr. Adil Matcheswala 1,000 300 300 - - 600 3 Mr. Ashraf Nawabi 1,000 - - 200 - 200 4 Mr. G.M. Sikander 1,250 300 400 - - 700 5 Mr. Hassan Afzal 750 - - - 300 300 6 Mr. Munawar Alam Siddiqui 1,250 300 300 - - 600 7 Ms. Nargis Ghaloo 1,250 200 100 200 - 500 8 Mr. Sohail Aman 250 - - - 100 100 9 Mr. Shahab Anwar Khawaja 250 100 - - - 100 8,250 1,200 1,300 600 700 3,800 Total amount paid Annual Report 2020 182
  180. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 40. FAIR VALUE OF FINANCIAL INSTRUMENTS IFRS 13 “Fair Value Measurement” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of quoted securities other than those classified as held to maturity, is based on quoted market price. Fair value of fixed term loans, other assets, other liabilities and fixed term deposits cannot be calculated with sufficient reliability due to absence of current and active market for assets and liabilities 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 accounting policy as stated in note 4.6 to the annual unconsolidated financial statements for the year ended December 31, 2020. The repricing profile, effective rates and maturity are stated in note 45.2.4 to these financial statements. In the opinion of the management, the fair value of the remaining financial assets and liabilities are not significantly different from their carrying values since assets and liabilities are either short term in nature or in the case of customer loans and deposits are frequently repriced. Fair value hierarchy IFRS 13 requires the Bank to classify fair value measurement using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has following levels: 40.1 Level 1: Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2: Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Fair value measurements using unobservable inputs for the asset or liability. Valuation techniques used in determination of fair values within level Item Financial Instruments- Level 1 Shares of listed companies Valuation approach and input used Fair values of investments in listed equity securities are valued on the basis of closing quoted market prices available at the Pakistan Stock Exchange. Financial instruments - Level 2 Units of mutual funds Fair values of investments in units of mutual funds are determined based on redemption prices disclosed at the Mutual Funds Association of Pakistan (MUFAP) as at the close of the business days. Market Treasury Bills(MTB) / Pakistan Fair values of Pakistan Investment Bonds and Market Treasury Investment Bonds(PIB), and GoP Sukuks Bills are derived using PKRV and PKFRV rates (Reuters page). (GIS) Debt Securities (TFCs) and Sukuk other than Investments in debt securities (comprising Term Finance Certificates, Bonds and any other security issued by a company Government 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 Association of Pakistan (MUFAP) in accordance with the methodology prescribed by the SECP. 183 Annual Report 2020
  181. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Overseas Government Sukuks, Overseas The fair value of Overseas Government Sukuks, and Overseas and Euro Bonds Bonds are valued on the basis of price available on Bloomberg. The valuation has been determined by interpolating the foreign Forward foreign exchange contracts exchange revaluation rates announced by the State Bank of Pakistan. The fair values of derivatives which are not quoted in active markets are determined by using valuation techniques. The Derivatives valuation techniques take into account the relevant underlying parameters including foreign currencies involved, interest rates, yield curves, volatilities, contracts duration, etc. Financial instruments in level 3 Currently, no financial instruments are classified in level 3. The fair value of unquoted debt securities, fixed term loans, other assets, other liabilities, fixed term deposits and borrowings cannot be calculated with sufficient reliability due to the absence of a current and active market for these assets and liabilities and reliable data regarding market rates for similar instruments. Non- financial assets- Level 3 Fixed assets - Land and building Non-banking assets under satisfaction of claims Fixed assets and Non-banking assets under satisfaction of claims are carried at revalued amounts determined by professional valuers based on their assessment of the market values as disclosed in note 11 and 13 respectively. The valuations are conducted by the valuation experts appointed by the Bank which are also on the panel of State Bank of Pakistan. The valuation experts used a market based approach to arrive at the fair value of the Bank’s properties. The market approach used prices and other relevant information generated by market transactions involving identical or comparable or similar properties. These values are adjusted to reflect the current condition of the properties. The effect of changes in the unobservable inputs used in the valuations cannot be determined with certainty, accordingly a qualitative disclosure of sensitivity has not been presented in these financial statements. 40.2 The Bank’s policy is to recognise transfers into and out of the different fair value hierarchy levels at the date the event or change in circumstances that caused the transfer occurred. There were no transfers between levels 1 and 2 during the year. 40.3 The following table provides an analysis of financial assets that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. Annual Report 2020 184
  182. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 2020 Level 1 Level 2 Level 3 Total ------------------------- Rupees in ‘000 ------------------------- On balance sheet financial instruments Financial assets - measured at fair value Held-for-trading securities Investments Federal Government Securities - 25,003,774 - 25,003,774 4,264,334 4,264,334 127,406,043 457,454 4,017,289 131,880,786 - 127,406,043 4,264,334 457,454 4,017,289 136,145,120 4,264,334 36,109,599 192,994,159 - 36,109,599 197,258,493 - - 2,610,299 1,311,252 3,921,551 2,610,299 1,311,252 3,921,551 Forward foreign exchange contracts Purchase Sale - 22,942,707 14,910,910 - 22,942,707 14,910,910 Derivative instruments: Forward securities Purchase - 1,394 - 1,394 Interest rate swaps Purchase Sale - 1,120,607 1,125,550 - 1,120,607 1,125,550 Options Purchase Sale - 581,042 2,437,068 - 581,042 2,437,068 Available-for-sale securities Investments Federal Government Securities Shares Non Government Debt Securities Foreign Securities Financial assets - disclosed but not measured at fair value Investments Federal Government Securities Non-Financial assets - measured at fair value Revalued fixed assets Non-banking assets acquired in satisfaction of claims Off balance sheet financial instruments Commitments in respect of: 185 Annual Report 2020
  183. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 2019 Level 1 Level 2 Level 3 Total ------------------------- Rupees in ‘000 ------------------------- On balance sheet financial instruments Financial assets - measured at fair value Held-for-trading securities Investments Federal Government Securities - 55,598,469 - 55,598,469 1,965,753 1,965,753 47,019,374 540,303 47,559,677 - 47,019,374 1,965,753 540,303 49,525,430 1,965,753 31,341,410 134,499,556 - 31,341,410 136,465,309 - - 3,797,180 1,182,425 4,979,605 3,797,180 1,182,425 4,979,605 - 32,885,546 21,722,741 - 32,885,546 21,722,741 Forward securities Purchase - 499,818 - 499,818 Interest rate swaps Purchase Sale - 1,474,016 2,738,661 - 1,474,016 2,738,661 Options Purchase Sale - 1,024,638 1,030,868 - 1,024,638 1,030,868 Available-for-sale securities Investments Federal Government Securities Shares Non Government Debt Securities Financial assets - disclosed but not measured at fair value Investments Federal Government Securities Non-Financial assets - measured at fair value Revalued fixed assets Non-banking assets acquired in satisfaction of claims Off balance sheet financial instruments Commitments in respect of: Forward foreign exchange contracts Purchase Sale Derivative instruments Annual Report 2020 186
  184. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 41. SEGMENT INFORMATION 41.1 Segment details with respect to business activities: 2020 Corporate Finance Trading and Sales Retail Banking Commercial Banking Others Total ------------------------------------------ Rupees in ‘000 -----------------------------------------Profit & Loss Net mark-up / return /profit / (loss) - 14,285,475 (8,543,152) 4,034,968 - 9,777,291 Non mark-up / return / interest income 93,161 (17,035,715) 2,905,042 16,914,719 2,349,650 120,996 1,258,710 69,794 6,676,357 Total Income 93,161 154,802 10,721,217 5,414,674 69,794 16,453,648 Segment direct expenses 33,286 - 149,059 334,127 6,711,460 2,664,330 1,081,529 1,862,559 314,749 - 8,290,083 4,861,016 33,286 59,875 483,186 344,219 (672,603) 9,375,790 124,158 1,221,269 2,944,088 811,231 1,659,355 314,749 (244,955) 13,151,099 1,279,608 2,022,941 - 20,722,345 10,804,855 - - 31,527,200 2,891,836 198,806,637 - - - 201,698,473 Inter segment revenue - net Inter segment expense allocation Total expenses Provisions Profit before tax Statement of Financial Position Cash & Bank balances Investments Net inter segment lending - - 129,898,985 109,429,008 11,732,961 251,060,954 Lendings to financial institutions - 23,239,672 - - - 23,239,672 - - 52,152,981 4,760,888 (938,040) 190,515,793 6,972,667 (3,265,123) - 242,668,774 11,733,555 (4,203,163) 2,891,836 4,590,700 247,359,354 55,975,829 3,570,545 200,250,214 194,223,337 3,315,506 306,967,851 14,027,140 25,760,101 250,199,166 25,503,891 783,229,356 Borrowings - 12,208,219 1,996,091 34,099,102 - 48,303,412 Subordinated debt - 7,492,800 - - - 7,492,800 Deposits & other accounts - - 166,087,049 266,975,544 - 433,062,593 2,891,836 - 227,156,281 502,054 21,012,836 11,154,238 5,893,204 5,167,893 251,060,953 22,717,389 2,891,836 2,891,836 247,359,354 247,359,354 200,250,214 200,250,214 306,967,850 306,967,850 5,167,893 20,592,208 25,760,101 762,637,147 20,592,208 783,229,355 - 60,973,417 44,793,723 18,141,644 133,642 124,042,426 Advances - net Advances - performing Advances - non-performing Advances - (Provisions)/reversals - Net Others Total Assets Net inter segment borrowing Others Total liabilities Equity Total Equity & liabilities Contingencies & Commitments 187 Annual Report 2020
  185. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 2019 Corporate Finance Trading and Sales Retail Banking Commercial Banking Others Total ------------------------------------------ Rupees in ‘000 -----------------------------------------Profit & Loss Net mark-up / return / profit / (loss) Inter segment revenue - net - 5,005,807 (7,592,022) 9,614,572 - 7,028,357 - (11,813,244) 19,091,812 (7,278,568) - - Non mark-up / return / interest income 59,843 437,628 1,996,345 965,788 483,600 3,943,204 Total Income 59,843 (6,369,809) 13,496,135 3,301,792 483,600 10,971,561 115,306 136,150 5,506,958 719,110 852,887 7,330,411 - 323,430 2,003,084 1,273,491 - 3,600,005 115,306 459,580 7,510,042 1,992,601 852,887 10,930,416 Segment direct expenses Inter segment expense allocation Total expenses Provisions Profit before tax - (424,361) (251,729) 584,160 - (91,930) (55,463) (6,405,028) 6,237,822 725,031 (369,287) 133,075 Statement of Financial Position Cash & Bank balances - 17,153,413 8,898,772 - - 26,052,185 Investments - 142,568,470 - - - 142,568,470 Net inter segment lending - - 202,362,517 - 8,089,077 210,451,594 Lendings to financial institutions - 30,320,540 - - - 30,320,540 Advances - performing - - 94,201,743 141,898,229 - 236,099,972 Advances - non-performing - - 3,508,735 6,844,429 - 10,353,164 Advances (Provisions) - Net - - (469,382) (3,039,245) - (3,508,627) - - 97,241,096 145,703,413 - 242,944,509 Advances - net Others - 5,206,833 3,925,690 5,017,351 14,391,387 28,541,261 Total Assets - 195,249,256 312,428,075 150,720,764 22,480,464 680,878,559 Borrowings - 36,295,878 7,090,687 11,081,718 - 54,468,283 Subordinated debt - 7,494,800 - - - 7,494,800 Deposits & other accounts - - 295,347,351 74,442,613 - 369,789,964 Net inter segment borrowing - 150,619,213 - 59,832,381 - 210,451,594 Others - 839,365 9,990,037 5,364,052 5,147,209 21,340,663 Total liabilities - 195,249,256 312,428,075 150,720,764 5,147,209 663,545,304 Equity - - - - 17,333,255 17,333,255 Total Equity & liabilities - 195,249,256 312,428,075 150,720,764 22,480,464 680,878,559 Contingencies & Commitments - 59,810,338 43,939,275 17,795,589 131,093 121,676,295 Annual Report 2020 188
  186. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 41.2 Segment details with respect to geographical locations Profit & Loss 2020 Pakistan Bahrain Total ---------- Rupees in ‘000 ---------- Net mark-up / return / profit Inter segment revenue - net Non mark-up / return / interest income Total Income 9,442,805 20,830 6,513,962 15,977,597 334,486 (20,830) 162,395 476,051 9,777,291 6,676,357 16,453,648 Segment direct expenses Inter segment expense allocation Total expenses Provisions Profit before tax 12,951,890 12,951,890 1,141,263 1,884,444 199,209 199,209 138,345 138,497 13,151,099 13,151,099 1,279,608 2,022,941 Others Total Assets 29,191,991 197,608,101 216,780,433 23,239,672 238,236,892 11,733,555 (4,181,836) 245,788,611 25,335,531 737,944,339 2,335,209 4,090,372 4,431,882 (21,327) 4,410,555 168,360 11,004,496 31,527,200 201,698,473 216,780,433 23,239,672 242,668,774 11,733,555 (4,203,163) 250,199,166 25,503,891 748,948,835 Borrowings Subordinated debt Deposits & other accounts Net inter segment borrowing Others Total liabilities Equity Total Equity & liabilities 48,211,222 7,492,800 425,531,719 214,438,859 22,638,412 718,313,012 19,631,328 737,944,340 92,190 7,530,874 2,341,574 78,977 10,043,615 960,880 11,004,495 48,303,412 7,492,800 433,062,593 216,780,433 22,717,389 728,356,627 20,592,208 748,948,835 Contingencies & Commitments 115,794,298 8,248,128 124,042,426 Statement of Financial Position Cash & Bank balances Investments Net inter segment lending Lendings to financial institutions Advances - performing Advances - non-performing Advances - (Provisions) / reversals - Net 189 Annual Report 2020
  187. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 2019 Pakistan Bahrain Total ---------- Rupees in ‘000 ---------- Profit & Loss Net mark-up / return / profit Inter segment revenue - net Non mark-up / return / interest income Total Income 6,778,252 (21,863) 3,937,975 10,694,364 250,105 21,863 5,229 277,197 7,028,357 3,943,204 10,971,561 Segment direct expenses Inter segment expense allocation Total expenses Provisions Profit before tax 7,157,913 3,600,005 10,757,918 13,088 (76,642) 172,498 172,498 (105,018) 209,717 7,330,411 3,600,005 10,930,416 (91,930) 133,075 Others Total Assets 25,973,213 142,568,470 208,787,632 30,037,273 232,347,686 10,353,164 (3,508,627) 239,192,223 28,416,470 674,975,281 78,972 1,663,962 283,267 3,752,286 3,752,286 124,791 5,903,278 26,052,185 142,568,470 210,451,594 30,320,540 236,099,972 10,353,164 (3,508,627) 242,944,509 28,541,261 680,878,559 Borrowings Subordinated debt Deposits & other accounts Net inter segment borrowing Others Total liabilities Equity Total Equity & liabilities 53,452,873 7,494,800 365,972,359 210,203,389 21,293,138 658,416,559 16,558,722 674,975,281 1,015,410 3,817,605 248,205 47,525 5,128,745 774,533 5,903,278 54,468,283 7,494,800 369,789,964 210,451,594 21,340,663 663,545,304 17,333,255 680,878,559 Contingencies & Commitments 118,862,446 2,813,849 121,676,295 Statement of Financial Position Cash & Bank balances Investments Net inter segment lending Lendings to financial institutions Advances - performing Advances - non-performing Advances - (Provisions) / reversals - net 42. TRUST ACTIVITIES The Bank under takes Trustee and other fiduciary activities that result in the holding or placing of assets on behalf of individuals and other organisations.These are not assets of the Bank and, therefore, are not included as such in these unconsolidated financial statements. Assets held under trust are shown in the table below: Annual Report 2020 190
  188. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 No. of IPS Accounts 2020 Securities Held (Face Value) Market Treasury Bills Pakistan Investment Bonds Government Ijara Sukuk Total -------------------- Rupees in ‘000 -------------------Category Assets Management Companies Charitable Institutions Companies Employees Funds Individuals Insurance Companies Others Total 1 1 13 51 43 8 11 128 23,000 2,373,860 7,194,410 919,290 24,076,000 15,370,700 49,957,260 142,000 25,560,800 17,927,950 431,500 84,255,700 7,882,700 136,200,650 69,000 1,621,500 1,690,500 23,000 142,000 27,934,660 25,191,360 1,350,790 109,953,200 23,253,400 187,848,410 2019 Securities Held (Face Value) No. of IPS Accounts Market Treasury Bills Pakistan Investment Bonds Government Ijara Sukuk Total -------------------- Rupees in ‘000 -------------------Category Assets Management Companies Charitable Institutions Companies Employees Funds Individuals Insurance Companies Others Total 43. 7 1 15 56 48 10 12 149 320,000 35,000 4,709,075 11,200,690 1,135,755 16,930,900 16,305,465 50,636,885 1,843,000 9,099,300 12,887,550 404,400 99,466,700 3,126,200 126,827,150 597,500 597,500 2,163,000 35,000 13,808,375 24,088,240 1,540,155 116,995,100 19,431,665 178,061,535 RELATED PARTY TRANSACTIONS The Bank has related party transactions with its parent, subsidiaries, associates, directors and Key Management Personnel and other related parties. The Banks enters into transactions with related parties in the ordinary course of business and on Arm’s Length basis i.e. substantially the same terms as for comparable transactions with person of similar standing. Contributions to and accruals in respect of staff retirement benefits and other benefit plans are made in accordance with the actuarial valuations / terms of the contribution plan. Remuneration to the executives / officers is determined in accordance with the terms of their appointment. 191 Annual Report 2020
  189. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Details of transactions with related parties, other than those which have been specially disclosed elsewhere in these unconsolidated financial statements are as follows: As at December 31, 2019 As at December 31, 2020 Parent Key Other related Directors management Subsidiaries Associates parties personnel Parent Directors Key Other related management Subsidiaries Associates parties personnel --------------------------------------------------------------------------------- (Rupees in ‘000) --------------------------------------------------------------------------------Statement of Financial Position Lendings to financial institutions Opening balance - - - - - - - - - - - - Addition during the year - - - - - 4,100,000 - - - - - - Repaid during the year - - - - - (4,100,000) - - - - - - Closing balance - - - - - - - - - - - - Opening balance - - - 228,972 1,617,327 - - - Investment made during the year - - - 40,828 4,009,279 - - - Investment redeemed / disposed off during the year - - - - - (2,905,705) - - - Closing balance - - - 1,919,121 269,800 2,720,901 - - - Provision for diminution in value of investments - - - - - 277,456 - - - Investments 1,919,121 - 180,000 1,964,110 48,972 1,542,991 - - (1,889,774) 1,919,121 228,972 1,617,327 - - 65,022 2,823,598 1,919,121 - Advances Opening balance - - 596,257 - - 1,946,481 - 5,230 448,575 - - Addition during the year - 58 265,948 193,550 153,128 6,402,913 - 316 322,590 - - 5,086,823 Repaid during the year - (832) (150,821) - (2,235) (5,488,750) - (5,546) (120,115) - - (6,320,068) Transfer in / (out) - net - 122,880 68,271 - 219,875 1,232,786 - - (54,793) - - 356,128 Closing balance - 122,106 779,655 193,550 370,768 4,093,430 - - 596,257 - - 1,946,481 Purchase of building - - - - - - - - - 607,299 - - Cost of disposal - - - - - - - - 43,410 - - 17,657 Accumulated depreciation of disposal - - - - - - - - (12,927) - - (8,002) WDV of disposal - - - - - - - - 30,483 - - 9,655 Interest mark-up accrued - 2,801 6 1,253 954 52,998 - 48 473 - - 49,640 Receivable against bancassurance / bancatakaful - - - - - 28,051 - - - - - 67,952 Advance for subscription of TFC - unsecured - - - - - - - - - - 40,828 - Net defined benefit plan - - - - - 317,581 - - - - - - Prepaid insurance - - - - - - - - - - - 97,806 Dividend Receivable - - - - - - - - - 208,948 - - Other receivable - - - - - 379 - - - 6,133 - 1,000 Provision against other assets - - - - - 379 - - - - - 2,438 Fixed Assets Other Assets Annual Report 2020 192
  190. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 Borrowings Opening balance Borrowings during the year Settled during the year Closing balance As at December 31, 2020 As at December 31, 2019 Key Key Other related Other Parent Directors management Subsidiaries Associates Parent Directors management Subsidiaries Associates parties related parties personnel personnel ----------------------------------------------------------------------------- (Rupees in ‘000) ----------------------------------------------------------------------------- - 11,105,705 (11,105,705) - - 59,593 1,246,363 973,685 499,101,485 (869,813) (498,707,020) (87,228) (2,058) 76,237 1,638,770 23,104 861,135 (834,486) 49,753 8,622,201 160,825,941 (159,215,607) 132,631 10,365,166 336,515 4,332,699 (4,364,266) (33,300) 271,648 - - 889,432 - - - - - 889,588 85 - 353 - 153,374 1,308 - - - 114 - 5,638 - 286,949 2,220 147,885 - 19,180 12,223 - - 45,323 9,733,073 17,330 900 - - 81,765 - - - - 29,054 86,543 - - - - - 14,217 44,368 - - 271,648 5,511,316 (5,610,945) 172,019 24,444 511,942 (324,417) 366 212,335 Subordinated debt - - - Other Liabilities Interest / return / mark-up payable on deposits Interest / return / mark-up payable on borrowings Interest / return / mark-up payable on subordinated debt Payable to defined benefit plan Others payable - - 9,733,073 - Deposits and other accounts Opening balance Received during the year Withdrawn during the year Transfer in / (out) - net Closing balance Represented By Share Capital Contingencies and Commitments Letter of guarantee Letter of Credit Profit and loss account Incowme Mark-up / return / interest earned Fee and commission income Dividend income Gain on sale of securities - net Other income - - - - - 4,800,000 174,209,491 (179,009,491) - 24,308 74,950 1,606,413 160,210 1,437,872 538,270,222 1,023,592 (137,680) (1,450,123) (538,630,272) (1,042,362) (22,394) (3,106) 41,874 24,444 59,593 1,246,363 23,104 9,656,833 235,460,531 (236,784,614) 289,451 8,622,201 - 3,279 11 - 42,627 784 - 1,851 - 5,816 - 178,695 227,206 90,633 242,439 - - 212 29 - 14,846 368 13,456 208,948 - - 322,478 330,904 85,332 155,288 - 46,099 2,036 3,490 54,790 19,950 - 3,204 414,220 - 156,221 9,215 - 2,600 - 1,135,034 159,436 229,001 112,841 195 1,899 35,406 23,419 9,588 - 2,227 161 11,000 - 4,309 343,874 - 232,715 4,670 2,945 - 2,930 - 1,383,816 38 209,871 134,313 15,000 2,162 Reimbursement of expenses - 869 5,679 6,632 - 30,598 1,886 1,240 - 1,145 - - Payments made during the year Insurance premium paid Insurance claims settled Defined benefit plans paid - - - - - 405,171 6,339 151,881 - 345,092 8,036 102,494 585,477 - 1,645 - - - - 113,055,811 43,560,278 36,509,253 60,142,942 - 295,412,399 12,797,839 26,836,227 19,213,481 Expense Mark-up / return / interest paid Commission / charges paid Preference dividend paid Remuneration paid Non-executive directors’ fee Net charge for defined contribution plans Net charge / (reversal) for defined benefit plans Fee and subscription Donation Rental expense Advisory fee Other expenses Other Transactions Sale of Government Securities Purchase of Government Securities Sale of Foreign Currencies Purchase of Foreign Currencies 193 - - 1,605,975 - - - 2,968 1,352 - Annual Report 2020 - - - - - 83,216 25,045 - -
  191. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 44. CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS 2020 2019 ----- Rupees in ‘000 ----- Minimum Capital Requirement (MCR) Paid-up capital (net of losses) 10,119,242 10,119,242 Capital Adequacy Ratio (CAR) Eligible Common Equity Tier 1 (CET 1) Capital Eligible Additional Tier 1 (ADT 1) Capital Total Eligible Tier 1 Capital Eligible Tier 2 Capital 16,227,512 2,251,350 18,478,862 4,621,001 14,619,607 2,500,000 17,119,607 4,306,756 Total Eligible Capital (Tier 1 + Tier 2) 23,099,863 21,426,363 155,761,884 1,144,972 23,981,730 180,888,586 144,380,673 924,762 20,468,251 165,773,686 Risk Weighted Assets (RWAs) Credit Risk Market Risk Operational Risk Total The SBP through its BSD Circular No. 07 dated April 15, 2009 has prescribed the minimum paid-up capital (net of accumulated losses) for banks to be raised to Rs.10,000 million by the year ending December 31, 2013. The paid-up capital of the Bank as at December 31, 2020 stood at Rs. 10,119.242 million (2019: Rs. 10,119.242 million) and is in compliance with SBP requirements. The Banks are also required to maintain a minimum Capital Adequacy Ratio (CAR) of 10.0% plus capital conservation buffer of 1.5% of the risk weighted exposures of the Bank. Further, under Basel III instructions, Banks are also required to maintain a Common Equity Tier 1 (CET 1) ratio and Tier 1 ratio of 6.5% and 7.5%, respectively, as at December 31, 2020. As at December 31, 2020 the Bank is fully compliant with prescribed ratios, as the Bank’s CAR is 12.77% whereas CET 1 and Tier 1 ratios stood at 8.97% and 10.22% respectively. The Bank has complied with all capital requirements throughout the year. Under the current capital adequacy regulations, credit risk and market risk exposures are measured using the Standardized Approach and operational risk is measured using the Basic Indicator Approach. Credit risk mitigants are also applied against the Bank’s exposures based on eligible collateral under comprehensive approach. 2020 2019 ----- Rupees in ‘000 ----- 44.1 Common Equity Tier 1 Capital Adequacy ratio 8.97% 8.82% Tier 1 Capital Adequacy Ratio 10.22% 10.33% Total Capital Adequacy Ratio 12.77% 12.93% Leverage Ratio (LR): Eligible Tier-1 Capital Total Exposures Leverage Ratio 18,478,862 605,685,437 3.05% 17,119,607 501,440,747 3.41% Liquidity Coverage Ratio (LCR): Total High Quality Liquid Assets Total Net Cash Outflow Liquidity Coverage Ratio 157,850,263 57,017,766 276.84% 83,221,592 55,819,412 149.09% Net Stable Funding Ratio (NSFR): Total Available Stable Funding Total Required Stable Funding Net Stable Funding Ratio 357,021,802 256,068,898 139.42% 308,715,925 274,288,642 112.55% The link to the full disclosure is available at https://jsbl.com/knowledge-centre/investor-information/ Annual Report 2020 194
  192. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 45. RISK MANAGEMENT Risk Management is a discipline at the core of every financial institution and encompasses all the activities that affect its risk profile. At the Bank, it involves identification, measurement, monitoring and controlling risks to ensure that: a) b) c) d) e) f) g) The individuals who take or manage risks clearly understand it; The Bank’s Risk exposure is within the limits established by Board of Directors (BoD); Risk taking decisions are in line with the business strategy and objectives set by BoD; The expected payoffs compensate for the risks taken; Risk taking decisions are explicit and clear; Sufficient capital as a buffer is available to take risk; and Risk management function is independent of risk taking unit. The Bank has a comprehensive set of Risk Management policies, practices and procedures which enable the Bank to take into consideration, in an appropriate manner, all major kinds of risks mainly credit, market, liquidity, operational and IT security risks. Keeping in view the dynamics of internal and external environment, we regularly review and update our Risk Management policies and procedures in accordance with regulatory environment and international standards. Risk Management activities remain at the forefront of all activities of the Bank which places the highest priority on conducting its business in a prudent manner in line with the relevant laws and regulatory requirements. Risk management framework of the Bank includes: a) Clearly defined risk management policies and procedures covering risk identification, acceptance, measurement, monitoring, reporting and control; b) Well constituted organizational structure, defining clearly roles and responsibilities of individuals involved in risk taking as well as managing it. The Bank, in addition to risk management functions for various risk categories, has instituted an Integrated Risk Management Committee (IRMC), Credit Risk Committee (CRC), Operational Risk Management Committee (ORMC), Remedial Management Committee (RMC) as well as Central Credit Committee (CCC). IRMC oversees the overall risk management at the Bank and provides guidance in setting strategic targets as well as concentration limits and monitor progress related to earnings growth, keeping in view the capital constraints and also adheres to the concentration limits. The IRMC monitors the strategic target and aggregate limits at the Business Group level and concentration limits (by industry, geography, size, tenor) so that one category of assets or dimension of risk cannot materially harm the performance of the Bank. CRC monitors the advances portfolio, concentrations limits, aggregate limits at business level and various house keeping elements under Credit Administration. ORMC oversees the effectiveness of operational risk management for maintenance and implementation of operational risk management framework. It also monitors the Business Continuity Planning and reviews findings of any other management or board’s sub committee. Remedial Management Committee (RMC) oversees the progress of non performing loans and cases under litigation along with the recommendation of transferring of any NPL to Corporate Restructuring Company (CRC). Whereas, Central Credit Committee (CCC) is entrusted with the responsibility of monitoring lending risk profile of the Bank. CCC meets regularly to actively supervise credit risk across its lending portfolio. c) An effective management information system that ensures flow of information from operational level to top management and a system to address any exceptions observed; and d) A mechanism to ensure an ongoing review of systems, policies and procedures for risk management and procedures to adopt changes. 195 Annual Report 2020
  193. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 While the overall responsibility of risk management rests with the BoD, it is the duty of Senior Management to devise risk management strategy by setting up well defined policies and procedures for mitigating / controlling risks, duly approved by the Board. Giving due consideration to the above, the Bank has put in place the following hierarchy of Risk Management: - Board Risk Management Committee (BRMC); - Integrated Risk Management Committee (IRMC) comprises of the President / Chief Executive Officer (CEO), Deputy CEO, Chief Risk Officer, Chief Financial Officer, Group Head Investment Banking & Emerging Business, Group Head Operations & Technology, Head of Compliance, Chief of Staff, Head of Treasury and Head Internal Audit (guest member). - Asset - Liability Committee (ALCO) comprises of the President / Chief Executive Officer (CEO), Deputy CEO, Treasurer, Chief Risk Officer, Chief Financial Officer and attended by Other Business Heads. - Central Credit Committee (CCC) comprising of the President / CEO, Deputy CEO, Chief Risk Officer, Chief Financial Officer, Group Head Investment Banking & Emerging Business, Chief of Staff and Head of Operational and Environmental Risk (for environmental risk only). - Credit Risk Committee (CRC) comprises of President/CEO, Deputy CEO, Chief Risk Officer, Chief Financial Officer, Group Head Investment Banking & Emerging Business, Regional Credit Heads, Head CAD, Head of Consumer Risk, Head Enterprise Risk Management and Head Internal Audit (guest member). - Operational Risk Management Committee (ORMC) comprises of the Deputy CEO, Chief Risk Officer, Group Head Operations & Technology, Country Head Branch Banking Operations, Group Head Human Resources Head of Compliance, Head of Service Management, Head Enterprise Risk Management and Head Internal Audit (guest member). - Remedial Management Committee (RMC) comprises of President/CEO, Deputy CEO, Chief Risk Officer, Chief Operating Officer, Chief Financial Officer, Head of SAM, Credit Risk Heads and Head of Legal. - IT Steering Committee (ITSC) comprises of President/CEO, Deputy CEO, Chief Risk Officer, Chief Financial Officer, Group Head Operations & Technology, Chief Information Officer, Chief Information Security Officer, Chief of Staff, Group Head Investment Banking & Emerging Business, Chief Digital Officer, Country Head Branch Banking Operations and Head Product Development & Consumer Business. - Risk Management Group (RMG), a dedicated and independent set-up headed by Chief Risk Officer and comprises of Regional Credit Heads, Heads of Market & Liquidity Risks, Operational Risk and Treasury Middle Office, Consumer Risk, Credit Administration, Special Assets Management, Information Security, Strategic Projects & Quantitative Analysis and Enterprise Risk Management. RMG is managed by Chief Risk Officer to supervise the following Divisions: a) b) c) d) e) f) g) h) i) j) Credit Risk Management (CRM) covering Corporate / Commercial, Agricultural and Retail Banking Risks Operational Risk Management (ORM) Market Risk Management (MRM) Treasury Middle Office Basel II / III Implementation Unit Credit Administration Department (CAD) Special Assets Management (SAM) IS Risk Management Consumer Risk Strategic Projects & Quantitative Analysis Annual Report 2020 196
  194. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 The Bank’s RMG generates the requisite risk reporting for the different tiers of management. These are also subjected to internal audit review. Risk Matrix / Categories The Bank, in common with other banks, generates its revenues by accepting Country, Credit, Liquidity, Interest Rate Risk in the Banking Book, Market, Operational and other risks. Effective management of these risks is the decisive factor in the Bank’s profitability. Risk Appetite The Bank’s risk appetite is reflected in its endeavours to maintain a favourable credit rating and encompasses the following: - The business strategy The expectations of stakeholders at different time horizons The characteristics of the risk-bearing entities The nature and characteristics of the risks undertaken The possible spread of risk situations across organizational units,assets-at-risk, and future time horizons. Risk appetite drives business activity. It combines anticipations in risk and profitability with management preferences to control capital and resource allocation, as well as the distribution of exposure across activities and portfolios. The Bank’s hedging strategy is embedded in its risk management practices for addressing material categories of risk. 45.1 Credit Risk Credit risk is the risk which arises with the possibility that one party to a financial instrument will fail to discharge its obligation and cause the other party to incur a financial loss. Credit risk is managed in terms of credit policies, approved by the BoD and regulations issued by the SBP. The bank is exposed to credit risk on loans and advances, fund placements with financial institutions and certain investments. Credit risk management is an ongoing process. The overall credit policy and the credit risk instructions are issued by the Board of Directors. In this regards, a Central Credit Committee (CCC) is entrusted with the responsibility of monitoring lending risk profile of the bank. In order to maintain healthy growth of the credit portfolio, the Bank’s Credit Risk Management processes are consistently upgraded and improved to meet future challenges. The Bank’s strategy is to minimise credit risk through product, geography, industry and customer diversification. Credit limits are established for all counter-parties after a careful assessment of their credit worthiness. An effective credit granting procedure, which requires pre-sanction evaluation of credit proposal, adequacy of security and pre-disbursement examination of charge documents is in place and managed by Risk Management Group (RMG) & Credit Administration Department (CAD). The Bank maintains a sound portfolio diversified in nature to counter the risk of credit concentration and further confines risk through diversification of its assets by geographical and industrial sector. For managing impaired assets in the portfolio, the Bank follows the Prudential Regulations and Risk Management guidelines issued by SBP and the Remedial Management Policy approved by the Board. 197 Annual Report 2020
  195. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 45.1.1 Credit risk: Standardised approach The Bank has adopted the Standardised Approach of Basel II for risk weighing its Credit Risk Exposures. The following table illustrates the approved External Credit Assessment Institutions (ECAIs) whose ratings are being utilised by the Bank with respect to material categories of exposures: Exposures JCR-VIS PACRA MOODY’S FITCH S&P          N/A N/A   N/A N/A  N/A N/A  N/A N/A  N/A N/A Corporate Banks SME’s (retail exposures) Sovereigns Securitisations Others (specify) The Bank has used Issue Specific Ratings for rating / risk weighing Issue Specific Exposures and Entity Ratings for rating / risk weighing claims against specific counterparties. Both short and long term ratings have been used to rate corresponding short and long term exposures. For this purpose, Mapping Grid provided by SBP as given below: Long - Term Ratings Grades Mapping SBP Rating Grade PACRA JCR-VIS Fitch Moody’s S&P ECA Scores 1 AAA AA+ AA AA- AAA AA+ AA AA- AAA AA+ AA AA- Aaa Aa1 Aa2 Aa3 AAA AA+ AA AA- 1 2 A+ A A- A+ A A- A+ A A- A1 A2 A3 A+ A A- 2 3 BBB+ BBB BBB- BBB+ BBB BBB- BBB+ BBB BBB- Baa1 Baa2 Baa3 BBB+ BBB BBB- 3 4 BB+ BB BB- BB+ BB BB- BB+ BB BB- Ba1 Ba2 Ba3 BB+ BB BB- 4 5 B+ B B- B+ B B- B+ B B- B1 B2 B3 B+ B B- 5,6 6 CCC+ and below CCC+ and below CCC+ and below Caa1 and below CCC+ and below 7 Short - Term Ratings Grades Mapping SBP PACRA JCR-VIS Fitch Moody’s S&P S1 A-1 A-1 F-1 P-1 A-1+, A-1 S2 A-2 A-2 F-2 P-2 A-2 S3 A-3 A-3 F-3 P-3 A-3 S4 Others Others Others Others Others Annual Report 2020 198
  196. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 45.1.2 Policies and processes for collateral valuation and management as regards Basel II; For Credit Risk Mitigation purposes the Bank uses only the eligible collaterals under Comprehensive Approach of Credit Risk Mitigation under Standardised Approach as prescribed by SBP under Circular No. 8 of 2006, which includes Cash and Cash Equivalent Securities including Government Securities (like Cash Margins, Lien on Bank Accounts, Foreign Deposit Receipts, Term Deposit Receipts, Pledge of Defense Saving Certificates, Regular Income Certificates, Special Saving Certificates, T-Bills and Pakistan Investment Bonds etc.) and Shares, TFCs and Mutual Funds Listed on the Main Index. Under the Bank’s policy all collaterals are subject to periodic valuations to monitor the adequacy of margins held. Shares / Marketable securities are valued by the Bank on daily basis to calculate the Drawing Power (DP). In case of any shortfall in the requisite margins, the DP is adjusted to the appropriate level and the business units are informed to take appropriate action as per the agreement with the customer. Particulars of bank’s significant on-balance sheet credit risk in various sectors are analysed as follows: Gross lendings 45.1.3 Lendings to financial institutions Credit risk by public / private sector Public/ Government Private Non-performing lendings 23,240,897 23,240,897 30,321,802 30,321,802 Gross investments 45.1.4 Investment in debt securities Credit risk by industry sector Textile Chemical and Pharmaceuticals Power (electricity), Gas, Water, Sanitary Refinery Transport, Storage and Communication Financial Services Provision held 2020 2019 2020 2019 2020 2019 ------------------------------------- Rupees in ‘000 ------------------------------------- - - Non-performing investments 1,225 1,225 1,262 1,262 Provision held 2020 2019 2020 2019 2020 2019 -------------------------------------------- Rupees in ‘000 -------------------------------------------- 65,022 249,860 71,429 307,454 710,902 4,367,326 1,265,104 7,037,097 65,022 258,193 142,857 390,303 854,902 300,000 1,350,000 3,361,277 Gross investments 65,022 149,860 155,169 370,051 65,022 149,860 155,169 370,051 Non-performing investments 65,022 149,860 155,169 370,051 65,022 149,860 155,169 370,051 Provision held 2020 2019 2020 2019 2020 2019 -------------------------------------------- Rupees in ‘000 -------------------------------------------Credit risk by public / private sector Public/ Government Private 3,643,402 3,393,695 7,037,097 199 3,361,277 3,361,277 370,051 370,051 370,051 370,051 Annual Report 2020 370,051 370,051 370,051 370,051
  197. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 45.1.5 Gross Advances Non-performing Advances Provision held 2020 2019 2020 2019 2020 2019 ---------------------------------- Rupees in ‘000 ---------------------------------- Advances Credit risk by industry sector Agri finance Automobile and transportation equipment Brokerage Cement Chemical Construction Electronics and electrical appliances Engineering, IT and other services Fertilizer Financial Food / confectionery / beverages Individuals Insurance and security Metal and steel Mining and quarrying Paper / board / furniture Petroleum, oil and gas Pharmaceuticals Plastic Power and water Real estate Shipbreaking Storage Sugar Tele-communication Textile Composite Ginning Spinning Weaving Transportation Trust and non-profit organisations Tyre Wholesale and retail trade Others 7,797,960 3,912,821 8,866,882 2,236,379 1,422,319 356,077 823,973 9,453,353 3,484,915 1,635,853 34,253,338 33,122,827 10,451 9,966,050 137,220 1,674,874 5,122,089 5,289,290 1,962,424 23,897,355 4,203,207 300,214 82,245 2,042,589 2,838,926 5,285,334 3,854,727 6,929,558 2,958,936 1,910,636 5,806,032 237,458 5,013,829 4,446,138 2,110,683 32,353,949 31,512,186 176,116 8,824,579 159,069 1,506,878 4,135,890 5,722,234 2,001,738 27,878,617 3,493,350 1,074,589 103,525 2,609,984 2,709,181 433,949 117,937 314,405 5,991 82,124 1,367,103 1,057,765 2,041,082 2,607,092 82,782 95,053 4,577 561,763 156,241 1,306,057 20,000 200,000 - 207,192 227,878 314,405 112,803 35,911 38,738 1,348,824 157,010 1,533,451 1,614,845 8,000 80,053 4,577 538,745 159,806 1,300,000 805,000 200,000 - 107,329 64,829 31,683 1,349,130 351,621 506,898 722,969 2,608 37,160 19,130 13 200,000 - 397 69,596 3,236 26,325 1,348,943 63,221 238,185 339,372 29,618 483 256,706 200,000 - 7,573,233 1,281,801 5,768,619 8,669,251 23,292,904 35,246,740 56,043 267,203 12,161,474 18,484,334 254,402,329 6,639,722 1,612,059 5,349,247 9,988,010 23,589,038 39,397,687 475,240 288,551 10,671,924 9,215,480 246,453,136 322,262 34,539 278,441 47,284 682,526 73,283 372,302 151,523 11,733,555 339,310 48,949 278,441 47,284 713,984 127,290 502,852 321,800 10,353,164 304,345 9,065 278,441 19,653 611,504 53,958 106,964 16,040 4,181,836 303,094 20,157 278,441 3,726 605,418 53,493 64,928 40,020 3,339,941 52,248,485 202,153,844 254,402,329 56,471,970 189,981,166 246,453,136 11,733,555 11,733,555 10,353,164 10,353,164 4,181,836 4,181,836 3,339,941 3,339,941 Credit risk by public / private sector Public/ Government Private Annual Report 2020 200
  198. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 45.1.6 Contingencies and commitments 2020 2019 -------- Rupees in ‘000 -------- Credit risk by industry sector Automobile and transportation equipment Brokerage Cement Chemical Construction Electronics and electrical appliances Engineering, IT and other services Fertilizer Financial Food / confectionery / beverages Individuals Insurance and security Metal and steel Mining and quarrying Paper / board / furniture Petroleum, oil and gas Pharmaceuticals Plastic Power and water Real estate Shipbreaking Sugar Tele-communication Textile Composite Ginning Spinning Weaving Transportation Trust and non-profit organisations Tyre Wholesale and retail trade Others 2,371,968 850,500 779,749 1,126,160 22,694,392 496,139 3,293,028 2,350,294 43,920,788 2,855,033 592,229 28,234 4,629,296 808,302 656,214 856,079 715,399 795,807 16,516,933 56,758 8,601 1,172,080 2,163,575 796,500 247,368 779,205 18,350,913 190,170 3,033,858 4,262,960 62,151,629 3,054,819 989,889 12,197 3,709,350 888,015 586,136 721,858 324,356 495,534 4,299,209 77,614 24,301 1,460,186 1,384,271 277,552 3,497,170 1,532,406 6,691,399 30,537 116,293 89,489 3,320,259 6,220,466 124,042,426 1,037,819 369,793 1,485,788 1,118,339 4,011,739 24,896 217,780 9,584 4,328,745 4,463,909 121,676,295 124,042,426 124,042,426 121,676,295 121,676,295 Credit risk by public / private sector Public/ Government Private 201 Annual Report 2020
  199. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 45.1.7 Concentration of Advances The bank top 10 exposures on the basis of total (funded and non-funded exposures) aggregated to Rs. 95,329.829 million (2019: Rs. 85,937.967 million) are as following: Note Funded Non Funded Total Exposure 45.1.7.1 45.1.7.2 2020 2019 ----- Rupees in ‘000 ----64,985,417 30,344,412 95,329,829 65,309,390 20,628,577 85,937,967 45.1.7.1 There are no classified advances placed under top 10 exposures. 45.1.7.2 The sanctioned limits against these top 10 exposures aggregated to Rs. 107,031.73 million (2019: 85,937.967 million). 45.1.8 Advances - Province / Region-wise Disbursement & Utilization 2020 Disbursements Province / Region Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit-Baltistan Bahrain Total Punjab Sindh KPK & FATA 87,425,286 152,675,348 1,055,415 244,399 16,845,491 247,017 8,441,218 266,934,174 Disbursements 45.2 Balochistan Islamabad AJK & GilgitBaltistan Bahrain ----------------------------------------------------------------- Rupees in ‘000 ----------------------------------------------------------------87,425,286 87,425,286 152,675,348 152,675,348 1,055,415 1,055,415 2019 Province / Region Punjab Sindh KPK including FATA Balochistan Islamabad AJK including Gilgit-Baltistan Bahrain Total Utilization Punjab Sindh KPK & FATA 244,399 244,399 16,845,491 16,845,491 247,017 247,017 8,441,218 8,441,218 Utilization Balochistan Islamabad AJK & GilgitBaltistan Bahrain ----------------------------------------------------------------- Rupees in ‘000 ----------------------------------------------------------------80,305,925 146,330,605 1,456,326 111,734 13,423,194 197,627 4,727,124 246,552,535 80,305,925 80,305,925 146,330,605 146,330,605 1,456,326 1,456,326 111,734 111,734 13,423,194 13,423,194 197,627 197,627 4,727,124 4,727,124 Market Risk Market risk is the risk of loss due to adverse changes in interest rates, foreign exchange rates, equity prices and market conditions. From the perspective of the Bank, market risk comprises of interest rate risk, foreign exchange risk and equity position risk, which the Bank is exposed to in its trading book. The Bank has an approved market risk policy wherein the governance structure for managing market risk, measurement tools used and the market risk exposure limits have been addressed. The Bank’s strategy for managing market risk is to relate the level of risk exposures to their risk appetite and the capital at hand. Annual Report 2020 202
  200. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 The Board of Directors (BoD) and the Asset and Liability Committee (ALCO) are responsible for addressing market risk from a strategic perspective and are assisted by the market risk function in meeting these objectives. The Market Risk Unit reports directly to Head ERM and is responsible for ensuring the implementation of market risk policy in line with the Bank’s strategy. Risk reporting undertaken by the market risk function includes: a) b) c) d) Portfolio Reports Limit monitoring reports Sensitivity analysis; and Stress testing of the portfolio Currently, the Bank is using the market risk standardised approach for the purpose of computing regulatory capital, the details of which are set out above. 45.2.1 Balance sheet split by trading and banking books 2020 2019 Banking book Trading book Total Banking book Trading book Total ------------------------------------------------------- Rupees in ‘000 ---------------------------------------Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Assets held for sale 45.2.2 30,421,231 1,105,969 23,239,672 176,694,699 250,199,166 7,599,538 2,486,725 14,678,428 739,200 507,164,628 25,003,774 25,003,774 30,421,231 1,105,969 23,239,672 201,698,473 250,199,166 7,599,538 2,486,725 14,678,428 739,200 532,168,402 25,589,349 462,836 30,320,540 86,970,001 242,944,509 9,692,701 2,271,360 8,756 16,194,444 374,000 414,828,496 55,598,469 55,598,469 25,589,349 462,836 30,320,540 142,568,470 242,944,509 9,692,701 2,271,360 8,756 16,194,444 374,000 470,426,965 Foreign Exchange Risk Main objective of foreign exchange risk management is to ensure that the foreign exchange exposure of the Bank lies within the defined appetite of the Bank. Daily reports are generated to monitor the internal and regulatory limits with respect to the overall foreign currency exposures. The overall net open position, whether short or long has the potential to negatively impact the profit and loss depending upon the direction of movement in foreign exchange rates. Foreign exchange open and mismatched positions are marked to market on a daily basis. Currency risk arises where the value of financial instruments changes due to changes in foreign exchange rates. In order to manage currency risk exposure the bank enters into ready / spot, forward and swap transactions with SBP and in the interbank market. The Bank’s foreign exchange exposure comprises of forward contracts, foreign currencies cash in hand, balances with banks abroad, foreign placement with SBP and foreign currencies assets and liabilities. The net open position is managed within the statutory limits, as fixed by SBP. Counter parties limit are also fixed to limit risk concentration. Appropriate segregation of duties exists between the front and back office functions while compliance with the net open position limit is independently monitored on an ongoing basis. 203 Annual Report 2020
  201. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 2020 Net foreign Off-balance currency Assets Liabilities sheet items exposure ---------------------- Rupees in ‘000 --------------------United States Dollar Great Britain Pound Euro Other currencies 20,731,596 690,248 2,028,206 542,006 23,992,056 28,340,649 2,767,203 1,324,879 397,092 32,829,823 7,925,120 1,692,641 (938,258) (96,962) 8,582,541 316,067 (384,314) (234,931) 47,952 (255,226) 2019 Net foreign Off-balance currency Assets Liabilities sheet items exposure ---------------------- Rupees in ‘000 --------------------United States Dollar Great Britain Pound Euro Other currencies 12,248,588 879,840 585,843 41,154 13,755,425 20,805,267 2,696,794 901,267 34,019 24,437,347 8,586,023 1,778,936 326,018 4,829 10,695,806 29,344 (38,018) 10,594 11,964 13,884 2020 2019 Banking Trading Banking Trading book book book book ------------------ Rupees in ‘000 -----------------Impact of 1% change in foreign exchange rates on - Profit and loss account - Other comprehensive income 45.2.3 - 2,552 - - 159 - Equity position Risk Equity positions in the banking book include Investment in equities that are available-for-sale or held for strategic investment purposes. These investments are generally regarded as riskier relative to fixed income securities owing to the inherent volatility of stock market prices. The Bank mitigates these risks through diversification and capping maximum exposures in a single company, compliance with regulatory requirement, and following the guidelines laid down in the Bank’s Investment Policy as set by the Board of Directors (BoD). The Bank follows a delivery versus payment settlement system thereby minimizing risk available in relation to settlement risk. Equity price risk is managed by applying trading limit and scrip-wise and portfolio wise nominal limits. 2020 2019 Banking Trading Banking Trading book book book book ------------------ Rupees in ‘000 -----------------Impact of 5% change in equity prices on - Profit and loss account - Other comprehensive income Annual Report 2020 221,940 204 - 105,788 -
  202. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 45.2.4 Yield / Interest Rate Risk in the Banking Book (IRRBB)-Basel II Specific Yield/ Interest rate sensitivity position for on-balance sheet instruments is based on the earlier of contractual re-pricing or maturity date and for off-balance sheet instruments is based on settlement date. This also refers to the non-trading market risk. The gap analysis between the market rate sensitive assets and liabilities as per the table given below: 2020 2019 Banking Trading Banking Trading book book book book ------------------ Rupees in ‘000 -----------------Impact of 1% change in interest rates on - Profit and loss account - Other comprehensive income 20,570 1,033,253 205 235,507 - Annual Report 2020 301,595 248,246 534,770 -
  203. 45 .3 Annual Report 2020 8.03 8.36 - Investments Advances Other assets 206 10.12 Deposits and other accounts Subordinated debt months to 6 Over 3 1 year months to Over 6 years to 2 Over 1 years to 3 Over 2 years to 5 Over 3 years to 10 Over 5 10 years Above instrument financial bearing Non-interest 258,887,343 519,531,240 185,168,051 73,719,292 510,381,942 9,149,298 57,905,849 129,050,435 71,144,586 71,144,586 Total yield / interest risk sensitivity gap Cumulative yield / interest risk sensitivity gap (3,031,387) 8,388,199 6,255,530 Off-balance sheet gap (10,702,206) 11,419,586 49,517,650 68,182,936 - - 54,866,725 13,316,211 - 117,700,586 - 20,326,844 92,486,042 4,887,700 - - (2,574,706) (18,642,840) 8,127,500 - 24,898,370 7,492,800 7,492,800 164,808,483 12,866,768 16,541,154 433,062,593 48,303,412 - - 4,981,983 204,905,144 12,866,729 33,368,890 18,351,972 - 2,261,337 250,199,166 201,698,473 23,239,672 1,105,969 30,421,231 143,749,030 14,698,595 1,376,854 (2,619,805) 3,996,659 13,321,741 39,888,667 - - 35,168,621 4,720,046 - 53,210,408 - 10,212,582 42,997,826 - - - 92,463,621 (51,285,409) (934,817) (2,231,803) 1,296,986 (50,350,592) 64,787,429 - - 64,716,449 70,980 - 14,436,837 - 641,483 13,795,354 - - - 84,482,554 (7,981,067) - (57,639) 57,639 (7,981,067) 15,486,098 - - 2,264,241 13,221,857 - 7,505,031 - 263,840 7,241,191 - - - 85,941,254 1,458,700 - - - 1,458,700 623,395 - - 82,723 540,672 - 2,082,095 - 695,674 1,386,421 - - - 82,440,309 (3,500,945) - - - (3,500,945) 5,522,410 - - 3,134,515 2,387,895 - 2,021,465 - 1,885,879 135,586 - - - 86,683,160 4,242,851 - - - 4,242,851 1,178,983 - - - 1,178,983 - 5,421,834 - 1,674,415 3,747,419 - - - 89,657,316 2,974,156 - - - 2,974,156 - - - - - - 2,974,156 - 2,974,156 - - - - (74,252,488) - - - (74,252,488) 129,543,973 16,541,154 - 108,020,836 - 4,981,983 55,291,485 12,866,729 6,619,149 6,539,744 - 1,105,969 28,159,894 --------------------------------------------------------------------------------------------- Rupees in ‘000 --------------------------------------------------------------------------------------------- options contacts Commitments in respect of forward sale, currency swaps and options and commitments to extent credits Commitments in respect of forward purchase, currency swaps, On-balance sheet financial instruments - 6.94 Borrowings Other liabilities 2.88 Bills payable Liabilities 6.56 - Balances with other banks Lendings to financial institutions - Cash and balances with treasury banks Assets On-balance sheet financial instruments rate - % month interest months to 3 Up to 1 yield Total Over 1 Effective 2020 Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in the market interest rates. The Bank is exposed to interest / mark-up rate risk as a result of mismatches or gaps in the amount of interest / mark up based assets and liabilities that mature or re-price in a given period. The Bank manages this risk by matching/re-pricing of assets and liabilities. The assets and liabilities committee (ALCO) of the Bank monitors and manages the interest rate risk with the objective of limiting the potential adverse effects on the profitability of the Bank. Mismatch of interest rate sensitive assets and liabilities Notes to the Unconsolidated Financial Statements For the year ended December 31, 2020
  204. 25 ,589,349 462,836 30,320,540 142,568,470 242,944,509 14,542,408 456,428,112 3,804,491 54,468,283 369,789,964 7,494,800 17,536,172 453,093,710 3,334,402 9.26 8.70 13.73 - Liabilities Bills payable Borrowings Deposits and other accounts Subordinated debt Other liabilities 207 Annual Report 2020 Fixed assets Intangible assets Deferred tax assets - net Other assets Assets held for sale Less: Non financial assets Balance as per balance sheet Reconciliation to total assets 135,660,110 133,751,831 Cumulative yield / interest risk sensitivity gap 7,599,538 2,486,725 1,811,699 739,200 12,637,162 519,531,240 532,168,402 9,692,701 2,271,360 8,756 1,652,036 374,000 13,998,853 456,428,112 470,426,965 2020 2019 --------- Rupees in ‘000 --------- 381,468 1,908,279 67,995 (7,721,576) 8,103,044 13,068,280 47,296,616 121,966 60,486,862 1,526,811 41,046,043 20,967,630 62,013,673 133,751,831 (10,834,905) 10,902,900 31,977,964 131,156,503 60,983 163,195,450 133,683,836 2,566,714 97,659 30,192,074 66,158,225 197,864,614 296,879,286 Total yield / interest risk sensitivity gap (10,524,045) (35,203,283) Commitments in respect of forward exchange contracts - sale Off-balance sheet gap 24,679,238 Commitments in respect of forward purchase contacts and commitments to extent credits On-balance sheet financial instruments Up to 1 month Over 1 to 3 months Over 3 to 6 months Over 6 months to 1 year Over 1 to 2 years Over 2 to 3 years Over 3 to 5 years Over 5 to 10 years Above 10 years Non-interest bearing financial instrument 25,664,199 (76,015,926) (4,561,275) (5,019,673) 458,398 193,571 68,670,264 4,498,400 365,898 73,728,133 (71,454,651) 128,466 1,656,084 488,932 2,273,482 Less: Non financial liabilities Deferred tax liabilities - net Balance as per balance sheet Reconciliation to total liabilities 101,680,125 (33,979,985) (6,413,233) (10,450,305) 4,037,072 4,693,216 29,670,550 2,996,400 182,949 37,543,115 (27,566,752) 582,500 9,393,863 9,976,363 38,788,010 13,123,811 1,000 (1,119,185) 1,120,185 207,839 6,673,436 731,796 7,613,071 13,122,811 20,378,927 356,955 20,735,882 42,874,976 4,086,966 - (57,639) 57,639 2,120,779 1,515,724 682,219 4,318,722 4,086,966 7,910,850 494,838 8,405,688 41,758,357 52,687 - - - 1,027,085 381,703 1,408,788 52,687 204,943 1,256,532 1,461,475 - 453,093,710 510,381,942 453,093,710 1,194,252 511,576,194 2020 2019 --------- Rupees in ‘000 --------- 41,705,670 (1,169,306) - - - 1,179,549 1,722,440 1,168,857 4,070,846 (1,169,306) 503,646 2,397,894 2,901,540 44,468,385 2,710,028 - - - 2,710,028 2,710,028 2,710,028 (51,658,028) - - - 3,804,491 83,084,431 13,839,801 100,728,723 (51,658,028) 23,022,635 365,177 4,127,252 7,013,223 14,542,408 49,070,695 --------------------------------------------------------------------------------------------- Rupees in ‘000 --------------------------------------------------------------------------------------------- 0.17 11.80 9.73 12.89 - Total Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments - net Advances - net Other assets Assets On-balance sheet financial instruments rate - % Effective yield interest 2019 Notes to the Unconsolidated Financial Statements For the year ended December 31, 2020
  205. 45 .4.1 45.4 Annual Report 2020 208 Share capital Statutory reserve Surplus on revaluation of assets - net of tax Unappropriated profit Net assets Liabilities Bills payable Borrowings Deposits and other accounts Subordinated debt Liabilities against assets subject to finance lease Deferred tax liabilities - net Other liabilities Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets - net Other assets Assets held for sale 166,066 234,381 217,192,381 217,592,828 (91,870,981) 4,981,983 48,303,412 433,062,593 7,492,800 1,194,252 16,541,154 511,576,194 20,592,208 2,334,123 6,147,673 20,592,208 10,119,242 1,991,170 30,421,231 1,105,969 2,485,829 91,706,484 1,999 335 125,721,847 30,421,231 1,105,969 23,239,672 201,698,473 250,199,166 7,599,538 2,486,725 14,678,428 739,200 532,168,402 Total 10,666,251 (4,637,857) 1,162,463 368,146 9,135,642 - 3,500,000 2,515,294 11,092 2,008 6,028,394 33,449,790 (14,660,790) 2,324,925 9,724,181 21,400,684 - 3,291,063 13,786,643 1,262,175 12,941 2,343 433,835 18,789,000 1,913 385,097 23,435,454 25,366,663 1,328,529 2,540,060 19,179,855 - 9,075,080 16,960,223 9,566,816 78,862 5,356 13,115,780 48,802,117 (70,329) 10,561,165 45,488,909 (26,306,931) 5,539,400 29,458,673 - 4,524,776 14,007,429 121,156 10,043 518,574 19,181,978 (3,502) 266,283 33,447,644 57,312,153 7,776,811 25,408,052 - 4,887,700 71,635,378 13,560,823 411,539 223,310 41,047 90,759,797 (35,557) 502,414 40,356,524 24,575,511 4,720,046 35,168,621 1,000 44,446,234 19,565,688 356,226 29,820 534,067 64,932,035 (35,292) 101,165 14,087,853 8,840,792 26,292 13,995,688 - 12,966,751 9,544,829 352,328 29,612 35,125 22,928,645 (42,574) 700,828 57,345,460 (42,161,290) 44,687 56,641,519 1,000 1,006,802 13,087,897 320,673 29,598 739,200 15,184,170 110,333 1,778,734 17,377,165 23,800,659 13,221,857 2,264,241 2,000 7,947,713 31,914,264 1,198,183 117,664 41,177,824 176,118 1,311,459 7,604,572 19,752,080 540,672 82,723 5,493,600 4,772,925 21,520,367 947,931 115,429 27,356,652 158,819 827,329 8,503,757 9,774,953 2,387,895 3,134,514 1,995,200 3,470,764 13,641,989 967,673 198,284 18,278,710 2020 Over 1 Over 7 Over 14 Over 1 Over 2 Over 3 Over 6 Over 9 Over 1 Over 2 Over 3 Upto 1 to 7 to 14 days to 1 to 2 to 3 to 6 to 9 months to 1 to 2 to 3 to 5 day days days month months months months months year years years years --------------------------------------------------------------------------------------------- Rupees in ‘000 --------------------------------------------------------------------------------------------- Maturities of Assets and Liabilities - based on contractual maturity of the assets and liabilities of the Bank 934,323 106,680 2,219,987 30,807,246 1,178,984 - 20,180,264 8,305,111 2,818,935 1,722,923 33,027,233 Over 5 years For monitoring and controlling liquidity risk, the Bank generates a scenario sensitive maturity statement of financial position, and run controlled mismatches that are monitored and discussed by ALCO members regularly. The Bank prepares various types of reports and analysis for assisting ALCO in taking necessary strategic actions for managing liquidity risk in the Bank. These include liquidity ratios, Concentration analysis, Gap reports, Stress testing, Liquidity Coverage ratio & Net Stable Funding Ratio analysis etc. Treasury is responsible for the managing liquidity risk under the guidance of Asset-Liability Committee of the Bank. The Bank’s liquidity risk management approach starts at the intraday level (operational liquidity) managing the daily payments queue and factoring in our access to the qualifying securities of State Bank of Pakistan. It then covers tactical liquidity risk management dealing with the access to unsecured funding sources and the liquidity characteristics of our asset inventory (asset liquidity). Finally, the strategic perspective comprises the maturity profile of all assets and liabilities on our statement of financial position. The Bank’s policy to liquidity management is to maintain adequate liquidity at all times and in all currencies under both normal and stress conditions, to meet our contractual and potential payment obligations without incurring additional and unacceptable cost to the business. Liquidity risk is the risk that the Bank will not be able to raise funds to meet its commitments. The Bank’s Asset and Liability Committee (ALCO) manages the liquidity position on a continuous basis. Liquidity risk Notes to the Unconsolidated Financial Statements For the year ended December 31, 2020
  206. 242 ,944,509 9,692,701 2,271,360 Advances Fixed assets Intangible assets 209 2,033 17,536,172 Annual Report 2020 (47,269,326) 17,333,255 10,119,242 1,749,673 Share capital - net Reserves 17,333,255 636,700 4,827,640 assets - net of tax Unappropriated profit Surplus on revaluation of 172,018,921 453,093,710 Net assets Other liabilities - - to finance lease - - 167,415,021 797,376 3,804,491 Deferred tax liabilities - net Liabilities against assets subject 7,494,800 369,789,964 Deposits and other accounts Subordinated debt 3,804,491 54,468,283 124,749,595 374,000 470,426,965 Borrowings 13,121,593 - 280 3,941 85,571,596 - - 462,836 25,589,349 16,194,444 Bills payable Liabilities Assets held for sale Other assets 8,756 142,568,470 Investments Deferred tax assets - net 30,320,540 462,836 25,589,349 Lending to financial institutions Balances with other banks Cash and balances with treasury banks Assets day days to 7 days to 14 Over 7 month days to 1 Over 14 months to 2 Over 1 2019 months to 3 Over 2 months to 6 Over 3 months to 9 Over 6 Over 9 year months to 1 years to 2 Over 1 years to 3 Over 2 years to 5 Over 3 years Over 5 19,402,873 38,187,731 12,197 - - - 8,285,705 29,889,829 - 57,590,604 - - - 1,677 23,255 1,362,955 28,164,802 28,037,915 - - (3,570,970) 7,148,040 14,229 - - - 7,047,887 85,924 - 3,577,070 - - - 1,957 27,132 1,547,981 - 2,000,000 - - 15,724,641 27,446,711 220,575 - - - 26,021,300 1,204,836 - 43,171,352 - - (1,291) 4,472 62,014 5,108,573 37,843,425 154,159 - - (20,133,353) 37,491,820 9,146,741 - - - 20,516,154 7,828,925 - 17,358,467 - - 30,869 106,130 253,908 16,502,480 465,080 - - - (5,465,905) 32,604,932 585,116 - - - 26,780,462 5,239,354 - 27,139,027 - 503,350 56,850 8,386 115,232 10,860,877 15,594,332 - - - (12,616,221) 34,642,099 277,733 - - 600 29,670,550 4,693,216 - 22,025,878 374,000 - 354,806 24,979 343,568 18,301,471 2,627,054 - - - (12,528,454) 20,818,187 221,422 - - 400 20,422,018 174,347 - 8,289,733 - 95,457 354,413 24,841 339,980 5,730,118 1,616,458 128,466 - - (42,743,970) 54,541,196 801,705 - - 1,000 53,719,267 19,224 - 11,797,226 - - 32,583 24,829 335,195 11,227,145 177,474 - - - 41,100,653 9,218,065 2,334,790 - - 2,000 6,673,436 207,839 - 50,318,718 - 789,263 18,223 97,819 1,291,426 27,467,362 20,654,625 - - - 30,832,110 5,408,056 1,769,553 - - 2,000 1,515,724 2,120,779 - 36,240,166 - 411,160 48,402 96,371 1,143,993 26,536,887 8,003,353 - - - 13,698,344 12,132,670 1,741,881 - - 7,488,800 1,722,440 1,179,549 - 25,831,014 - 81,864 12,706 176,318 1,899,643 19,525,477 4,135,006 - - - - - - 40,902,833 1,435,282 408,197 - - - - 1,027,085 - 42,338,115 - 1,191,757 (898,805) 1,703,301 3,853,414 13,201,587 23,286,861 ------------------------------------------------------------------------------------------------------------------ Rupees in ‘000 ------------------------------------------------------------------------------------------------------------------ Total Upto 1 Over 1 Notes to the Unconsolidated Financial Statements For the year ended December 31, 2020
  207. 45 .4.2 Annual Report 2020 210 Share capital - net Reserves Surplus on revaluation of assets - net of tax Unappropriated profit Net assets Liabilities Bills payable Borrowings Deposits and other accounts Subordinated debt Liabilities against assets subject to finance lease Deferred tax liabilities - net Other liabilities Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets - net Other assets Assets held for sale 2,334,123 6,147,673 20,592,208 10,119,242 1,991,170 1,913 385,097 72,511,648 55,660,138 4,981,983 12,866,768 54,275,887 - 4,981,983 48,303,412 433,062,593 7,492,800 1,194,252 16,541,154 511,576,194 20,592,208 30,421,231 1,105,969 18,351,972 30,746,866 33,881,197 104,894 10,042 13,549,615 128,171,786 30,421,231 1,105,969 23,239,672 201,698,473 250,199,166 7,599,538 2,486,725 14,678,428 739,200 532,168,402 (73,831) 10,827,448 85,345,345 28,281,921 13,316,211 61,275,517 - 4,887,700 76,160,154 31,253,743 532,695 233,353 559,621 113,627,266 (35,557) 502,414 48,935,038 22,630,880 4,720,046 43,747,135 1,000 44,446,234 26,199,571 356,226 29,820 534,067 71,565,918 (77,866) 801,993 81,060,256 14,977,304 70,979 80,264,150 1,000 13,973,553 80,557,471 673,001 59,210 35,125 739,200 96,037,560 110,333 1,778,734 33,312,529 7,865,295 13,221,857 18,199,605 2,000 7,947,713 31,914,264 1,198,183 117,664 41,177,824 176,118 1,311,459 20,622,899 3,040,057 540,672 13,101,050 5,493,600 4,772,925 17,826,671 947,931 115,429 23,662,956 158,819 827,329 167,568,492 (149,289,782) 2,387,895 162,199,249 1,995,200 3,470,764 13,641,989 967,673 198,284 18,278,710 934,323 106,680 2,219,987 24,069,777 1,178,984 - 20,180,264 5,182,115 668,086 259,299 26,289,764 13,356,618 - 9,742,145 2,150,849 1,463,624 13,356,618 2020 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Upto 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above Total month months months 1 year years years years years 10 years --------------------------------------------------------------------------------------------- Rupees in ‘000 --------------------------------------------------------------------------------------------- Maturity of assets and liabilities - Based on working prepared by the Asset and Liability Committee (ALCO) of the Bank Notes to the Unconsolidated Financial Statements For the year ended December 31, 2020
  208. 211 45 .4.3 Annual Report 2020 months months to 6 1 year months to Over 6 2019 years to 2 Over 1 years to 3 Over 2 years to 5 Over 3 years to 10 Over 5 Above 10 years 3,804,491 31,977,964 44,619,483 249,034 80,650,972 79,109,346 3,804,491 54,468,283 369,789,964 7,494,800 17,536,172 453,093,710 17,333,255 636,700 4,827,640 17,333,255 10,119,242 1,749,673 25,589,349 462,836 30,192,074 66,008,226 24,262,803 116,342 8,386 (1,291) 13,121,593 159,760,318 0.01 25,589,349 462,836 30,320,540 142,568,470 242,944,509 9,692,701 2,271,360 8,756 16,194,444 374,000 470,426,965 9,731,857 74,976,078 (26,904,960) 13,068,280 52,175,941 - 16,059,413 30,936,980 369,140 114,516 87,719 503,350 48,071,118 277,733 41,102,361 (12,643,960) 4,693,216 36,130,812 600 2,627,054 24,733,994 343,568 24,979 354,806 374,000 28,458,401 1,023,127 82,731,974 (3,322,859) 193,571 81,513,876 1,400 128,466 1,793,932 76,279,419 675,175 49,670 386,996 95,457 79,409,115 2,334,790 21,420,263 28,898,455 207,839 18,875,634 2,000 20,654,625 27,467,362 1,291,426 97,819 18,223 789,263 50,318,718 1,769,553 16,383,555 19,856,611 2,120,779 12,491,223 2,000 8,003,353 26,536,887 1,143,993 96,371 48,402 411,160 36,240,166 408,197 1,435,282 27,976,948 1,027,085 - 23,286,861 3,898,657 1,181,797 239,677 (386,519) 1,191,757 29,412,230 12,925,885 - 9,302,930 2,671,617 1,463,624 (512,286) 12,925,885 For determining the core portion of non contractual liabilities (non-volatile portion), the bank has used the average method whereby average balance maintained over past five year has been classified as core and has been placed in ‘over 3 to 5 years’ maturity bucket. Non contractual assets and remaining volatile portion of non contractual liabilities have been stratified in relevant maturity bucket using bucket wise percentages determined by using average volatility in respective period / bucket. 1,741,881 134,393,225 (108,562,211) 1,179,549 123,982,995 7,488,800 4,135,006 19,525,477 1,899,643 176,318 12,706 81,864 25,831,014 --------------------------------------------------------------------------------------------- Rupees in ‘000 --------------------------------------------------------------------------------------------- month to 3 Over 3 To identify the behavioural maturities of non-contractual assets and liabilities, the Bank has used the following methodology: Share capital - net Reserves Surplus on revaluation of assets - net of tax Unappropriated profit Net assets Liabilities Bills payable Borrowings Deposits and other accounts Subordinated debt Liabilities against assets subject to finance lease Deferred tax liabilities - net Other liabilities Assets Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets - net Other assets Assets held for sale Total Upto 1 Over 1 Notes to the Unconsolidated Financial Statements For the year ended December 31, 2020
  209. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 45.5 Operational risk The Bank currently uses Basic Indicator Approach to Operational Risk for regulatory capital calculations. We define operational risk as the risk of loss resulting from inadequate or failed internal processes, people and system or from external events. With the evolution of Operational Risk Management into a separate distinct discipline, the Bank’s strategy is to further strengthen its risk management system along new industry standards. Accordingly the Bank has set up a separate Operational Risk Management (ORM) Unit. ORM Unit resides within Risk Management Group (RMG). Its responsibility is to implement Operational Risk management framework across the bank for effective measurement and monitoring of operational risk faced by different areas of the Bank. Bank’s operational risk management process involves a structured and uniform approach across the Bank. It includes risk identification and assessments, the monitoring of Key Risk Indicators (KRIs) and Risk & Control Self-Assessment (RCSA) activities for key operational risks. In order to build a robust operational risk monitoring mechanism, an Operational Risk Management Committee (ORMC) has been constituted to effectively address operational risk issues. The bank has implemented a comprehensive “Operational Risk Management Policy” which has also been approved by the Board of Directors. The purpose of bank-wide Operational Risk Management Policy is aimed at laying out clearly defined roles and responsibilities of individuals / units across different functions of the Bank that are involved in performing various operational risk management tasks. Operational risk is much more pervasive in a financial institution and every operating unit is exposed to operational risk, regardless of whether it is a business or a support function. This policy has been devised to explain the various building blocks of the operational risk management functions and their inter-relationships. The policy also captures both qualitative and quantitative guidelines for managing and quantifying operational risks across the Bank. The ORM Unit conducts operational risk assessment for all major functions of the Bank and assists various functions of the Bank in developing RCSA and KRIs which are monitored against predefined thresholds. Findings from KRIs are used as predictive indicators of potential operational risks. Operational risk incidents and loss data collection is governed by Bank’s Operational Risk Management Policy and process documents which have been developed and implemented to collate operational losses and near misses in a systematic and organized way. The Bank’s Business Continuity (BCP) Policy includes risk management strategies to mitigate inherent risks and prevent interruption of mission critical services caused by disaster events. The resilience of BCP is tested and rehearsed on an annual basis by the Bank. 46. DERIVATIVE RISK The policy guidelines for taking derivative exposures are approved by the Board of Directors (BOD). Bank’s Asset & Liability Committee (ALCO) is responsible for reviewing and managing associated risks of the transactions. The nature, scope and purpose of derivatives business, for trading purposes or hedging purpose and the types of derivative in which they deal. The overall responsibility for offering derivative products and sustaining profitability lies with the Treasurer and in his absence with his delegate. The Market Risk Unit / Treasury Middle Office of the Bank responsible for measurement & monitoring of the market risk exposures, analysis of present and potential risk factors. Annual Report 2020 212
  210. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 The Market Risk Unit also monitors associated Credit, Market and Liquidity Risk in line with Board of Directors approved limit framework. The unit coordinates with the business regarding approvals for derivatives risk limits and produces various reports / analysis for ALCO / BRMC on periodic basis. These reports provide details of outstanding un-hedged positions, profitability and status of compliance with limits. Treasury Operations records derivatives activity in the Bank’s books and is responsible for reporting to the SBP. The derivative transaction such as Cross Currency Swaps carries credit risk which is the risk that a party to a derivative contract will fail to perform its obligation. There are two types of credit risk associated with derivative transactions; 1) settlement, and 2) pre-settlement risk. Bank’s Central Credit Committee is responsible for reviewing and managing associated Counterparty Credit Risks of the transaction. The Bank has also entered into Foreign Currency & Commodity Options from its Wholesale Banking Branch Bahrain for market making activities. The Bank can hedge its risk by taking on & off-balance sheet position in interbank market, where available. 47. CUSTOMER SATISFACTION AND FAIR TREATMENT The Bank is committed to providing its customers with the highest level of service quality and satisfaction. The Bank has established an independent Customer Experience function that oversees customer care, branch services, contact centre, customer insights and business conduct. The Bank’s Complaint Handling Policy and Grievance Redressal Mechanism ensure that complaints are resolved in a timely manner and recurrence of complaints is prevented where possible. Customers have the option of registering their complaints at the Bank’s branches, contact center, the Bank’s website or via email. The complaint handling policy and grievance redressal mechanism ensures that complaints are resolved in a timely manner and recurrence of complaints is prevented where possible. Customers have the option of registering their complaints at our Branches, contact centre, the Bank’s website and via email. Complaint management process is kept as transparent as possible through registration, acknowledgement, interim response where applicable and resolution of complaints. Customers are also given the option of contacting the Banking Mohtasib office in case they are dissatisfied with the response received from the Bank. To create enhanced visibility of the recourse mechanism available to its customers, the Bank has incorporated awareness messages of its complaint handling function in several customer communications such as account statements, ATM screens and SMS messages. Complete grievance redressal mechanism, touchpoints and online feedback forms have been made available through the Bank’s website, and email broadcasts have been sent to the customers for customer education and awareness. Fair Treatment of Customers is an integral part of our corporate culture. The Bank has institutionalized a ‘Consumer Protection Framework’. Our priority is to keep customer benefits in mind while designing, selling and managing products and services, without any discrimination. Our focus is to maintain fairness in our customer dealings, clarity in communication, develop a service culture and design an effective grievance handling mechanism. We also focus on financial literacy of our customers, for promoting responsible conduct and informed financial decisions by consumers, through our consumer education and Financial Literacy Program. 213 Annual Report 2020
  211. Notes to the Unconsolidated Financial Statements For the year ended December 31 , 2020 48. RECLASSIFICATION Corresponding figures have been re-arranged and re-classified to reflect more appropriate presentation of events and transactions to enhance comparability with the current period’s financial statements, which are as follows: Reclassified From To Statement of financial position Other liabilities Others Others Others Other assets Credit card settlement Inter bank fund transfer settlement Others Statement of financial position Other assets Mark to market gain on derivative instruments Mark to market gain on forward foreign exchange contracts Other liabilities Mark to market loss on derivative instruments Mark to market loss on forward foreign exchange contracts Cashflow Statement Rs. in ‘000 32,027 (91,642) 290,068 (491) (375,227) Cash Flow from Operating Activities Other liabilities Other assets (1,748,987) 49. GENERAL 49.1 These unconsolidated financial statements have been prepared in accordance with the revised format for financial statements of Banks issued by the SBP through BPRD Circular no. 2 dated January 25, 2018 and related clarifications / modifications. 49.2 The figures in these unconsolidated financial statements have been rounded off to the nearest thousand. 50. DATE OF AUTHORISATION FOR ISSUE These unconsolidated financial statements were authorised for issue by the Board of Directors of the Bank in their meeting held on February 24, 2021. __________________ President and Chief Executive Officer ___________________ Chief Financial Officer Annual Report 2020 ___________ Director 214 ___________ Director ___________ Chairman
  212. Muhammad Alee Raput Write Up : A 23 year old artist for whom Art is a representation and exploration of the human condition and the attempt to experience a deeper understanding of life. Institute: Indus Valley School of Art & Architecture
  213. Consolidated Financial Statements
  214. Directors ’ Report on Consolidated Financial Statement For the year ended December 31, 2020 On behalf of the Board of Directors, we are pleased to present the Annual Report on the audited consolidated financial statements of JS Bank Limited (the ‘Bank) and its subsidiaries and the auditors’ report thereon for the year ended December 31, 2020. Consolidated financial highlights 2020 2019 (PKR million) 2,169 (1,060) 1,108 (2) 1,110 0.8558 201,808 536,077 431,424 22,916 Profit/(Loss) before taxation Taxation Profit /(Loss) after taxation Profit /(Loss) attributable to non-controlling interest Profit /(Loss) attributable to equity holders of the Bank Profit /(Loss) per share - Basic (Rupees) Investments – net Total assets Deposits Shareholders’ equity Pattern of Shareholding The pattern of shareholding as of December 31, 2020 is included in the Annual Report. (86) 171 (257) 11 (245) (0.2077) 143,125 473,213 368,544 19,481 capacity for timely payment of financial commitments. Summarized results of the company are set out below: Subsidiary Companies PKR million JS Global Capital Limited JS Global Capital Limited is one of the largest securities brokerage and investment banking firms in Pakistan with a leadership position in the domestic capital markets. It is in the business of equity, fixed income, currencies and commodities brokerage and investment banking. It was incorporated in Pakistan on June 28, 2000 and is the successor to the securities business of Jahangir Siddiqui & Co. Ltd. and Bear Stearns Jahangir Siddiqui Limited. JS Bank has 83.5% ownership in the company. JS Global has a paid-up capital of PKR 305.570 million and shareholder equity of PKR 2,446 million as at December 31, 2020. It is listed on the Pakistan Stock Exchange. PACRA has assigned long-term and short-term entity ratings to JS Global of “AA” (Double A) and “A1+” (A One plus), respectively. The ratings denote a very low expectation of credit risk emanating from very strong 217 Particulars December 31,2020 (Audited) December 31,2019 (Audited) Profit Before Tax 290 107 Profit After Tax 207 47 EPS (Rupees) 6.77 1.31 JS Investments Limited JS Investments has a paid-up capital of PKR 617,742 million and shareholder equity of PKR 1,775 million as on December 31, 2020. It is listed on the Pakistan Stock Exchange. JS Bank has 84.56% ownership in the company. The company is a licensed Investment Adviser and Asset Management Company under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the NBFC Rules) and the Non-Banking Finance Companies and Notified Entities Regulations, 2008 (the NBFC Regulations). In addition, JSIL also has Annual Report 2020
  215. a license for Pension Fund Manager under the Voluntary Pension System Rules 2005 and the Private Equity & Venture Capital Fund Management Services license from the Securities and Exchange Commission of Pakistan. Summarized results of the Company are set out below: PKR million Particulars December 31,2020 (Audited) December 31,2019 (Audited) Loss before tax (23) (59) Loss after tax (40) (87) EPS (Rupees) (0.64) (1.17) JS ABAMCO Commodities Limited (Sub-Subsidiary) The company has not commenced commercial operations with source of income being realized from short term investment in Collective Investment Schemes (CIS) and saving account interest. Summarized results of the company are set out below: PKR million Particulars December 31,2020 (Audited) December 31,2019 (Audited) Profit before tax 5.0 5.1 Profit after tax 4.2 4.2 EPS (Rupees) 1.11 1.13 For and on behalf of the Board, Basir ShamsieKalim-ur-Rahman President & CEO Chairman February 24, 2021 Annual Report 2020 218
  216. 219 Annual Report 2020
  217. Annual Report 2020 220
  218. 221 Annual Report 2020
  219. INDEPENDENT AUDITORS ’ REPORT Annual Report 2020 222
  220. 223 Annual Report 2020
  221. Annual Report 2020 224
  222. 225 Annual Report 2020
  223. Annual Report 2020 226
  224. Consolidated Statement of Financial Position As at December 31 , 2020 2020 2019 ----- USD in ‘000 ----190,332 7,058 145,398 1,262,605 1,566,969 56,476 15,738 104,753 4,625 3,353,954 160,104 2,980 189,700 895,456 1,522,109 66,906 14,405 787 109,641 2,340 2,964,428 31,170 302,209 2,699,193 46,879 6,779 124,353 3,210,583 23,803 340,779 2,305,784 46,891 125,286 2,842,543 143,371 121,885 63,311 12,458 20,318 43,978 140,065 3,306 143,371 63,311 10,947 8,187 36,260 118,705 3,180 121,885 Note ASSETS Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Assets held for sale LIABILITIES Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Subordinated debt Deferred tax liabilities Other liabilities 6 7 8 9 10 11 12 18 13 11.3 30,421,531 1,128,135 23,239,672 201,807,654 250,455,534 9,026,764 2,515,549 16,743,107 739,200 536,077,146 25,590,173 476,302 30,320,540 143,124,623 243,285,308 10,693,945 2,302,474 125,857 17,524,249 374,000 473,817,471 14 15 16 4,981,983 48,303,412 431,423,822 7,492,800 1,083,590 19,875,838 513,161,445 3,804,491 54,468,283 368,543,603 7,494,800 20,024,982 454,336,159 22,915,701 19,481,312 10,119,242 1,991,169 3,247,593 7,029,251 22,387,255 528,446 22,915,701 10,119,242 1,749,672 1,308,531 5,795,596 18,973,041 508,271 19,481,312 17 18 19 NET ASSETS REPRESENTED BY Share capital - net Reserves Surplus on revaluation of assets Unappropriated profit 2020 2019 ----- Rupees in ‘000 ----- 20 21 Non-controlling interest 22 CONTINGENCIES AND COMMITMENTS The annexed notes from 1 to 50 and annexure I & annexure II form an integral part of these consolidated financial statements. __________________ President and Chief Executive Officer ___________________ Chief Financial Officer 227 ___________ Director ___________ Director Annual Report 2020 ___________ Chairman
  225. Consolidated Profit and Loss Account For the year ended December 31 , 2020 2020 2019 ----- USD in ‘000 ----- Note 270,230 208,224 62,006 260,842 215,830 45,012 Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income 27,365 845 6,321 107 12,016 (95) 684 47,243 109,249 21,348 1,241 6,026 295 (4,167) 26 3,161 27,930 72,942 NON MARK-UP / INTEREST INCOME Fee, commission and brokerage income Dividend income Foreign exchange income Income from derivatives Gain / (loss) on securities Share of (loss) / profit from associates Other income Total non mark-up / interest income Total Income 86,973 291 573 87,837 21,412 7,843 - 73,587 (413) 861 74,035 (1,093) (555) - NON MARK-UP / INTEREST EXPENSES Operating expenses Workers’ welfare fund Other charges Total non-mark-up / interest expenses Profit / (loss) before provisions Provisions / (reversals) and write offs - net Extraordinary / unusual items 13,569 (538) 6,634 1,069 6,935 (1,607) 6,947 (12) 6,935 (1,536) (71) (1,607) 24 25 43,192,069 33,281,347 9,910,722 41,691,587 34,497,048 7,194,539 26 4,373,942 135,120 1,010,345 17,045 1,920,510 (15,257) 109,306 7,551,011 17,461,733 3,412,160 198,432 963,208 47,210 (665,997) 4,180 505,189 4,464,382 11,658,921 13,901,226 46,472 91,639 14,039,337 3,422,396 1,253,585 - 11,761,773 (65,991) 137,643 11,833,425 (174,504) (88,703) - 2,168,811 (85,801) 1,060,376 170,807 1,108,435 (256,608) 1,110,373 (1,938) 1,108,435 (245,285) (11,323) (256,608) 27 28 29 30 31 32 PROFIT / (LOSS) BEFORE TAXATION Taxation 33 PROFIT / (LOSS) AFTER TAXATION Attributable to: Equity holders of the Bank Non-controlling interest ----- US Dollar ----0.0054 (0.0013) 2020 2019 ----- Rupees in ‘000 ----- ----- Rupee ----Basic and diluted earnings / (loss) per share 34 0.8558 (0.2077) The annexed notes from 1 to 50 and annexure I & annexure II form an integral part of these consolidated financial statements. __________________ President and Chief Executive Officer ___________________ Chief Financial Officer Annual Report 2020 ___________ Director 228 ___________ Director ___________ Chairman
  226. Consolidated Statement of Comprehensive Income For the year ended December 31 , 2020 2020 2019 ----- USD in ‘000 ----6,935 2020 2019 ----- Rupees in ‘000 ----- (1,607) 1,108,435 (256,608) 11,485 32,571 1,911,420 1,747,631 79,793 (58,510) (2,316) 1,988,897 1,689,121 290,980 (11,160) 75,356 359,994 38,398 - Total other comprehensive income 1,216 405,950 2,406,332 31,797 380,631 2,102,323 Total comprehensive income 3,514,767 1,845,715 3,482,182 32,585 3,514,767 1,943,070 (97,355) 1,845,715 Profit / (loss) after tax Other comprehensive income / (loss) Items that may be reclassified to profit and loss account in subsequent periods 72 204 11,959 10,934 499 (366) (14) 12,444 10,568 Effect of translation of net investment in foreign branch Movement in surplus on revaluation of investments - net of tax Movement in general provision under IFRS 9 - net Share of other comprehensive loss from associated companies - net of tax Items that will not be reclassified to profit and loss account in subsequent periods: 1,821 (70) 471 2,252 240 - 8 2,540 15,056 199 2,381 13,153 21,991 11,546 Remeasurement gain / (loss) on defined benefit obligations - net of tax Movement in surplus on revaluation of operating fixed assets - net of tax Movement in surplus on revaluation of non-banking assets - net of tax Share of other comprehensive income from associated companies - net of tax Attributable to: 21,787 204 21,991 12,155 (609) 11,546 Equity holders of the Bank Non-controlling interest The annexed notes from 1 to 50 and annexure I & annexure II form an integral part of these consolidated financial statements. __________________ President and Chief Executive Officer ___________________ Chief Financial Officer 229 ___________ Director ___________ Director Annual Report 2020 ___________ Chairman
  227. Consolidated Statement of Changes in Equity For the year ended December 31 , 2020 Attributable to shareholders of the Bank Surplus / (Deficit) on revaluation of UnapproNon priated Exchange Fixed Investments banking profit translation assets assets Reserves Share capital Statutory reserve * Sub-total Noncontrolling interest Total ---------------------------------------------------------------------- Rupees in ‘000 -----------------------------------------------------------------10,119,242 1,641,236 70,934 (2,080,364) 1,164,974 92,858 5,825,742 16,834,622 1,604,197 18,438,819 Loss after taxation Other comprehensive income / (loss) - net of tax - - 32,571 32,571 1,714,569 1,714,569 452,297 452,297 - (245,285) (11,082) (256,367) (245,285) 2,188,355 1,943,070 (11,323) (86,032) (97,355) (256,608) 2,102,323 1,845,715 Transfer to statutory reserve - 4,931 - - - - (4,931) - - - Fixed assets - - - - (35,721) - 35,721 - - - Non-banking assets acquired in satisfaction of claims - - - - - (82) 82 - - - Preference dividend paid for the year ended December 31, 2018 @ 12% p.a. - - - - - - (24,164) (24,164) - (24,164) Buy-back of shares by subsidiary from NCI - - - - - - - - (1,001,653) (1,001,653) Interim cash dividend to non-controlling interest by subsidiary company @ Rs. 4 per share - - - - - - - - (38,152) (38,152) Gain arised on buy back of shares by subsidiary - - - - - - 219,513 219,513 41,234 260,747 10,119,242 1,646,167 103,505 (365,795) 1,581,550 92,776 5,795,596 18,973,041 508,271 19,481,312 Profit / (loss) after taxation Other comprehensive income / (loss) net of tax - - 11,485 11,485 1,956,690 1,956,690 76,572 76,572 38,398 38,398 1,110,373 288,664 1,399,037 1,110,373 2,371,809 3,482,182 (1,938) 34,523 32,585 1,108,435 2,406,332 3,514,767 Transfer to statutory reserve - 230,012 - - - - (230,012) - - - Fixed assets - - - - (40,378) - 40,378 - - - Non-banking assets acquired in satisfaction of claims - - - - - (94) 94 - - - Assets held for sale - - - - (92,126) - 92,126 - - - Pre-acquisition surplus (net) on available-for-sale investments realised during the year - - - - - - (67,968) (67,968) (12,410) (80,378) 10,119,242 1,876,179 114,990 1,590,895 1,525,618 131,080 7,029,251 22,387,255 528,446 22,915,701 Balance as at December 31, 2018 Transfer from surplus on revaluation of assets to unappropriated profit - net of tax Transaction with owners recorded directly in equity Balance as at December 31, 2019 Transfer from surplus on revaluation of assets to unappropriated profit - net of tax Balance as at December 31, 2020 *This represents reserve created under Section 21(i)(a) of the Banking Companies Ordinance, 1962. The annexed notes from 1 to 50 and annexure I & annexure II form an integral part of these consolidated financial statements. __________________ President and Chief Executive Officer ___________________ Chief Financial Officer Annual Report 2020 ___________ Director 230 ___________ Director ___________ Chairman
  228. Consolidated Cash Flow Statement For the year ended December 31 , 2020 2020 2019 ------- USD in ‘000 ------13,569 (845) 95 12,819 (538) (1,241) (26) (1,805) 4,888 18 5,970 738 998 5,356 11 6,166 613 843 (89) (52) 409 (18) 7,843 291 (413) (132) (557) (413) 2,822 (67) (6) (405) 23,392 36,211 3,633 (3,089) 11,966 10,161 44,302 194,164 (49,206) 7,142 196,402 (177,560) (85,463) 54,217 (31,024) (239,830) 7,367 (35,483) 393,409 4,873 370,166 602,779 (950) (2,593) 599,236 1,780 (264,184) 304,920 14,273 56,789 (172,880) (641) (2,790) (176,311) (525,318) (20,332) (255) 838 (9,643) (2,072) 227 2,346 72 (554,137) 83,861 61,670 (133) 1,241 (8,651) (1,234) 8,458 204 145,416 (7,691) (13) (7,704) (151) (8,852) (13) (239) (4,635) (13,890) 37,395 159,099 196,494 (44,785) 203,884 159,099 CASH FLOWS FROM OPERATING ACTIVITIES Profit / (loss) before taxation Less: Dividend income Add / (less): Share of loss / (profit) from associates Adjustments: Depreciation Depreciation on non-banking assets Depreciation - right of use assets Amortisation of intangible assets Charge for defined benefit plan Unrealised gain on revaluation of investments classified as held-for-trading - net Unrealised loss / (gain) on revaluation of forward foreign exchange contracts Unrealised gain on revaluation of derivative instruments - net Provisions and write offs - net Provision for workers welfare fund Mark-up / return / interest expense on lease liability against right-of-use assets Gain on sale of fixed assets - net Gain on sale of assets held for sale Gain on termination of leases Note 29 29 29 37.5 32 30 25 28 28 28 Decrease / (increase) in operating assets Lendings to financial institutions Held-for-trading securities Advances Other assets (excluding advance taxation) Increase / (decrease) in operating liabilities Bills payable Borrowings Deposits and other accounts Other liabilities Gratuity paid Income tax paid Net cash flow from / (used) in operating activities CASH FLOW FROM INVESTING ACTIVITIES Net investment in available-for-sale securities Net investment in held-to-maturity securities Investment in associated companies Dividend received Investments in fixed assets Investments in intangible assets Proceeds from sale of fixed assets Proceeds from sale of assets held for sale Effect of translation of net investment in foreign branch Net cash flows (used in) / from investing activities CASH FLOW FROM FINANCING ACTIVITIES Dividend paid on preference shares Payment of lease liability against right of use assets Subordinated debt Dividend paid to non-controlling interest Shares bought back from non-controlling interest Increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 35 2020 2019 ------- Rupees in ‘000 ------2,168,811 (135,120) 15,257 2,048,948 (85,801) (198,432) (4,180) (288,413) 781,330 2,862 954,275 118,032 159,436 856,131 1,713 985,498 97,968 134,712 (14,202) (8,368) 65,409 (2,819) 1,253,585 46,472 (65,955) (21,126) (89,018) (65,991) 451,047 (10,682) (1,000) (64,805) 3,738,940 5,787,888 580,610 (493,680) 1,912,494 1,624,081 7,080,905 31,034,008 (7,864,762) 1,141,538 31,391,689 (28,380,143) (13,659,848) 8,665,682 (4,959,078) (38,333,387) 1,177,492 (5,671,449) 62,880,219 778,760 59,165,022 96,344,599 (151,882) (414,455) 95,778,262 284,567 (42,225,743) 48,736,751 2,281,258 9,076,833 (27,632,473) (102,494) (445,904) (28,180,871) (83,963,914) (3,249,717) (40,828) 134,017 (1,541,230) (331,107) 36,312 375,000 11,485 (88,569,982) 13,403,936 9,857,050 (21,239) 198,432 (1,382,668) (197,157) 1,351,903 32,571 23,242,828 (1,229,285) (2,000) (1,231,285) (24,164) (1,414,882) (2,000) (38,152) (740,906) (2,220,104) 5,976,995 25,429,551 31,406,546 (7,158,147) 32,587,698 25,429,551 The annexed notes from 1 to 50 and annexure I & annexure II form an integral part of these consolidated financial statements. __________________ President and Chief Executive Officer ___________________ Chief Financial Officer 231 ___________ Director ___________ Director Annual Report 2020 ___________ Chairman
  229. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 1. STATUS AND NATURE OF BUSINESS 1.1 The “Group” consists of: 1.1.1 Holding Company: JS Bank Limited JS Bank Limited (the Bank / JSBL) is a banking company incorporated in Pakistan as a public limited company on March 15, 2006. The Bank is a subsidiary company of Jahangir Siddiqui & Co. Ltd. (JSCL) and its shares are listed on Pakistan Stock Exchange Limited (PSX). The Bank commenced its banking operations on December 30, 2006 and its registered office is situated at Shaheen Commercial Complex, Dr. Ziauddin Ahmed Road, Karachi. The Bank is a scheduled bank, engaged in commercial banking and related services as described in the Banking Companies Ordinance, 1962 and is operating through 307 (2019: 359) branches / sub-branches in Pakistan and one wholesale banking branch in Bahrain (2019: one). The Pakistan Credit Rating Agency Limited (PACRA) has assigned the long-term entity rating of the Bank to AA- (Double A Minus) whereas short-term rating is maintained at ‘A1+’ (A One Plus), which is the highest possible short-term rating. The ratings denote a very low expectation of credit risk and indicate very strong capacity for timely payment of financial commitments. 1.1.2 Jahangir Siddiqui Investment Bank Limited, JSIBL, (formerly Citicorp Investment Bank Limited which was acquired by JSCL on February 01, 1999), and its holding company, JSCL, entered into a Framework Agreement with American Express Bank Limited, New York (AMEX) on November 10, 2005 for acquisition of its American Express Bank Limited - Pakistan Branches, (AEBL). Consequently, a new banking company, JSBL was incorporated on March 15, 2006 and a restricted Banking License was issued by the State Bank of Pakistan (SBP) on May 23, 2006. A Transfer Agreement was executed on June 24, 2006 between JSIBL and JSBL for the transfer of entire business and undertaking of JSIBL to JSBL and a separate Transfer Agreement was also executed on June 24, 2006, between AMEX and JSBL for the transfer of AEBL’s commercial banking business in Pakistan with all assets and liabilities (other than certain excluded assets and liabilities) (AEBL business). The shareholders of JSIBL and JSBL in their respective extra-ordinary general meetings held on July 31, 2006 approved a Scheme of Amalgamation (the Scheme) under Section 48 of the Banking Companies Ordinance, 1962. The Scheme was initially approved by the Securities and Exchange Commission of Pakistan vide its letter No. SC/NBFC(J)-R/ JSIBL/2006/517 dated September 28, 2006. Subsequently, the Scheme was sanctioned by the SBP vide its order dated December 02, 2006 and, in accordance therewith, the effective date of amalgamation was fixed at December 30, 2006. The ultimate parent of the Group is Jahangir Siddiqui & Co. Limited which holds 75.02% shares of the Bank. 1.1.3 Composition of the Group Subsidiary JS Global Capital Limited JS Investment Limited JS ABAMCO Commodities Limited 1.1.4 2020 The Group 83.53% 84.56% 84.56% Ownership interest and voting power held by NCI The Group 16.47% 15.44% 15.44% 83.53% 84.56% 84.56% 2019 NCI 16.47% 15.44% 15.44% Composition of the Associated Companies Ownership interest and voting power held by Bank 2020 2019 Associates Omar Jibran Engineering Industries Limited Veda Transit Solutions (Private) Limited Intercity Touring Company (Private) Limited Annual Report 2020 9.60% 9.12% 9.12% 232 9.60% 8.00% 9.12%
  230. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 1.1.5 Subsidiary Companies JS Global Capital Limited (JSGCL) JS Global Capital Limited is principally owned by the Bank, holding 83.53% of its equity interest. The Bank acquired effective controlling interest in JSGCL on December 21, 2011, April 15, 2016 and October 03, 2019 of 51.05%, 16.11% and 16.37% respectively. The ownership interest has increased by 32.42%, without any change in the cost of investment, due to the fact that JSGCL has bought back its 19,443,000 ordinary shares out of its 50 million ordinary shares. JSGCL is a public listed company incorporated in Pakistan under the repealed Companies Ordinance, 1984. The shares of the JSGCL are listed on Pakistan Stock Exchange (PSX). Further, the JSGCL is a corporate member of PSX and member of Pakistan Mercantile Exchange. The principal business of the JSGCL is to carry out share brokerage, money market, forex and commodity brokerage, advisory and consultancy services. Other activities include investment in a mix of listed and unlisted equity and debt securities and reverse repurchase transactions. The registered office of the Company is situated at 17th Floor, The Centre, Plot No. 28, SB-5, Abdullah Haroon Road, Saddar, Karachi, Pakistan. The Company has eight branches (2019: ten) in seven cities of Pakistan. JS Investments Limited (JSIL) JS Investments Limited is principally owned by the Bank, holding 84.56% of its equity interest. The Bank acquired effective controlling interest in JS Investments Limited (JSIL) on November 01, 2012, December 22, 2015 and August 31, 2019 of 52.24%,12.92% and 19.40% respectively. The ownership interest has increased by 32.32% without any change in the cost of investment, due to the fact that JSIL has bought back its 38,225,744 ordinary shares out of its 100 million ordinary shares. JSIL is a public listed company incorporated in Pakistan on February 22, 1995 under the repealed Companies Ordinance, 1984. The shares of the JSIL are listed on the Pakistan Stock Exchange (PSX), formerly since April 24, 2007. The registered office of the Company is situated at The Centre, 19th Floor, Plot No. 28, SB-5, Abdullah Haroon Road, Saddar, Karachi. The JSIL has obtained the license of an “Investment Advisor” and “Asset Management Company” (AMC) under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the NBFC Rules) and the NonBanking Finance Companies and Notified Entities Regulations, 2008 (the NBFC Regulations). In addition, JSIL has also obtained registration to act as Pension Fund Manager under the Voluntary Pension System Rules, 2005. JSIL is an asset management company of the following funds: Open end funds: JS Value Fund JS Growth Fund Unit Trust of Pakistan JS Income Fund JS Islamic Fund JS Fund of Funds JS Islamic Income Fund JS Cash Fund JS Large Cap. Fund JS Islamic Hybrid Fund of Funds (JSIHFOF) JS Islamic Hybrid Fund of Funds -2 (JSIHFOF2) JS Islamic Hybrid Fund of Funds -3 (JSIHFOF3) JS Islamic Dedicated Equity Fund JS Islamic Daily Dividend Fund Private Equity & Venture Capital fund: JS Motion Picture Fund Pension funds: JS Pension Savings Fund JS Islamic Pension Savings Fund These funds have been treated as related parties in these consolidated financial statements. 233 Annual Report 2020
  231. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 JS ABAMCO Commodities Limited (JSACL) JS Bank owns JS ABAMCO Commodities Limited indirectly through its subsidiary JS Investment Limited (JSIL) which has 100% holding in JSACL. JSACL was incorporated on September 25, 2007 as a public unlisted company under the repealed Companies Ordinance, 1984 and is a wholly owned subsidiary company of JSIL (a subsidiary of Holding Company). The principal activities of JSACL are to deal and effectuate commodity contracts; to become member of commodity exchange including National Commodity Exchange Limited (NCEL) and to carry on the business as brokers, advisory and consultancy services, dealers and representative of all kinds of commodity contracts and commodity backed securities. The registered office of JSACL is situated at The Centre, 19th Floor, Plot No. 28, SB-5, Abdullah Haroon Road, Saddar, Karachi. 1.1.6 Associated Companies Omar Jibran Engineering Industries Limited (OJEIL) The Bank has invested in the shares of Omar Jibran Engineering Industries Limited (OJEIL), a public unlisted company. The Bank has classified the investment as an associate on account of its significant influence over the investee company. OJEIL was incorporated on June 25, 1987 in Pakistan as an unquoted public limited company under the repealed Companies Ordinance, 1984. The registered office of the OJEIL is situated at DSU10, Pakistan Steel Industries Estate Bin Qasim, Karachi. The OJEIL is mainly engaged in the manufacture and sale of automotive parts and armoring of vehicles. Veda Transit Solutions (Private) Limited The Bank has invested in the shares of VEDA Transit Solutions (Private) Limited (VEDA), a private limited company. The Bank has classified the investment as an associate on account of its significant influence over the investee company. VEDA was incorporated on June 10, 2016 in Pakistan as private limited company under the repealed Companies Ordinance, 1984. The registered office of the VEDA is situated at Raaziq Logistics Centre 16 KM, Multan Road, Near Dina Nath Stop, Lahore. The VEDA is mainly engaged in the rural / urban, intracity / intercity transportation of passenger and goods. Intercity Touring Company (Private) Limited The Bank has invested in the shares of Intercity Touring Company (Private) Limited (ITC), a private limited company. The Bank has classified the investment as an associate on account of its significant influence over the investee company. ITC was incorporated on April 25, 2014 in Pakistan as private limited company under the repealed Companies Ordinance, 1984. The registered office of the ITC is situated at 147-P Gulberg III, Lahore. The ITC is mainly engaged in the transportation, touring and logistics related services. 2. BASIS OF PRESENTATION 2.1 These consolidated financial statements include financial statements of JS Bank Limited and its subsidiary companies, (the “Group”) and share of the profit / reserves of associates. These consolidated financial statements have been presented in Pakistan Rupees(PKR), which is the currency of the primary economic environment in which the Holding Company operates and functional currency of the Holding Company, in that environment as well. The amounts are rounded off to the nearest thousand rupees except as stated otherwise. The US Dollar amounts shown on the statement of financial position, profit and loss account, statement of comprehensive income and cash flow statement are stated as additional information solely for the convenience of readers and have not been subject to audit by the external auditors. For the purpose of conversion to US Dollars, the rate of Rs. 159.8344 to 1 US Dollar has been used for 2019 and 2020 as it was the prevalent rate as on December 31, 2020. Annual Report 2020 234
  232. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2.2 Statement of Compliance These consolidated financial statements have been prepared in accordance with the accounting and reporting standards as applicable in Pakistan. These comprise of: - International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Act, 2017; - Provisions of and directives issued under the Banking Companies Ordinance, 1962; - Provisions of and directives issued under the Companies Act, 2017; and - Directives issued by the SBP and the Securities & Exchange Commission of Pakistan (SECP) from time to time. Whenever the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017, or the directives issued by the SBP and the SECP differ with the requirements of IFRS, the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the said directives shall prevail. The SBP has deferred the applicability of International Accounting Standard (IAS) 39, ‘Financial Instruments: Recognition and Measurement’ and International Accounting Standard (IAS) 40, ‘Investment Property’ for banking companies vide BSD Circular Letter No. 10 dated August 26, 2002 till further instructions. Further, the SECP has deferred the applicability of International Financial Reporting Standard (IFRS) 7, ‘Financial Instruments: Disclosures’ on banks vide its notification S.R.O 411(I)/2008 dated April 28, 2008. Accordingly, the requirements of these standards have not been considered in the preparation of these consolidated financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by the SBP through various circulars. IFRS10 “Consolidated Financial Statements” was made applicable from period beginning on or after January 01, 2015 vide S.R.O 633(I)/2014 dated July 10, 2014 by SECP. However, SECP has directed through S.R.O56(I)/2016 dated January 28, 2016, that the requirement of consolidation under section 228 of the Companies Act, 2017 and IFRS-10 “Consolidated Financial Statements” is not applicable in case of investment by companies in mutual funds established under trust structure. Accordingly, the requirements of these standards have not been considered in the preparation of these consolidated financial statements. Through S.R.O. 229 (I)/2019 dated February 14, 2019, the SECP has extended the applicability of the IFRS 9 ‘Financial Instruments’ for all companies required to prepare their financial statements in accordance with the requirements of IFRS for reporting period/year ending on or after June 30, 2019 (earlier application is permitted). However, SBP has further extended the effective date of applicability of IFRS 9 from annual period beginning on or after January 01,2021 vide SBP BPRD Circular No.4 dated October 23,2019. Therefore, the Group has not considered the impact of IFRS 9 for its Pakistan operations in these consolidated financial statements. Further, the Holding Company considers that as the Prudential Regulations and other SBP directives currently provide the accounting framework for the measurement and valuation of investments and provision against non performing loans and advances, the implementation of IFRS 9 may require changes in the regulatory regime and for this SBP would issue guidance and instruction on the application of IFRS 9 for the Holding Companying sector of Pakistan. 2.3 BASIS OF CONSOLIDATION 2.3.1 Subsidiary - The consolidated financial statements include the financial statements of the Bank (The Holding Company) and its subsidiary companies together - “the Group”. 235 Annual Report 2020
  233. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2.3.2 - Subsidiaries are entities controlled by the Group. Control exists when the Group is exposed, or has rights, to variable returns from its investment with investee and has the ability to effect those return through its power over the investee except investment in mutual funds established under trust structure where IFRS 10 ‘Consolidated Financial Statements’ is not applicable in case of investment by companies in mutual funds established under Trust structure. - These consolidated financial statements incorporate the financial statements of subsidiaries from the date that control commences until the date that control ceases. - The financial statements of the subsidiary companies are prepared for the same reporting year as the holding company for the purpose of consolidation, using consistent accounting policies. - The assets, liabilities, income and expenses of subsidiary companies have been consolidated on a line by line basis. - Non-controlling interests are that part of the net results of operations and of net assets of subsidiaries attributable to interest which are not owned by the holding company. - Material intra-group balances and transactions are eliminated. Associate Associates are those entities in which the Group has significant influence, but not control, over the financial and operating polices. Associates are accounted for using the equity method. 2.3.3 Acquisition of business not under common control Acquisitions of businesses not under common control are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the bank, liabilities incurred by the bank to the former owners of the acquiree and the equity interests issued by the bank in exchange for control of the acquiree. Acquisition-related costs are recognised in profit and loss account as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date. Goodwill on acquisition after July 01, 2009 is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Goodwill acquired in a business combination before July 01, 2009 is initially measured at cost, being the excess of the cost of business combination over the Bank’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the Group’s net assets in the event of liquidation is measured at proportionate share of net assets of the acquiree at the date of the acquisition. Annual Report 2020 236
  234. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2.3.4 Acquisition of business under common control Acquisition of business under common control are accounted for under ‘pooling of interest method’. The assets and liabilities of the combining businesses for the period in which the combination occurs are merged on the date of combination at their respective book values. Appropriate adjustments are made to the book values to reflect application consistent accounting policies in the combining businesses. Any difference between the amount of net assets merged and consideration transferred in form of cash or other assets are adjusted against equity. Expenditure incurred in relation to the business combination are recognized as expenses in the period in which they are incurred. 2.4 Standards, interpretations of and amendments to published approved accounting standards that are effective in the current year The Holding Compnay has adopted the following accounting standards, interpretations and amendments of IFRSs and the improvements to accounting standards which became effective for the current year: - Amendments to IAS 1 Presentation of Financial Statements and IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors. The amendments were intended to make the definition of material in IAS 1 easier to understand and are not intended to alter the underlying concept of materiality in IFRS Standards. In addition, the IASB has also issued guidance on how to make materiality judgements when preparing their general purpose financial statements in accordance with IFRS Standards. - Amendment to IFRS 3 ‘Business Combinations’ – Definition of a Business. IASB has issued amendments aiming to resolve the difficulties that arise when an entity determines whether it has acquired a business or a group of assets. The amendments clarify that to be considered a business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. The amendments include an election to use a concentration test. - IFRS 14 ‘Regulatory Deferral Accounts’ permits an entity to continue to account, with some limited changes, for ‘regulatory deferral account balances’ in accordance with its previous reporting framework, both on initial adoption of standard and in subsequent financial statements. Regulatory deferral account balances, and movements in them, are presented separately in the statement of financial position and profit and loss account and statement of other comprehensive income, and specific disclosures are required. - IASB has also issued the revised Conceptual Framework for Financial Reporting (the Conceptual Framework) in March 2018 which became effective during the year for preparers of financial statements who develop accounting policies based on the Conceptual Framework. The revised Conceptual Framework is not a standard, and none of the concepts override those in any standard or any requirements in a standard. The purpose of the Conceptual Framework is to assist IASB in developing standards, to help preparers develop consistent accounting policies if there is no applicable standard in place and to assist all parties to understand and interpret the standards. The adoption of the above standards / amendments to accounting standards are not considered to be relevant or did not have any significant effect on the Holding Company’s operations. 2.5 Standards, interpretations of and amendments to published approved accounting standards that are not yet effective The following standards, amendments and interpretations of approved accounting standards will be effective for accounting periods beginning on or after January 01, 2021: 237 Annual Report 2020
  235. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 - IFRS 9 ‘Financial Instruments’ - SBP vide its BPRD Circular No. 04 of 2019 dated 23 October 2019 directed the banks in Pakistan to implement IFRS 9 with effect from 01 January 2021. IFRS 9 replaced the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. The Holding Company has been complying with the requiremnt of BPRD Circular Letter No. 15 of 2020 to have parallel run of IFRS 9 from July 01, 2020. - COVID-19-Related Rent Concessions (Amendment to IFRS 16) – the International Accounting Standards Board (the Board) has issued amendments to IFRS 16 (the amendments) to provide practical relief for lessees in accounting for rent concessions. The amendments are effective for periods beginning on or after 1 June 2020, with earlier application permitted. Under the standard’s previous requirements, lessees assess whether rent concessions are lease modifications and, if so, apply the specific guidance on accounting for lease modifications. This generally involves remeasuring the lease liability using the revised lease payments and a revised discount rate. In light of the effects of the COVID-19 pandemic, and the fact that many lessees are applying the standard for the first time in their financial statements, the Board has provided an optional practical expedient for lessees. Under the practical expedient, lessees are not required to assess whether eligible rent concessions are lease modifications, and instead are permitted to account for them as if they were not lease modifications. Rent concessions are eligible for the practical expedient if they occur as a direct consequence of the COVID-19 pandemic and if all the following criteria are met: - the change in lease payments results in revised consideration for the lease that is substantially the same as, or less than, the consideration for the lease immediately preceding the change; - any reduction in lease payments affects only payments originally due on or before 30 June 2021; and - there is no substantive change to the other terms and conditions of the lease. - Interest Rate Benchmark Reform – Phase 2 which amended IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 is applicable for annual financial periods beginning on or after 1 January 2021, with earlier application permitted. The amendments introduce a practical expedient to account for modifications of financial assets or financial liabilities if a change results directly from IBOR reform and occurs on an ‘economically equivalent’ basis. In these cases, changes will be accounted for by updating the effective interest rate. A similar practical expedient will apply under IFRS 16 for lessees when accounting for lease modifications required by IBOR reform. The amendments also allow a series of exemptions from the regular, strict rules around hedge accounting for hedging relationships directly affected by the interest rate benchmark reforms. The amendments apply retrospectively with earlier application permitted. Hedging relationships previously discontinued solely because of changes resulting from the reform will be reinstated if certain conditions are met. - Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37) effective for the annual period beginning on or after 1 January 2022 amends IAS 1 by mainly adding paragraphs which clarifies what comprise the cost of fulfilling a contract, Cost of fulfilling a contract is relevant when determining whether a contract is onerous. An entity is required to apply the amendments to contracts for which it has not yet fulfilled all its obligations at the beginning of the annual reporting period in which it first applies the amendments (the date of initial application). Restatement of comparative information is not required, instead the amendments require an entity to recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings or other component of equity, as appropriate, at the date of initial application. The following annual improvements to approved accounting standards 2018-2020 are effective for annual reporting periods beginning on or after 1 January 2022. Annual Report 2020 238
  236. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 - IFRS 9 – The amendment clarifies that an entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other’s behalf, when it applies the ‘10 percent’ test in paragraph B3.3.6 of IFRS 9 in assessing whether to derecognize a financial liability. - IFRS 16 – The amendment partially amends Illustrative Example 13 accompanying IFRS 16 by excluding the illustration of reimbursement of leasehold improvements by the lessor. The objective of the amendment is to resolve any potential confusion that might arise in lease incentives. - IAS 41 – The amendment removes the requirement in paragraph 22 of IAS 41 for entities to exclude taxation cash flows when measuring the fair value of a biological asset using a present value technique. - Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16) effective for the annual period beginning on or after 1 January 2022. Clarifies that sales proceeds and cost of items produced while bringing an item of property, plant and equipment to the location and condition necessary for it to be capable of operating in the manner intended by management e.g. when testing etc., are recognized in profit or loss in accordance with applicable Standards. The entity measures the cost of those items applying the measurement requirements of IAS 2. The standard also removes the requirement of deducting the net sales proceeds from cost of testing. An entity shall apply those amendments retrospectively, but only to items of property, plant and equipment that are brought to the location and condition necessary for them to be capable of operating in the manner intended by management on or after the beginning of the earliest period presented in the financial statements in which the entity first applies the amendments. The entity shall recognize the cumulative effect of initially applying the amendments as an adjustment to the opening balance of retained earnings (or other component of equity, as appropriate) at the beginning of that earliest period presented. - Reference to the Conceptual Framework (Amendments to IFRS 3) - Reference to the Conceptual Framework, issued in May 2020, amended paragraphs 11, 14, 21, 22 and 23 of and added paragraphs 21A, 21B, 21C and 23A to IFRS 3 . An entity shall apply those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after 1 January 2022. Earlier application is permitted if at the same time or earlier an entity also applies all the amendments made by Amendments to References to the Conceptual Framework in IFRS Standards, issued in March 2018. - Classification of liabilities as current or non-current (Amendments to IAS 1) effective for the annual period beginning on or after 1 January 2022. These amendments in the standards have been added to further clarify when a liability is classified as current. The standard also amends the aspect of classification of liability as non-current by requiring the assessment of the entity’s right at the end of the reporting period to defer the settlement of liability for at least twelve months after the reporting period. An entity shall apply those amendments retrospectively in accordance with IAS 8. - Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) – The amendment amends accounting treatment on loss of control of business or assets. The amendments also introduce new accounting for less frequent transaction that involves neither cost nor full step-up of certain retained interests in assets that are not businesses. The effective date for these changes has been deferred indefinitely until the completion of a broader review. Further, following new standards have been issued by IASB which are yet to be notified by the SECP for the purpose of applicability in Pakistan. IASB Effective date (annual periods beginning on or after) Standard IFRS 1 – First time adoption of IFRSs January 01, 2004 IFRS 17 – Insurance Contracts January 01, 2023 239 Annual Report 2020
  237. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2.6 Critical accounting estimates and key sources of estimation uncertainty The preparation of these consolidated financial statements in conformity with approved accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. Estimates and judgments are continually evaluated and are based on historic experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions in accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The areas where various assumptions and estimates are significant to the Group’s financial statements or where judgment was exercised in application of accounting policies are as follows: i) ii) Classification of investments - In classifying investments as ‘held-for-trading’ the Group has determined securities which are acquired with an intention to trade by taking advantage of short-term market / interest rate movements and are to be sold within 90 days of acquisition. - In classifying investments as ‘held-to-maturity’ the Group follows the guidance provided in SBP circulars on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity. In making this judgment, the Group evaluates its intention and ability to hold such investments to maturity. - The investments which are not classified as ‘held-for-trading’ or ‘held-to-maturity’ are classified as ‘availablefor-sale’. Provision against non performing loans and advances The Holding Company reviews its loan portfolio to assess amount of non-performing loans and advances and provision required there-against. While assessing this requirement various factors including the delinquency in the account, financial position of the borrowers, the value of securities and the requirements of the Prudential Regulations are considered. For portfolio impairment / provision on consumer advances, the Bank follows requirements set out in Prudential Regulations. iii) Impairment on investments The Group determines that investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in securities price. In addition, impairment may be appropriate when there is an evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology and operational and financing cash flows. iv) Income taxes In making the estimates for income taxes currently payable by the Group, the management considers the current income tax laws and the decisions of appellate authorities on certain issues in the past. In making the provision for deferred taxes, estimates of the Group’s future taxable profits are taken into account. v) Depreciation of fixed assets and amortization of intangible assets In making estimates of the depreciation / amortisation method, the management uses a method which reflects the pattern in which economic benefits are expected to be consumed by the Bank. The method applied is reviewed at each financial year end and if there is a change in the expected pattern of consumption of the future economic benefits embodied in the underlying assets, the method is changed to reflect the change in pattern. Such change is accounted for as change in accounting estimates in accordance with International Accounting Standard - 8, “Accounting Policies, Changes in Accounting Estimates and Errors”. Annual Report 2020 240
  238. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 vi) Defined benefits plans and other benefits Liability is determined on the basis of actuarial advice using the Projected Unit Credit Method. vii) Impairment of Goodwill Impairment testing involves a number of judgmental areas which are subject to inherent significant uncertainty, including the preparation of cash flow forecasts for the periods that are beyond the normal requirements of management reporting and the assessment of the discount rate appropriate to the business. The carrying amount of goodwill at the balance sheet date was Rs.1,464 million. The detailed assumptions underlying impairment testing of goodwill are given in note 12.7 to these consolidated financial statements. viii) Lease term The Group applies judgement to determine the lease term for some lease contracts in which it is a lessee that include renewal options.The assessment of whether the Bank is reasonably certain to exercise such options impacts the lease term, which significantly affects the amount of lease liabilities and right-of-use assets recognised and its recoverable amount which is determined as higher of value-in-use and fair value less cost to sell. 3. BASIS OF MEASUREMENT These consolidated financial statements have been prepared under the historical cost convention except for: 4. - Certain classes of fixed assets and non-banking assets acquired in satisfaction of claims which are stated at revalued amounts less accumulated depreciation. - Investments classified as held-for-trading and available-for-sale and derivative financial instruments, which are measured at fair value. - Net obligations in respect of defined benefit schemes which are carried at their present values. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are consistent with those of previous financial year. 4.1 Cash and cash equivalents Cash and cash equivalents represent cash and balances with treasury banks and balances with other banks net of any overdrawn nostro accounts. 4.2 Lendings to / borrowings from financial institutions The Group enters into transactions of lendings to / borrowings from financial institutions at contracted rates for a specified period of time. These are recorded as under: (a) Purchase under resale obligation Securities purchased under agreement to resell (reverse repo) are not included in statement of financial position as the Bank does not obtain control over the securities. Amount paid under these agreements is included in lendings to financial institutions or advances as appropriate. The difference between the contracted price and resale price is amortised over the period of the contract and recorded as income using effective interest method. 241 Annual Report 2020
  239. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 (b) Other lendings Other lendings include term lendings and unsecured lendings to financial institutions. These are stated net of provision. Mark-up on such lendings is charged to profit and loss account on a time proportionate basis using effective interest rate method except mark-up on impaired/delinquent lendings, which are recognized on receipt basis in accordance with the requirements of the Prudential Regulations of the SBP. (c) Sale under repurchase obligation Securities sold subject to a repurchase agreement (repo) are retained in the financial statements as investments and liability to counter party is included in borrowings. The difference in sale and repurchase value is accrued over the period of the contract and recorded as an expense using effective interest rate method. (d) Other borrowings Other borrowings include borrowings from the SBP and unsecured call borrowings which are recorded at the proceeds received. Mark-up paid on such borrowings is charged to the profit and loss account over the period of borrowings on time proportionate basis using effective interest method. 4.3 Investments 4.3.1 Initial recognition and measurement 4.3.1.1 The Management determines the appropriate classification of its investments at the time of purchase in held-fortrading, available-for-sale or held-to-maturity as per SBP guidelines vide BSD circular No. 10 of 2004 dated July 13, 2004. These are initially recognised at cost, being the fair value of the consideration given plus, in the case of investments other than held-for-trading, directly attributable acquisition costs. (a) Held-for-trading These are securities which are either acquired for generating profit from short-term fluctuations in market prices, interest rate movements, dealer’s margin or are securities included in a portfolio in which a pattern of short-term profit taking exists. These securities are carried at fair value with any related gain or loss being recognized in profit and loss account. (b) Held-to-maturity These are securities with fixed or determinable payments and fixed maturities that are held with the intention and ability to hold till maturity. Investments classified as held-to-maturity are carried at amortised cost. (c) Available-for-sale These are investments that do not fall under the held-for-trading or held-to-maturity categories. These are initially recognised at cost, being the fair value of the consideration given including the acquisition cost. These securities are carried at fair value with any related surplus or deficit on revaluation shall be taken to other comprehensive income. 4.3.1.2 Associates Associates are all entities over which the Group has significant influence but not control. These are accounted for using the equity method of accounting. Annual Report 2020 242
  240. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Under the equity method, the investment in associates are initially recognised at cost and the carrying amount of investment is increased or decreased to recognise the investor’s share of the post acquisition profits or losses, share of other comprehensive income or loss and share of the post acquisition movement in other reserves. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. However, in case where associates are considered as fully impaired and financial statements are not available these investments are stated at cost less provision. 4.3.1.3 Regular way contracts All ‘regular way’ purchases and sales of financial assets are recognised on the trade date, i.e. the date on which commitment to purchase / sale is made by the Group. Regular way purchases or sales of financial assets are those, the contract for which requires delivery of assets within the time frame generally established by regulation or convention in the market place. 4.3.1.4 Premium or discount on acquisition of investments Premium or discount on acquisition of investments is capitalised and amortised through the consolidated profit and loss account using effective yield over the remaining period of the investment. 4.3.2 Subsequent measurement In accordance with the requirements of the State Bank of Pakistan, SBP, quoted securities other than those classified as ‘held-to-maturity’ and investment in associates and subsidiaries, are subsequently remeasured on portfolio basis i.e. in case of Government securities at PKRV and PKFRV rates whereas in case of other securities at market value. Investments classified as ‘held-to-maturity’ are carried at amortised cost using the effective interest method (less impairment, if any). Further, in accordance with the requirements of the SBP, gain or loss on revaluation of the Group’s held-fortrading investments is taken to the profit and loss account. In case of investments classified as available-for-sale, surplus or deficit is taken directly to equity. The surplus or deficit arising on these securities is taken to the profit and loss account when actually realised upon disposal. Unquoted equity securities, excluding investment in subsidiaries and associates are valued at lower of cost and the break-up value in accordance with the requirements of the Prudential Regulations issued by the SBP. Breakup value of equity securities is calculated with reference to the net assets of the investee company as per the latest available audited financial statements. Investment in subsidiaries and associates are carried at cost, less accumulated impairment losses, if any. 4.3.3 Impairment / diminution in the value of securities Impairment loss in respect of quoted equity securities classified as available for sale, associates, subsidiaries and held to maturity is recognised based on management’s assessment of objective evidence of impairment as a result of one or more events that may have an impact on the estimated future cash flows of the investments. Objective evidence that the cost may not be recovered, in addition to qualitative impairment criteria, includes a significant or prolonged decline in the fair value below average cost. A decline to be considered as: - Significant if the fair value is below the weighted average cost by more than 30 percent. Prolonged if the fair value is below the weighted average cost for a period of more than one year. (a) Available-for-sale If an available-for-sale equity security is impaired, the cumulative loss that had been recognised in equity, shall be reclassified from equity to profit and loss account as a reclassification adjustment even though the financial asset has not been derecognised, any further decline in the fair value at subsequent reporting 243 Annual Report 2020
  241. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 dates are recognised as impairment. Therefore, at each reporting period, for an equity security that was determined to be impaired, additional impairment is recognised for the difference between the fair value and the original cost basis, less any previously recognised impairment. If, in subsequent period, impairment losses recognised in profit and loss for an investment in an equity instrument classified as available for sale shall not be reversed through profit and loss except in case of derecognition. (b) Held to maturity, Subsidiaries and Associates Impairment losses are incurred if, and only if, there is objective evidence of impairment after initial recognition of the investment. The impairment loss is recognised in the profit and loss account. If, in a subsequent period, any indication that an impairment loss recognised in prior periods no longer exist or may have decreased, the impairment loss shall be reversed, with the amount of the reversal recognised in profit or loss. (c) Debt Securities PTCs, TFCs, Sukuk and other debt securities will be classified on the valuation date on the basis of default in their repayment in line with the criteria prescribed for classification of short, medium and long-term facilities in accordance with the requirements of the Prudential Regulations issued by the SBP. 4.4 Financial instruments 4.4.1 Financial assets and financial liabilities Financial assets and financial liabilities are recognized at the time when the Bank becomes party to the contractual provision of the instrument. Financial assets are de-recognized when the contractual right to future cash flows from the asset expires or is transferred along with the risk and reward of the asset. Financial liabilities are derecognized when obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on de-recognition of the financial asset and liability is recognized in the profit and loss account at the time of derecognition. The particular recognition and subsequent measurement method for significant financial assets and financial liabilities are disclosed in the individual policy statements associated with them. 4.4.2 Derivative financial instruments Derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently re-measured at fair value using valuation techniques. All derivative financial instruments are carried as assets when fair value is positive and liabilities when fair value is negative. Any change in the fair value of derivative financial instruments is taken to the profit and loss account. 4.5 Off-setting of financial assets and financial liabilities Financial assets and financial liabilities are set off and the net amount is reported in the financial statements when there is a legally enforceable right to set off and the Group intends either to settle the assets and liabilities on a net basis or to realise the assets and to settle the liabilities simultaneously. Income and expenses arising from such assets and liabilities are accordingly offset. 4.6 Advances 4.6.1 Loan and advances Advances are stated net of general and specific provisions. General and specific provisions against funded loans are determined in accordance with the requirements of the Prudential Regulations issued by the SBP and charged to the profit and loss account. Advances are written off when there are no realistic prospects of recovery. Annual Report 2020 244
  242. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 4.6.2 Finance lease receivables Leases, where the bank transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee are classified as finance leases. A receivable is recognised at an amount equal to the present value of the lease payment including any guaranteed residual value, if any. Net investment in finance lease is included in loans and advances to customers. 4.7 Fixed assets 4.7.1 Property and equipment Fixed assets except office premises are shown at historical cost less accumulated depreciation and accumulated impairment losses, if any. Historical cost includes expenditures that are directly attributable to the acquisition of the items. Office premises (which includes leasehold land and buildings) are stated at revalued amount less accumulated depreciation and impairment loss, if any. Depreciation is calculated and charged to profit and loss account using the straight-line method so as to write down the cost of the assets to their residual values over their estimated useful lives at the rates given in note 11. A full month’s depreciation is charged from the month in which assets are brought into use and no depreciation is charged for the month in which the disposal is made. The residual values, useful lives and depreciation methods are reviewed and changes, if any, are treated as change in accounting estimates, annually. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is de-recognised. All other repairs and maintenance are charged to the profit and loss account during the period in which they are incurred. An item of property and equipment is de-recognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on de-recognition of the asset is recognised in the profit and loss account in the year the asset is de-recognised. 4.7.2 Surplus / deficit on revaluation of fixed assets The surplus arising on revaluation is credited to other comprehensive income. However, the increase shall be recognised in profit or loss to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit and loss account. The deficit arising on a particular property as a result of a revaluation is recognised in profit and loss account as an impairment. However, the decrease to be recognised in other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset. Depreciation on buildings which are revalued is determined with reference to the value assigned to such assets on revaluation and depreciation charge for the year is taken to the profit and loss account; and an amount equal to incremental depreciation for the year net of deferred taxation is transferred from “Surplus on Revaluation of Fixed Assets Account” to unappropriated profit through Statement of Changes in Equity to record realization of surplus to the extent of the incremental depreciation charge for the year. Gains or losses on disposal of assets are included in the profit and loss account currently, except that the related surplus on revaluation of fixed assets (net of deferred tax) is transferred directly to equity. 4.7.3 Capital work-in-progress Capital work-in-progress is stated at cost less impairment losses, if any. These are transferred to specified assets as and when assets are available for use. 245 Annual Report 2020
  243. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 4.8 Intangible assets Intangible assets are stated at cost less accumulated amortisation and impairment, if any. Intangible assets are amortised from the month when the assets are available for use, using the straight line method, whereby the cost of the intangible asset is amortised over its estimated useful life over which economic benefits are expected to flow to the Group. The useful life and amortisation method are reviewed and adjusted, if appropriate, annually. Intangible assets having an indefinite useful life are carried at cost less any impairment in value and are not amortised. However these are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. 4.9 Assets subject to finance leases Assets held under finance leases are initially recorded at the lower of the present value of minimum lease payments under the lease agreements and the fair value of the leased assets. The related obligations under the lease, net of financial charges allocated to future periods, are shown as a liability. The financial charges are allocated to accounting periods in a manner so as to provide a period rate of interest on the outstanding liability. 4.10 Non-banking assets acquired in satisfaction of claims 4.10.1 Non-banking assets acquired in satisfaction of claims under Debt Property Swap (DPS) transactions, against the loans in category of loss, are initially carried at cost and subsequently at revalued amounts at each year-end date of the statement of financial position, being the fair value at the date of revaluation less subsequent accumulated depreciation and subsequent accumulated impairment losses, if any. The valuation of properties acquired are conducted regularly, so as to ensure that their net carrying value does not materially differ from their fair value. All direct cost including legal fees, valuation and transfer costs of acquiring title to property shall be expensed when incurred through profit and loss account. Subsequent costs are included in the asset’s carrying amounts only when it is probable that future benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other subsequent costs including repair and maintenance are charged to the profit and loss account as and when incurred. Depreciation on assets acquired in satisfaction of claims is charged to the profit and loss account in line with the depreciation charged on operating fixed assets. Any reductions in non-performing loans and corresponding reductions in provisions held against non-performing loans, as a result of the recognition of such assets, are disclosed separately in the notes to these consolidated financial statements. These assets are generally intended for sale. Gains and losses realised on the sale of such assets are disclosed separately from gains and losses realised on the sale of fixed assets in the notes to these consolidated financial statements. If such asset is subsequently used by the Bank for its own operations, the asset, along with any related surplus, is transferred to fixed assets. 4.10.2 Surplus / deficit on revaluation of non banking assets Revaluation of non-banking assets acquired in satisfaction of claims under Debt Property Swap (DPS) transactions are carried out under criteria given in regulations for DPS issued by State Bank of Pakistan vide BPRD Circular 01 dated January 01, 2016 i.e. valuation of property shall be done on individual property basis and not on portfolio basis, whereas accounting treatment of revaluation is accounted for in accordance with applicable financial reporting standards i.e. International Accounting Standard (IAS) 16. Annual Report 2020 246
  244. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Furthermore, revaluation surplus on such assets shall not be admissible for calculating the Group’s Capital Adequacy Ratio and exposure limits under the Prudential Regulations. However, the surplus can be adjusted upon realization of sale proceeds. 4.11 Impairment other than investments and deferred tax At each balance sheet date, the Bank reviews the carrying amounts of its assets (other than investment and deferred tax asset) to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss, if any. Recoverable amount is the higher of net selling price (being fair value less cost to sell) and value-in-use. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the assets is reduced to its recoverable amount. Impairment losses are recognised as an expense in profit and loss account immediately. Where impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised recoverable amount but limited to the extent of the amount which would have been determined had there been no impairment. Reversal of impairment loss is recognized as income. 4.12 Borrowings / deposits and their cost Borrowings / deposits are recorded at the proceeds received. Borrowing / deposit costs are recognised as an expense in the period in which these are incurred to the extent that they are not directly attributable to the acquisition of or construction of qualifying assets. Borrowing costs that are directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) is capitalised as part of the cost of the asset. 4.13 Subordinated debt Subordinated debt is initially recorded at the amount of proceeds received and subsequently measured at amortised cost. Mark-up accrued on subordinated debt is recognised separately as part of other liabilities and is charged to the profit and loss account over the period on an accrual basis. 4.14 Taxation 4.14.1 Current Provision for current taxation is based on taxable income for the year determined in accordance with the prevailing laws for taxation on income. For income covered under final tax regime, taxation is based on applicable tax rate under such regime. The charge for current tax also includes adjustments, where considered necessary, relating to prior years arising from assessments made during the year. 4.14.2 Deferred Deferred tax is recognised using the balance sheet liability method on all temporary differences arising between tax bases of assets and liabilities and their carrying amounts appearing in the consolidated financial statements. Deferred tax liability is recognized on taxable temporary differences. Deferred tax asset is recognised for all deductible temporary differences and carry forward of unused tax losses, if any only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefits will be realised. Deferred tax is calculated at the rates that are expected to apply to the period when the differences are expected to reverse, based on tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited to the profit and loss account. 247 Annual Report 2020
  245. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Deferred tax, if any, on revaluation of investments, fixed assets and non banking assets is recognised as an adjustment to surplus / (deficit) arising on revaluation in accordance with the requirements of IAS-12 “Income Taxes”. 4.15 Provisions Provisions are recognised when the Group has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and are adjusted to reflect the current best estimate. Provision against identified non-funded losses is recognised when intimated and reasonable certainty exists for the Group to settle the obligation. The loss is charged to consolidated profit and loss account net of expected recovery. 4.16 Staff retirement benefits Defined contribution plan - the Group The Group has established a provident fund scheme for all its permanent employees in accordance with the trust deed and rules made there under. Equal monthly contributions are made, both by the Group and the employees, to the fund at the rate defined below of basic salary. Contribution by the Group is charged to profit and loss account. - 4.16.1 The Bank (Holding Company) JS Global Capital Limited (Subsidiary) JS Investment Limited (Subsidiary) 7.10% 7.33% 7.33% Defined benefit plan as revised (Holding Company) The Bank operates an approved funded gratuity scheme covering all its eligible employees who have completed minimum qualifying period. An actuarial valuation of defined benefit scheme is conducted at the end of every year or on occurrence of any significant change. The most recent valuation in this regard was carried out as at December 31, 2020, using the projected unit credit actuarial valuation method. Under this method cost of providing for gratuity is charged to profit and loss account so as to spread the cost over the service lives of the employees in accordance with the actuarial valuation. Past-service costs are recognised immediately in profit and loss account and actuarial gains and losses are recognised immediately in other comprehensive income. 4.17 Revenue recognition Revenue is recognized to the extent that economic benefits will flow to the Group and the revenue can be reliably measured. These are recognized as follows: - Advances and investments Mark-up income / interest / profit on performing advances and debt securities is recognized on a time proportion basis as per the terms of the contract. Mark-up income / interest / profit on non-performing advances and debt securities is recognized on a receipt basis in accordance with the requirements of the Prudential Regulations issued by the State Bank of Pakistan. Interest / returns / mark-up income / profit on rescheduled / restructured advances and debt securities are recognised as permitted by the State Bank of Pakistan or by the regulatory authorities of the countries where the Bank operates, except where, in the opinion of the management, it would not be prudent to do so. Annual Report 2020 248
  246. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Premium or discount on acquisition of debt investments is capitalised and amortised through the profit and loss account over the remaining maturity of the debt security using the effective yield method. Unrealised interest income in respect of non-performing loans and advances are held in suspense account, where necessary, in accordance with the requirements of the Prudential Regulations issued by the SBP. - Lease financing Financing method is used in accounting for income from lease financing. Under this method, the unearned lease income (defined as the excess of the sum of total lease rentals and estimated residual value over the cost of leased assets) is deferred and taken to income over the term of the lease period so as to produce a constant periodic rate of return on the outstanding net investment in lease. Unrealised finance income in respect of non-performing lease finance is held in suspense account, where necessary, in accordance with the requirements of the Prudential Regulations issued by the SBP. Gains / losses on termination of lease contracts, documentation charges, front-end fees and other lease income are recognized as income on receipt basis. 4.18 - Non Mark-up / interest income - Commission is recognised as income at the time of affecting the transaction to which it relates. Fees are recognised when earned. - Financial advisory fee is recognised when the right to receive the fee is established. - Dividend income from investments is recognised when the Bank’s right to receive the dividend is established. Dividend and appropriation to reserves Dividend and appropriation to reserves except for statutory reserves are recognised in the consolidated financial statements in the periods in which these are approved. 4.19 Foreign currencies 4.19.1 Functional and presentation currency Items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the Group operates. The consolidated financial statements are presented in Pakistani Rupees, which is the Group’s functional and presentation currency. 4.19.2 Transactions and balances Transactions in foreign currencies are translated into Pakistani rupees at the exchange rates prevailing on the transaction date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account. Forward contracts relating to foreign currency deposits are valued at forward rates applicable to the respective maturities of the relevant foreign exchange contract. The forward cover received / paid on forward purchase contracts relating to foreign currency deposits are realised / charged directly to profit and loss account. 249 Annual Report 2020
  247. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 4.19.3 Foreign operations Assets and liabilities of foreign operations are translated into rupees at the exchange rate prevailing at the reporting date. The results of foreign operations are translated at average rate of exchange for the year. 4.19.4 Translation gains and losses Translation gains and losses arising on revaluations of net investment in foreign operations are taken to Exchange Translation Reserve in the statement of comprehensive income. These are recognised in the profit and loss account on disposal. 4.19.5 Commitments Commitments for outstanding forward foreign exchange contracts disclosed in these consolidated financial statements are translated at contracted rates. Contingent liabilities / commitments for letters of credit and letters of guarantee denominated in foreign currencies are expressed in rupee terms at the rates of exchange ruling on the consolidated statement of financial position date. 4.20 Goodwill Goodwill acquired in a business combination before July 01, 2009 is initially measured at cost, being the excess of the cost of the business combination over the Holding Company’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Holding Company’s cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquirer are assigned to those units or groups of units. 4.21 Earnings per share The Group presents basic and diluted earnings per share (EPS). Basic EPS is calculated by dividing the profit or loss attributable to ordinary equity holders of the Bank (less preferrence dividend, if any) by the weighted average number of ordinary shares outstanding during the period / year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary equity holders of the Bank by dividing the weighted average number of shares outstanding, for the effects of all dilutive potential ordinary shares, if any.age number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, if any. 4.22 Non-current assets held for sale and discontinued operations The Holding Company classifies an asset as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets and its sale must be highly probable. For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell the asset (or disposal group), and an active programme to locate a buyer and complete the plan must have been initiated. Further, the asset must be actively marketed for sale at a price that is reasonable in relation to its current fair value. In addition, the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification and actions required to complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. A held for sale asset is carried at the lower of its carrying amount and the fair value less costs to sell. Impairment losses are recognised in the consolidated profit and loss account for any initial or subsequent write down of the asset to fair value less costs to sell. Subsequent gains in fair value less costs to sell are recognised to the extent these do not exceed the cumulative impairment losses previously recorded. An asset is not depreciated while classified as held for sale. Annual Report 2020 250
  248. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 4.23 Segment reporting A segment is a distinguishable component of the Group that is subject to risks and rewards that are different from those of other segments. A business segment is one that is engaged either in providing certain products or services, whereas a geographical segment is one engaged in providing certain products or services within a particular economic environment. Segment information is presented as per the Group’s functional structure and the guidance given under International Financial Reporting Standard (IFRS) 8. For management purposes, the Group has been organised into Seven operating segments based on products and services, as follows: 4.23.1 Business segments Corporate finance This includes investment banking activities such as mergers and acquisitions, underwriting, privatization, securitization, Initial Public Offers (IPOs), specialised financial advice and trading and secondary private placements. Trading and sales This segment undertakes the Group’s treasury, money market and capital market activities. Retail banking Retail banking provides services to small borrowers i.e. consumers, small and medium enterprises (SMEs) and agricultural sector. It includes loans, deposits and other transactions with retail customers. Commercial banking This includes loans, deposits and other transactions with corporate customers. Brokerage This includes brokerage commission earned on transactions in capital, money, foreign exchange and commodity markets. Asset management This includes fee for services rendered in connection with advisory and management of mutual funds. The Executive Management Committee (ManCom) monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profits or losses and is measured consistently with operating profits or losses in the consolidated financial statements. However, income taxes are managed on a group basis and are not allocated to operating segments. Interest income is reported net as management primarily relies on net interest revenue as a performance measure, along with the gross income and expense Transfer prices between operating segments are based on the group’s internal pricing framework. No revenue from transactions with a single external customer or counterparty amounted to 10% or more of the Bank’s total revenue in 2019 and 2020. Others This includes the headoffice related activities and other functions which cannot be classified in any of the above segments. 251 Annual Report 2020
  249. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 4.23.2 Geographical segment The Holding Company operates with 307 (2019: 359) branches / sub-branches in Pakistan region and one wholesale banking branch in Bahrain (2019: one). 4.24 Fiduciary assets Assets held in a fiduciary capacity are not treated as assets of the Bank in statement of financial position. 5. FINANCIAL RISK MANAGEMENT The financial risk management objectives and policies adopted by the Holding Company are consistent with those disclosed in the unconsolidated financial statements for the year ended December 31, 2019 except for the following additional considerations due to the COVID-19. 5.1 COVID - 19 outbreak and it’s impact The COVID-19 and the measures to reduce its spread has impacted the economy of Pakistan significantly. Regulators and governments across the globe have introduced fiscal and economic stimulus measures to mitigate its impact. The State Holding Company of Pakistan (SBP) has responded to the crisis by cutting the policy rate by 625 basis points to 7 percent and by introducing regulatory measures to maintain Holding Companying system’s soundness and to sustain economic activity. These include: (i) reducing the capital conservation buffer by 100 basis points to 1.5 percent; (ii) increasing the regulatory limit on extension of credit to SMEs by 125 million to Rs 180 million; (iii) relaxing the debt burden ratio for consumer loans from 50 percent to 60 percent (iv) allowing Holding Companys to defer clients’ payment of principal and profit on financing obligations by one year; and (v) relaxing regulatory criteria for restructured/rescheduled loans for borrowers who require relief beyond the extension of principal repayment for one year. (vi) Relaxing credit requirements for exporters and importers; and (vii) Refinance schemes to support employment to prevent layoff of workers and health sector to combat COVID-19 Pandemic. COVID 19 has impacted the Holding Companys in Pakistan from various facets which includes increase in overall credit risk pertaining to loans and advances portfolio in certain sectors, reduced fee income due to slowdown in economic activity, operational issues such as operations of Branches, managing cyber security threat and managing investment Holding Companying activities including arrangement of syndicate loans, debt and capital advisory services etc. We have discussed below the major aspects of COVID 19 on the Holding Company’s risk management policies. 5.1.1 Assets quality and credit risk The Risk department of the Holding Company is regularly conducting assessments to identify borrowers operating in various sectors which are most likely to get affected. The Holding Company has further strengthened its credit review procedures in the light of COVID-19. The Holding Company has conducted various stress tests on the Credit portfolio and is confident that the CAR buffer currently maintained is sufficient. Annual Report 2020 252
  250. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 5.1.2 Liquidity management Holding Company has received applications for deferral of principal and / or restructuring / rescheduling and is expected to receive further such applications. These applications are being reviewed by the Holding Company as per its established policies. The Asset and Liability Committee (ALCO) of the Holding Company is continuously monitoring the liquidity position and is taking due precautionary measures where needed. The Holding Company has conducted various stress testing on its liquidity ratios and is confident that the liquidity buffer currently maintained by the Holding Company is sufficient to cater any adverse movement in cash flow maturity profile. 5.1.3 Equity investments SBP has given relaxation in recognition of impairment on equity securities in phased manner equally on quarterly basis during calendar year ending on December 31, 2020. The Holding Company has taken the impact of impairment on the basis of that relaxation in these consolidated financial statements. 5.1.4 Foreign Exchange Risks Due to recent economic slowdown, the PKR has devalued against USD significantly from December 31, 2019 and the USD / PKR parity stood at Rs.159.8344 as at December 31, 2020. The exchange rate is expected to remain volatile till the uncertainty around COVID-19 resolves. The Holding Company has reviewed its Net Open Position and has had no significant impact on profitibility. 5.1.5 Operations The Holding Company is closely monitoring the situation and has invoked required actions to ensure safety and security of Holding Company staff and an uninterrupted service to our customers. The senior management of the Holding Company is continuously monitoring the situation and is taking timely decisions to resolve any concerns. Business Continuity Plans (BCP) for respective areas are in place and tested. The Holding Company has significantly enhanced monitoring for all cyber security risk during these times from its information security protocols. The remote work capabilities were enabled for staff and related risk and control measures were assessed to make sure they are fully protected using virtual private network (“VPN”) connections. Further, the Holding Company has also ensured that its remote access systems are sufficiently resilient to any unwanted cyber attacks. The Holding Company is communicating with its customers on how they can connect with the Holding Company through its full suite of channels including digital and online channels. The Holding Company has taken all measures to ensure that service levels are maintained, customer complaints are resolved as per SLAs and the Holding Company continues to meet the expectations of their clients as they would in a normal scenario. 5.1.6 Capital Adequacy Ratio Under the current scenario, the Holding Companys are under pressure to extend further credit to its borrowers, while overall deteriorating credit risk and increased NPL may also put additional pressures on the Holding Company from Capital Adequacy Ratio perspective. The SBP has relaxed the Capital Conversion Buffer (CCB) requirements for the Holding Companys to 1.5%, resulting in an overall CAR requirement of 11.5%. The reduced CCB has also provided an additional limit to the Holding Company for its tier 2 capital. Further, the regulatory limit for retail loans has also increased by SBP to 180 million, which will now result in reduced Risk Weighted Assets for some of its loans. In addition to the measures by SBP, the Senior management of the Holding Company is continuously monitoring the impacts of various decisions on its CAR and taking further lending decisions based on the overall impacts on RWA. The Holding Company also believes that it has buffer in its CAR requirement to meet any adverse movements in credit, market or operational risks. 253 Annual Report 2020
  251. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 6. CASH AND BALANCES WITH TREASURY BANKS Note In hand: Local currency Foreign currencies With State Bank of Pakistan in: Local currency current account Foreign currency current account - non remunerative Foreign currency deposit account - remunerative 6.1 6.2 6.3 With National Bank of Pakistan in: Local currency current accounts National Prize Bonds 2020 2019 ----- Rupees in ‘000 ----- 6,337,389 1,301,503 7,638,892 5,573,428 896,523 6,469,951 16,268,165 1,086,874 2,261,337 19,616,376 13,292,331 831,532 2,566,714 16,690,577 2,609,635 2,286,205 556,628 30,421,531 143,440 25,590,173 6.1 These include local currency current accounts maintained with SBP as per the requirements of Section 22 of the Banking Companies Ordinance, 1962. 6.2 As per BSD Circular No. 9 dated December 03, 2007, cash reserve of 5% is required to be maintained with the State Bank of Pakistan in deposits held under the New Foreign Currency Accounts Scheme (FE-25 deposits). 6.3 This represents deposit accounts maintained with SBP under the requirements of BSD Circular No. 14 dated June 21, 2008 and mandatory reserve maintained to facilitate collection and settlement of foreign currency accounts under FE-25, as prescribed by the SBP, carrying a mark-up rate 0% (2019: 0.70%) as per specific circular issued by SBP at year end. 7. Note BALANCES WITH OTHER BANKS In Pakistan In current accounts In deposit accounts 7.1 Outside Pakistan In current accounts 7.2 Less: General provision under IFRS 9 Balances with other banks - net of provision 7.3 2020 2019 ----- Rupees in ‘000 ----- 123,526 24,390 147,916 150,722 6,565 157,287 980,669 1,128,585 (450) 1,128,135 319,083 476,370 (68) 476,302 7.1 These carry mark-up at the rate of 2.75% to 13.70% (2019: 6.75% to 12.75%) per annum. 7.2 This includes amount held in Automated Investment Plans. The Holding Company is entitled to earn interest from the correspondent banks at agreed upon rates when the balance exceeds a specified amount which comes 0% per annum (2019: 1.05% per annum). 7.3 This represents general provision held under IFRS 9 by Bahrain branch of the Holding Company. Annual Report 2020 254
  252. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 8. LENDINGS TO FINANCIAL INSTITUTIONS Note Call money lendings Repurchase agreement lendings (Reverse Repo) Less: General provision under IFRS 9 Lending to Financial Institutions - net of provision 8.1 8.4 2020 2019 ----- Rupees in ‘000 ----2,237,682 21,003,215 23,240,897 (1,225) 23,239,672 283,887 30,037,915 30,321,802 (1,262) 30,320,540 21,003,215 2,237,682 23,240,897 30,037,915 283,887 30,321,802 Particulars of lendings - gross In local currency In foreign currencies 8.2 These represent unsecured call money lendings to financial institutions carrying interest at the rates ranging from 1% to 1.1% (2019: 2.50% to 4.52%) per annum. These will mature between January 11, 2021 and January 28, 2021 (2019: January 30, 2020 and September 22, 2020). 8.3 These are secured short-term lendings to various financial institutions, carrying mark-up rate from 6.75% to 7.40% (2019: 12.00% to 13.60%) per annum. These are collateralized by Market Treasury Bills and Pakistan Investment Bonds as shown in note 8.3.1 below. 8.3.1 Market value of securities held as collateral against Lending to financial institutions 2020 2019 Further Further Held by given as bank collateral Total Held by given as bank collateral Total --------------------------------------------- Rupees in ‘000 --------------------------------------------Market Treasury Bills Pakistan Investment Bonds - - - 24,252,002 - 21,160,868 - 21,160,868 2,081,639 3,673,117 5,754,756 21,160,868 - 21,160,868 26,333,641 3,673,117 30,006,758 255 Annual Report 2020 24,252,002
  253. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 8.4 This represents general provision held under IFRS 9 by Bahrain branch of the Holding Company. 9. INVESTMENTS - NET 2019 2020 Cost / Amortised cost Provision for diminution Surplus / (Deficit) Carrying Value Cost / Amortised cost Provision for diminution Surplus / (Deficit) Carrying Value -------------------------------------------------------------------- Rupees in ‘000 -------------------------------------------------------------------9.1 Investments by type Held-for-trading securities Federal Government Securities Shares Open end mutual funds 25,002,969 - 805 25,003,774 55,601,087 - (2,618) 55,598,469 194,428 - 12,981 207,409 486,634 - 551 487,185 310,221 - 416 310,637 444,902 - 11,070 455,972 25,507,618 - 14,202 25,521,820 56,532,623 - 9,003 56,541,626 Available-for-sale securities Federal Government Securities 127,308,516 - 97,527 127,406,043 47,828,618 - (809,244) 47,019,374 Shares 3,018,184 (411,955) 1,701,753 4,307,982 2,115,728 (136,589) 25,107 2,004,246 Non Government Debt Securities 3,579,278 (696,507) (420) 2,882,351 3,931,294 (696,507) (6,889) 3,227,898 826,188 - 390,100 1,216,288 969,276 (26,023) 279,616 1,222,869 4,079,070 (122,758) 136,466 4,092,778 2,406 - - 2,406 138,811,236 (1,231,220) 2,325,426 139,905,442 54,847,322 (859,119) (511,410) 53,476,793 36,109,599 - - 36,109,599 32,859,882 - - 32,859,882 270,793 - - 270,793 246,322 - - 246,322 200,699,246 (1,231,220) 2,339,628 201,807,654 144,486,149 (859,119) (502,407) 143,124,623 Open end mutual funds Foreign Securities Held-to-maturity securities Federal Government Securities Associates Total Investments 9.1.1 Investments include certain approved / government securities which are held by the Bank to comply with the Statutory Liquidity Requirement determined on the basis of the Bank’s demand and time liabilities as set out under section 29 of the Banking Companies Ordinance, 1962. Annual Report 2020 256
  254. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 9.2 Investments by segments: Note 2020 2019 Cost / Cost / Provision for Surplus / Carrying Provision for Surplus / Amortised Amortised Carrying Value diminution (Deficit) Value diminution (Deficit) cost cost ------------------------------------------------------------ Rupees in ‘000 ------------------------------------------------------------ Held-for-trading securities Federal Government Securities Market Treasury Bills Pakistan Investment Bonds 9.4.1 9.4.1 Shares: Listed Companies Ordinary shares 25,002,969 25,002,969 - 805 805 25,003,774 25,003,774 55,601,087 55,601,087 - (2,618) (2,618) 55,598,469 55,598,469 9.4.2 194,428 - 12,981 207,409 486,634 - 551 487,185 Open End Mutual Funds 9.4.3 310,221 - 416 310,637 444,902 - 11,070 455,972 9.5.1 9.5.1 90,027,949 37,280,567 127,308,516 - 20,041 77,486 97,527 90,047,990 37,358,053 127,406,043 12,071,266 35,757,352 47,828,618 - (364) (808,880) (809,244) 12,070,902 34,948,472 47,019,374 9.5.2 9.5.2 2,870,595 136,589 (275,366) (136,589) 1,701,753 - 4,296,982 - 1,968,139 136,589 (136,589) 25,107 - 1,993,246 - 9.5.2 11,000 3,018,184 (411,955) 1,701,753 11,000 4,307,982 11,000 2,115,728 (136,589) 25,107 11,000 2,004,246 9.5.3.1 9.5.3.2 442,682 402,955 (155,169) - (147) (273) 287,366 402,682 445,183 493,850 (155,169) - (134) (6,755) 289,880 487,095 9.5.3.3 9.5.3.4 9.5.3.5 1,340,804 1,365,104 27,733 3,579,278 (541,338) (696,507) (420) 799,466 1,365,104 27,733 2,882,351 1,506,195 1,458,333 27,733 3,931,294 (541,338) (696,507) (6,889) 964,857 1,458,333 27,733 3,227,898 826,188 - 390,100 1,216,288 969,276 (26,023) 279,616 1,222,869 9.5.5.1 9.5.5.2 9.5.2 3,633,601 379,654 65,815 4,079,070 (120,619) (2,139) (122,758) 130,420 (3,628) 9,674 136,466 3,643,402 373,887 75,489 4,092,778 2,406 2,406 - - 2,406 2,406 9.6.1 36,109,599 - - 36,109,599 32,859,882 - - 32,859,882 215,793 54,302 698 270,793 - - 215,793 54,302 698 270,793 224,782 4,774 16,766 246,322 - - 224,782 4,774 16,766 246,322 200,699,246 (1,231,220) 2,339,628 201,807,654 144,486,149 (859,119) (502,407) 143,124,623 Available-for-sale securities Federal Government Securities: Market Treasury Bills Pakistan Investment Bonds Shares: Listed Companies Ordinary shares Preference shares Unlisted Companies Ordinary shares Non Government Debt Securities Listed Term Finance Certificates Sukuk Certificates Unlisted Term Finance Certificates Sukuk Certificates-unlisted Preference shares Open End Mutual Funds Foreign Securities Government Debt Securities Non Government Debt Securities Ordinary shares 9.5.4 Held-to-maturity securities Federal Government Securities: Pakistan Investment Bonds Associates Omar Jibran Engineering Industries Limited Veda Transit Solutions (Private) Limited Intercity Touring Company (Private) Limited Total Investments * 9.7 9.7 9.7 Provision for diminution against foreign debt securities represents expected credit loss provisioning under IFRS 9 on portfolio pertaining to Bahrain Branch 257 Annual Report 2020
  255. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 9.2.1 2020 2019 Cost Market value Cost Market value ----------------------- Rupees in ‘000 ----------------------- Investments given as collateral Held-for-trading securities Federal Government Securities Market Treasury Bills Available-for-sale securities Federal Government Securities: Market Treasury Bills Pakistan Investment Bonds Foreign Securities Government Debt Securities Non Government Debt Securities 4,864,464 4,864,680 4,902,054 4,902,054 4,902,811 4,902,811 - - 9,766,518 9,767,491 - - 4,453,165 4,452,597 22,232,264 21,475,720 26,685,429 25,928,317 - - 26,685,429 25,928,317 2020 2019 ----- Rupees in ‘000 ----- 9.3 Provision for diminution in value of investments 9.3.1 Opening balance 859,119 1,204,419 Charge during the year Reversal during the year Charge / (reversals) during the year 276,202 (26,859) 249,343 251,675 (596,975) (345,300) Impairment under IFRS 9 in Bahrain branch 122,758 - 1,231,220 859,119 Closing balance 9.3.2 Particulars of provision against debt securities 2020 2019 NPI Provision NPI Provision ----------------------- Rupees in ‘000 ----------------------- Category of classification Domestic Other assets especially mentioned Substandard Doubtful Loss 9.4 696,507 696,507 696,507 696,507 696,507 696,507 696,507 696,507 Quality of Held-for-Trading Securities Details regarding quality of Held-for-Trading (HFT) securities are as follows 9.4.1 Federal Government Securities - Government guaranteed Market Treasury Bills Pakistan Investment Bonds 9.4.1.1 Note 2020 2019 Cost Market Value Cost Market Value ----------------------------- Rupees in ‘000 ----------------------------25,002,969 25,002,969 9.4.1.1 25,003,774 25,003,774 55,601,087 55,601,087 55,598,469 55,598,469 Principal terms of investment in Federal Government Securities Name of investment Market treasury bills Note Maturity Redemption Coupon 9.4.1.2 January 14, 2021 to January 28, 2021 On maturity On maturity Half yearly Annual Report 2020 258
  256. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 9.4.1.2 Market Treasury Bills are for the period of three to twelve months. The effective rates of profit on Market Treasury Bills range from 7.07% to 7.12% per annum (2019: 13.04% to 13.70% per annum). 9.4.2 Rating Industry Sector A+ A AA+ A AUnratted AAA AA+ AAA AAA AAA AAA AA+ AA+ AA AAA+ Unratted Unratted Unratted Unratted AA+ AA Unratted Unratted AAA+ AA A+ AA+ AAA Unratted Unratted AA+ AABB+ AAAA AAA Cable & Electrical Goods Cement Cement Cement Cement Cement Cement Cement Chemical Chemical Chemical Cement Cement Commercial Bank Commercial Bank Commercial Bank Commercial Bank Commercial Bank Commercial Bank Commercial Bank Commercial Bank Commercial Bank Refinery Refinery Refinery Engineering Engineering Engineering Exchange Traded Funds Exchange Traded Funds Exchange Traded Funds Exchange Traded Funds Automobile Parts and Accessories Power Generation And Distribution Power Generation And Distribution Power Generation And Distribution Technology and Communication Technology and Communication Transport Fertilizer Fertilizer Fertilizer Fertilizer Fertilizer Food & Personal Care Products Food & Personal Care Products Oil & Gas Exploration Companies Oil & Gas Exploration Companies Oil & Gas Exploration Companies Oil & Gas Marketing Companies Oil & Gas Marketing Companies Oil & Gas Marketing Companies Oil & Gas Marketing Companies Pharmaceuticals Textile Composite Textile Composite Vanaspati & Allied Industries Investment Company Shares Shares 2020 2019 ------- Numbers ------- 2020 2019 Cost Market value Cost Market value ------------------------ Rupees in ‘000 ------------------------ Listed Companies Ordinary shares - Pak Elektron Limited Cherat Cement Company Limited D.G. Khan Cement Limited Fauji Cement Company Limited Lucky Cement Limited Maple Leaf Cement Factory Limited Pioneer Cement Limited Power Cement Limited Descon Oxychem Limited Engro Polymer & Chemicals Limited Lotte Chemical Pakistan Limited D.G. Khan Cement Company Limited Maple Leaf Cement Factory Limited Askari Bank Limited Bank Alfalah Limited United Bank Limited Habib Bank Limited National Bank of Pakistan Limited The Bank of Punjab MCB Bank Limited Bank Al Habib Limited Meezan Bank Limited National Refinery Limited Attock Refinery Limited Pakistan Refinery Limited Amreli Steels Limited Mughal Iron and Steel Industries Limited International Steels Limited Meezan Pakistan Exchange Traded Fund NBP Pakistan Growth Exchange Traded Fund NIT Pakistan Gateway Exchange Traded Fund UBL Pakistan Enterprise Exchange Traded Fund The General Tyre and Rubber The Hub Power Company Limited K-Electric Limited Nishat Chunian Limited NetSol Technologies Limited Avanceon Limited Pakistan International Bulk Terminal Limited Engro Corporation Limited Engro Fertilizers Limited Fatima Fertilizers Company Limited Fauji Fertilizer Bin Qasim Limited Fauji Fertilizer Company Limited Engro Foods Limited Fauji Foods Limited Oil & Gas Development Company Limited Pakistan Oilfields Limited Pakistan Petroleum Limited Pakistan State Oil Company Limited Sui Northern Gas Pipelines Limited Sui Southern Gas Company Limited Hascol Petroleum Limited The Searle Company Limited Gul Ahmed Textile Mills Limited Nishat Mills Limited Unity Foods Limited Dawood Hercules Corporation Limited 259 130,000 2,000 1,416 1,000 1,000,000 77,000 1,791 3,429 448 2,095 1,293 4,000 601 581 104 19,000 358,000 145,500 119,500 251,000 17,000 16,500 6,628 321,500 75,500 288,500 1,020,000 2,424 4,916 31,500 1,205 15,262 1,046 11,647 5,639 8,088 806,837 12,431 1,000 2,395,500 347 513,000 633,000 253,000 190,000 153,500 549,000 227,000 3,500 6,000 519,500 598,500 5,000 420,000 227,500 19,000 638,000 12,000 61,000 1,985,500 40,500 75,500 316,500 21,500 211,500 3,500 158,500 153,000 18,000 85,000 382,500 559,500 319,500 17,000 468,000 - 5,019 294 873 106 9,470 1,209 194 133 15 256 158 176 98 33 8 3,359 7,544 6,947 11,255 2,597 207 164 225 510 1,223 13,589 26,627 13,108 715 305 776 119 1,616 366 1,062 1,166 386 11,898 3,054 101 67,423 44 194,428 Annual Report 2020 5,217 292 986 103 9,880 1,160 205 154 16 264 171 172 111 40 11 3,459 8,517 7,022 11,142 2,676 224 200 225 526 1,257 14,973 26,787 13,117 745 311 798 131 1,584 414 1,052 1,214 359 11,852 3,098 102 76,800 42 207,409 13,662 47,315 3,980 4,188 4,585 18,788 3,154 587 950 22,854 6,881 720 47,857 8,323 751 53,700 668 5,483 8,182 1,714 4,953 22,967 2,191 4,039 280 2,255 21,283 8,162 11,531 72,233 12,365 61,227 1,810 6,996 486,634 13,887 47,013 3,937 4,397 4,680 18,232 3,183 576 945 22,494 6,781 705 46,910 8,217 778 54,127 669 5,694 8,677 1,727 4,972 23,241 2,182 4,128 278 2,293 21,775 8,041 11,657 73,302 12,040 60,302 1,805 7,540 487,185
  257. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 9.4.3 Open End Mutual Fund Net asset value Name of fund Units Rating 2019 2020 2020 per unit 2019 Rupees ------- Numbers ------- 2019 2020 Cost Cost Market value Market value ---------------------------- Rupees in ‘000 ----------------------------- Investment in related parties JS Income Fund 1,129,255 3,541,402 A+(f) A+ (f) 98.99 110,989 111,785 344,902 355,982 JS Motion Picture Fund 1,000,000 1,000,000 - - 97.7 99,990 97,700 100,000 99,990 JS Islamic Hybrid Fund of Funds - Mufeed 76,142 - - - 48.05 3,000 3,659 - - JS Islamic Hybrid Fund of Funds - Mutanasib 49,068 - - - 75.37 3,000 3,698 - - JS Islamic Hybrid Fund of Funds - Mustehkam JS Islamic Fund 9.5 3,305 - - - 65.95 288 218 - - 123,571 - - - 100.08 12,000 12,367 - - JS Islamic Income Fund 382,292 - AA- (f) - 105.77 40,179 40,435 - - JS Islamic Daily Dividend Fund 407,754 - AA(f) - 100 40,775 40,775 - - 310,221 310,637 444,902 455,972 Quality of Available-for-Sale Securities Details regarding quality of Available-for-Sale (AFS) securities are as follows: 9.5.1 Federal Government Securities Government guaranteed Market Treasury Bills Pakistan Investment Bonds Note 2020 2019 Cost Market Value Cost Market Value ----------------------- Rupees in ‘000 ----------------------- 90,027,949 37,280,567 9.5.1.1 127,308,516 90,047,990 37,358,053 127,406,043 12,071,266 35,757,352 47,828,618 12,070,902 34,948,472 47,019,374 9.5.1.1 Principal terms of investment in Federal Government Securities 9.4.1.1 Principal terms of investment in Federal Government Securities Name of investment Market treasury bills Pakistan investment bonds Note Maturity Redemption Coupon 9.5.1.2 9.5.1.3 January 14, 2021 to June 03, 2021 April 21, 2021 to September 19, 2029 On maturity On maturity On maturity Half yearly 9.5.1.2 Market Treasury Bills are for the period of three to twelve months. The effective rates of profit on Market Treasury Bills range from 6.90% to 11.77% per annum (2019: 13.02% to 13.75% per annum). 9.5.1.3 Pakistan Investment Bonds (PIBs) are for the period of three to twenty years. The rates of profit ranging from 7% to 12% per annum (2019: 6.40% to 14.27% per annum). Annual Report 2020 260
  258. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 9.5.2 Shares Rating Industry Sector Shares Listed Companies Cost Market value 2019 2020 Cost Market value 2019 2020 --------- Numbers --------- ------------------------------ Rupees in ‘000 ------------------------------ Ordinary shares - Matco Foods Limited A- Food & Personal Care Products - Shifa International Hospitals AA- Miscellaneous - Pakistan Petroleum Limited - Pakistan Stock Exchange 1,078,500 - - 31,795 264,300 68,273 52,857 68,273 88,509 841,800 949,800 123,382 76,041 139,212 130,256 2,202,953 23,061 23,061 32,648 23,061 27,493 - 742,968 - - 153,492 164,946 Unrated Oil & Gas Marketing Companies Limited (PSXL) - 264,300 Unrated Investment Company National Foods Limited - Food & Personal Care Products 27,707 Investment in related parties - EFU General Insurance Limited AA+ Insurance 5,455,675 5,440,575 647,129 654,681 645,414 600,095 - EFU Life Assurance Limited AA+ Insurance 1,189,600 1,189,600 250,735 248,650 250,735 275,476 - Sitara Chemical Industries Limited A+ Chemical 1,790,250 1,790,250 548,781 554,978 548,781 534,318 - TRG Pakistan Limited Unrated Technology & Communication 24,583,760 5,883,760 566,875 2,247,202 107,376 144,446 - Hum Network Limited A+ Technology & Communication 79,030,303 - 642,359 429,925 - - 2,870,595 4,296,982 1,968,139 1,993,246 Foreign securities Deutche Post AG A3 Microsoft Corporation Limited AAA Logistics Technology & Communication 8,100 - 56,525 64,706 - - 220 - 6,884 8,377 - - 63,409 73,083 - - Preference Shares Agritech Limited (note 9.5.2.1 & 9.5.2.3) Unrated Chemical Chenab Limited (note 9.5.2.2 & 9.5.2.3) Unrated Textile Composite Break-up value per share 4,823,746 48,236 - 48,236 - 12,357,000 88,353 - 88,353 - 136,589 - 136,589 - Name of Chief Executive / Managing Director 2019 2020 Un-listed Companies 4,823,746 12,357,000 shares 2019 2020 --------- Rupee --------- Breakup value Cost 2019 2020 --------- Numbers --------- Breakup value Cost -------------------------- Rupees in ‘000 --------------------------- Ordinary shares - ISE Towers REIT Management Limited (formerly Islamabad Stock Exchange Limited) (note 8.5.2.4) * 14.49 Mr. Sagheer Mushtaq * 15.45 1,213,841 1,213,841 11,000 17,592 11,000 17,592 6 6 2,406 4,718 2,406 3,831 Foreign securities Ordinary shares - Society for Worldwide Interbank ** 786,254 ** 638,551 Mr. Javier Pervez Tasso Financial Telecommunication (SWIFT) (note 9.5.2.5) * Based on audited accounts as of June 30, 2019 ** Based on audited accounts as of December 31, 2019 9.5.2.1These are non-voting cumulative preference shares, carrying preference dividend @ 10% p.a and are convertible into ordinary shares at the option of the Bank after five years from the date of issuance i.e. February 2012. The investee company also has the option to redeem these preference shares plus any unpaid dividend in full or in part, within ninety days after expiry of each anniversary of the issue date. The Holding Company has recognised full impairment on these shares amounting to Rs. 48.236 million (2019: Rs.48.236 million) due to weak financial position of the company. 261 Annual Report 2020
  259. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 9.5.2.2 These are cumulative preference shares, carrying preference dividend @ 9.25% p.a and are redeemable in part after four years from the date of issuance i.e. August 2008. The investee company also has an option to redeem, in part, cumulative preference shares after August 2008. The Bank has recognized full impairment on these shares amounting to Rs. 88.353 million (2019: Rs.88.353 million) due to weak financial position of the company. 9.5.2.3 Surplus arising due to re-measurement of these shares to the market value has not been recognized as the management believes that the market value may not be realized while selling them in open market. 9.5.2.4 In accordance with the requirements of the Stock Exchanges (Corporatization, Demutualization and Integration) Act, 2012 (the Act), the holding company has received 3,034,603 shares of Rs.10 each including trading right entitlement certificate (TREC) of the Islamabad Stock Exchange (ISE), in lieu of its Membership Card held by the Bank. Further, upon integration of Islamabad Stock Exchange under the “ISE Scheme of Integration” in 2016 TRE Certificates holders of ISE have been issued 1,213,841 shares of “ISE Towers REIT Management Limited”. 9.5.2.5 The Holding Company qualified as a member based on the financial contribution to SWIFT for network-based services. The Holding Company has made an investment as per the requirements of By-Laws of SWIFT, under the Share Re-allocation Process, as a result becoming entitled to invest in for six shares. The participation is mandatory to avail the desired network-based services for financial message transmission for cross-border payments and receipt. Further, the share re-allocation occurs every three years and will result in either an increase, decrease, or a status quo in individual shareholding. 9.5.3 Non Government Debt Securities Cost 2020 2019 ------ Rupees in ‘000 ------ Listed AAA AA+, AA, AAA+, A, AUnrated Unlisted AAA AA+, AA, AAA+, A, AUnrated Number of certificates 9.5.3.1 Term finance certificates - listed * 2020 Rating 2019 2020 309,750 210,700 170,018 155,169 845,637 398,250 235,600 150,014 155,169 939,033 71,429 200,037 1,749,104 713,071 2,733,641 142,857 1,992,333 857,071 2,992,261 3,579,278 3,931,294 2019 2020 2019 Cost ---- Numbers ---- Market value Cost Market value ---------------- Rupees in ‘000 ---------------- Worldcall Telecom Limited (note 9.5.3.1.2) 90,650 90,650 Unrated Unrated 155,169 - 155,169 - Jahangir Siddiqui & Co. Ltd. - XI 3,000 3,000 AA+ AA+ 12,500 12,366 15,000 14,880 Bank Al Habib Limited - related party 25,000 25,000 AA- - 125,000 125,000 125,000 125,000 Soneri Bank Limited 30,000 30,000 A A 150,013 150,000 150,014 150,000 442,682 287,366 445,183 289,880 * Secured and have a face value of Rs.5,000 each unless specified otherwise. Annual Report 2020 262
  260. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 9.5.3.1.1 Listed term finance certificates are as follows: Name of the company Repayment frequency Profit rate per annum Maturity date Semi-annually Semi-annually Semi-annually Semi-annually 6 Month KIBOR ask rate plus 1.60% 6 Month KIBOR ask rate plus 1.75% 6 Months KIBOR ask rate plus 1.50% 6 Month KIBOR ask rate plus 2.00%. September 20, 2026 March 06, 2023 Perpetual December 06, 2028 Worldcall Telecom Limited Jahangir Siddiqui & Co. Ltd. - XI - related party Bank Al Habib Limited Soneri Bank Limited 9.5.3.1.2 Due to weak financial position of the company, the group has recognised full impairment loss on these term finance certificates. Number of certificates 9.5.3.2 Rating 2020 2019 ---- Numbers ---- Sukuk certificates - listed Byco Petroleum Pakistan Limited Dawood Hercules Corporation Limited - Sukuk - I Dawood Hercules Corporation Limited - Sukuk - II Bank Islami Pakistan Limited - Ehad Sukuk 5,310 520 600 - 5,310 520 600 4,001 2020 2019 AAA AA AA A- AAA AA AA - 2020 2019 Cost Market value Cost Market value ---------------- Rupees in ‘000 ---------------309,750 31,200 42,000 20,005 402,955 308,616 31,542 42,519 20,005 402,682 398,250 41,600 54,000 493,850 391,779 41,492 53,824 487,095 9.5.3.2.1 Other particulars of listed sukuk certificates are as follows: Name of the company 9.5.3.3 Repayment frequency Profit rate per annum Maturity date Byco Petroleum Pakistan Limited (Chief Executive: Mr. Amir Abbassciy) Quarterly 3 Month KIBOR ask rate plus 1.05%. January 18, 2022 Dawood Hercules Corporation Limited - Sukuk - I (Chief Executive: Inam ur Rahman) Quarterly 3 month kibor +1.00% November 16, 2022 Dawood Hercules Corporation Limited - Sukuk - II (Chief Executive: Inam ur Rahman) Quarterly 3 month kibor +1.00% March 01, 2023 Bank Islami Pakistan Limited - Ehad Sukuk (Chief Executive: Syed Amir Ali) Monthly 3 Months Kibor + 2.75% Perpetual Term finance certificates unlisted, secured Azgard Nine Limited - related party (note 8.5.3.3.1) Azgard Nine Limited (related party) (privately placed TFCs) (note 8.5.3.3.2) Agritech Limited (note 8.5.3.3.1) Pakistan Water & Power Development Authority (WAPDA) Khushhali Microfinance Bank Limited Airlink Communication Private Limited Secure Logistics Group Private Limited Bank Al Habib Limited Number of certificates 2020 2019 ----- Rupees ----- 2020 Rating 2019 Face value per certificate ----- Rupees ----- Cost 2020 2019 --- Rupees in ‘000 --- 29,998 29,998 Unrated Unrated 5,000 65,022 65,022 12 30,000 12 30,000 Unrated Unrated Unrated Unrated 5,000 5,000 326,456 149,860 326,456 149,860 100,000 384 288 40,000 100,000 1,500 384 288 - AAA AUnrated AA- AAA A AUnrated - 5,000 100,000 1,000,000 1,000,000 5,000 71,429 384,000 144,000 200,037 142,857 150,000 384,000 288,000 - 1,340,804 1,506,195 9.5.3.3.1 Due to weak financial position of the company the Bank has recognised full impairment loss on these term finance certificates. 263 Annual Report 2020
  261. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 9.5.3.3.2 These PPTFCs are held by JS Global Capital Limited has recognised full provision considering the financial position of the issuer amounting to Rs. 326.456 million (2019: Rs.326.456 million). 9.5.3.3.3 Other particulars of unlisted term finance certificates are as follows: Name of the company Repayment frequency Profit rate per annum Maturity date Azgard Nine Limited - related party (Chief Executive: Mr. Ahmed H. Shaikh) Semi-annually 6 Month KIBOR ask rate plus 1.75% and 11%. December 04, 2017 and October 19, 2020 Agritech Limited (Chief Executive: Mr. Faisal Muzammil) Semi-annually 6 Month KIBOR ask rate plus 1.75%. November 29, 2019 Pakistan Water & Power Development Authority (WAPDA) (Chairman: Lieutenant General Muzammil Hussain (Retd.)) Semi-annually 6 Month KIBOR ask rate plus 1.00%. September 27, 2021 Airlink Communication Private Limited (President & CEO: Mr. Muzaffar Hayat Piracha) Quarterly 3 Month KIBOR ask rate plus 1.00%. January 7, 2022 Secure Logistics Group Private Limited (see note 9.5.3.3.3.1) (President & CEO: Mr. Gulraiz A. Khan) Quarterly 3 Month KIBOR ask rate minus 1.00%. January 2, 2024 Semi-annually 3 Month KIBOR ask rate plus 1.50%. December 20, 2027 Bank Al Habib Limited (President & CEO: Mr. Mansoor Ali Khan ) 9.5.3.3.3.1 During the year, the Borrower has taken the deferment of payment as per the guidelines of SBP BPRD Letter No. 13 dated March 26, 2020. 9.5.3.4 Sukuk certificates - unlisted Ghani Gases Limited Pakistan Services Limited Note 9.5.3.3.3.1 9.5.3.3.3.1 Number of certificates 2020 2019 -------- Numbers -------- 2020 2,000 1,350 2,000 1,350 Rating 2019 A A+ A A+ Face value per certificate --------- Rupees --------87,500 90,000 Cost 2020 2019 ----- Rupees in ‘000 ----100,000 1,265,104 108,333 1,350,000 1,365,104 1,458,333 9.5.3.4.1 Other particulars of unlisted sukuk certificates are as follows: Name of the company Repayment frequency Profit rate per annum Maturity date Ghani Global Limited (Chief Executive: Mr. Atique Ahmad Khan) Quarterly 3 Month KIBOR ask rate plus 1.00%. February 03, 2023 Pakistan Services Limited (Chief Executive: Mr. Murtaza Hashwani) Semi-annually 6 Month KIBOR ask rate plus 1.00%. January 17, 2024 Shares 9.5.3.5 Preference shares - unlisted 2020 2019 ------ Numbers ------ Intercity Touring Company Private Limited (related party) 1,848,888 1,848,888 Annual Report 2020 2020 Rating Unrated 264 2019 Unrated Face value per certificate Cost 2020 2019 2020 2019 ------------------ Rupees in ‘000 -----------------10 10 27,733 27,733
  262. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 9.5.4 Open End Mutual Fund Name of fund Related parties JS ICPAP4 JS ICPAP4 JS Value Fund JS Growth Fund JS Fund of Funds JS Islamic Pension Savings Fund - Equity JS Islamic Pension Savings Fund - Debt JS Islamic Pension Savings Fund - Money Market JS Pension Savings Fund Money Market JS Pension Savings Fund - Debt JS Pension Savings Fund - Equity JS Islamic Capital Preservation 9.5.5 Units 2020 2019 --------- Numbers --------157,204 153,647 1,716,379 1,903,901 2,772,987 213.42 179.88 64 249,115 323,937 148,838 286,643 348,448 179,583 15,720 15,365 341,336 336,417 146,286 16,840 16,609 341,336 322,483 162,774 182,354 182,354 657.89 16,567 119,969 18,235 104,609 213,852 213,852 242.89 21,385 51,942 21,385 49,088 222,303 222,303 212.14 22,230 47,159 22,230 44,232 177,463 137,349 205,210 - 177,463 137,349 205,210 3,305 242.72 300.98 478.20 - 17,746 13,735 12,635 826,188 43,074 41,339 98,131 1,216,288 17,746 13,735 20,521 300 969,276 39,425 38,531 86,654 288 1,222,869 Foreign Securities 9.5.5.3 Coupon rate per annum Rating 2020 9.5.5.2 2020 2019 Cost Market value Cost Market value ----------------------- Rupees in ‘000 ----------------------- 1,343,094 1,937,116 2,822,294 Name of Bond 9.5.5.1 Net asset value per unit Rupees 2019 Date of Maturity % 2019 2020 Cost Market value Cost Market value --------------------- Rupees in ‘000 --------------------- Government Debt securities The Third Pakistan International Sukuk Co Ltd B- - 5.50% October 13, 2021 159,186 161,516 - - The Third Pakistan International Sukuk Co Ltd B- - 5.63% December 5, 2022 163,296 163,443 - - Islamic Republic Of Pakistan B- - 6.88% December 5, 2027 508,091 498,909 - - Oman Government International Bond Ba3 - 6.00% August 1, 2029 419,735 411,374 - - Republic of Turkey B+ - 4.88% October 9, 2026 158,289 161,350 - - Republic of Turkey B+ - 6.13% October 24, 2028 313,692 340,588 - - Republic of Turkey B+ - 7.63% April 26, 2029 90,973 92,129 - - Arab Republic of Egypt B - 6.59% February 21, 2028 510,058 525,769 - - Arab Republic of Egypt B - 7.60% March 1, 2029 350,286 366,718 - - Republic of Kenya B+ - 7.25% February 28, 2028 257,393 268,347 - - Republic of Nigeria B2 - 6.50% November 28, 2027 248,288 257,666 - - Oman Government International Bond Ba3 - 5.63% January 17, 2028 243,815 244,036 - - Republic of Srilanka Caa1 - 5.75% April 18, 2023 210,499 151,557 - - 3,633,601 3,643,402 - - Non Government Debt securities Bank of Ireland Ba2 Petroleos Mexicanos Ba2 - 6.00% March 1, 2026 6.84% October 23, 2029 39,828 42,502 339,826 331,385 379,654 373,887 - - - - The Holding Company has recognised general provision (expected credit loss) under IFRS 9 of Rs. 122.758 million (2019: Rs. Nil) held on foreign debt securities by Bahrain branch. However, the loss allowance is recognised in other comprehensive income and have not reduce the carrying amount of these securities. 265 Annual Report 2020
  263. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 9.6 Quality of Held to Maturity Securities Details regarding quality of Held to Maturity (HTM) securities are as follows 9.6.1 9.6.1.1 Federal Government Securities - Government guaranteed Cost 2020 2019 ------ Rupees in ‘000 ------ Pakistan Investment Bonds 36,109,599 Security type Pakistan investment bonds 32,859,882 Maturity Redemption Coupon April 21, 2021 to August 22, 2029 On maturity Half yearly 9.6.1.2 Pakistan Investment Bonds (PIBs) having maturity of five to fifteen years. The rates of profits ranging from 7.75% to 12% per annum (2019: 7.75% to 14.69% per annum). The market value of securities as at December 31, 2020 amounted Rs. 35,862.699 million (2019: Rs. 31,341.410 million) 9.7 Investment in associated company Note Omar Jibran Engineering Industries Limited Veda Transit Solutions Private Limited Intercity Touring Company Private Limited 9.7.1 9.7.1 & 9.7.2 9.7.1 Shares 2020 2019 --- Numbers --- Percentage holding 2020 2019 Cost 2020 2019 ----- Rupees in ‘000 ----- 7,200,000 7,200,000 9.60% 9.60% 215,793 224,782 48,000 48,000 9.12% 8.00% 54,302 4,774 1,351,111 1,351,111 9.12% 9.12% 698 270,793 16,766 246,322 9.7.1 The investments classified as asscociate on account of it’s significant influence over the investee companies. All associated companies are incorporated in Pakistan. 9.7.2 During the year, Veda Transit Solutions Private Limited, an associate of the Bank, has issued shares against advance subscription of Rs. 40.828 million made by the Bank. Resultantly, shareholding of the Bank increased to 9.12% (December 31, 2019: 8%). The Bank has classified the investment as associate on account of it’s significant influence over the investee company. 9.7.3 The following is summarised financial information before inter-company eliminations with other companies in the group: Associated companies Omar Jibran Engineering Veda Transit Solutions Intercity Touring Company Industries Limited Private Limited Private Limited June 30, June 30, June 30, June 30, June 30, June 30, 2020 2019 2020 2019 2020 2019 ------------------------------------------ Rupees in ‘000 -----------------------------------------Total income / sales (Loss) / profit after tax Total comprehensive income 1,950,375 (137,700) 7,560 2,628,975 117,796 343,881 785,016 19,797 - 922,200 47,436 - 3,796 (38,961) - 290 (21,636) - Total assets Total liabilities Net assets 3,752,367 2,043,290 1,709,077 3,727,961 1,888,745 1,839,216 609,304 429,690 179,614 688,142 743,324 (55,182) 404,028 302,129 101,899 191,414 50,879 140,535 108,972 (75,100) (39,955) (73,759) (233,038) 212,791 85,040 (10,237) (54,777) 152,254 (189) (137,300) (2,105) - (62,405) (141,183) 219,994 (6,083) (94,006) 20,026 14,765 (2,105) 16,406 Cash flow from / (used in) operating activities Cash flow (used in) / from investing activities Cash flow (used in) / from financing activities Net increase / (decrease) in cash and cash equivalents Annual Report 2020 266
  264. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 10. ADVANCES Note Loans, cash credits, running finances, etc. Bills discounted and purchased Advances - gross 10.1 Provision against advances General General provision - under IFRS-9 Specific 10.4.4 10.4 Advances - net of provision 10.1 Performing Non Performing Total 2020 2019 2020 2019 2020 2019 ------------------------------------------------ Rupees in ‘000 -----------------------------------------------231,322,752 11,602,390 242,925,142 225,327,657 11,113,114 236,440,771 11,733,555 11,733,555 10,353,164 10,353,164 243,056,307 11,602,390 254,658,697 235,680,821 11,113,114 246,793,935 (21,327) (21,327) (161,166) (7,520) (168,686) (4,181,836) (4,181,836) (3,339,941) (3,339,941) (21,327) (4,181,836) (4,203,163) (161,166) (7,520) (3,339,941) (3,508,627) 242,903,815 236,272,085 7,551,719 7,013,223 250,455,534 243,285,308 Particulars of net investment in finance lease 2019 2020 Not later than one year 10.2 Later than one and less than five years Over five years Total Later than Not later than one and less one year than five years Total ------------------------ Rupees in ‘000 ------------------------ ------------------------ Rupees in ‘000 ------------------------ Lease rentals receivable Guaranteed residual value 4,923,114 1,008,381 5,173,453 2,449,909 2,318 2,248 10,098,885 3,460,538 6,860,218 1,599,605 6,637,949 2,538,848 3,527 10,783 13,501,694 4,149,236 Minimum lease payments Finance charges for future periods Present value of minimum lease payments 5,931,495 (991,822) 7,623,362 (1,286,416) 4,566 (1,443) 13,559,423 (2,279,681) 8,459,823 (1,468,867) 9,176,797 (1,098,697) 14,310 (259) 17,650,930 (2,567,823) 4,939,673 6,336,946 3,123 11,279,742 6,990,956 8,078,100 14,051 15,083,107 2020 2019 ----- Rupees in ‘000 ----- Particulars of advances (gross) In local currency In foreign currencies 10.3 Over five years 245,261,990 9,396,707 238,073,921 8,720,014 254,658,697 246,793,935 Advances include Rs. 11,733.555 million (2019: Rs. 10,353.164 million) which have been placed under nonperforming status as detailed below: Category of classification 2020 2019 Non Non Performing Provision Performing Provision Loans Loans -------------------------- Rupees in ‘000 -------------------------- Domestic Other Assets Especially Mentioned Substandard Doubtful Loss Total 296,799 1,177,804 3,264,335 6,994,617 11,733,555 267 394 156,095 724,426 3,300,921 4,181,836 Annual Report 2020 841,058 1,159,072 2,442,270 5,910,764 10,353,164 1,721 64,681 426,283 2,847,256 3,339,941
  265. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 10.4 Particulars of provision against non-performing advances 2019 2020 Specific Note Opening balance Exchange adjustments Charge for the year Reversals for the year 10.4.2 & 10.4.5 General General provision under IFRS-9 Specific Total General provision under IFRS-9 General Total --------------------------------------------------------- Rupees in ‘000 --------------------------------------------------------3,339,941 161,166 7,520 3,508,627 2,989,888 155,661 10,746 - - 71 71 - - 1,095 3,156,295 1,095 1,087,212 - 13,736 1,100,948 880,994 5,505 - 886,499 (245,317) (161,166) - (406,483) (526,146) - (4,321) (530,467) 841,895 (161,166) 13,736 694,465 354,848 5,505 (4,321) 356,032 - - - - (4,795) - - (4,795) 4,181,836 - 21,327 4,203,163 3,339,941 161,166 7,520 3,508,627 Amount written off from the opening balance 10.5 Closing Balance 10.4.1 Particulars of provision against non-performing advances 2020 2019 Specific General Total Specific General Total ------------------------------------------------ Rupees in ‘000 -----------------------------------------------In local currency In foreign currency 4,181,836 4,181,836 21,327 21,327 4,181,836 21,327 4,203,163 3,339,941 3,339,941 161,166 7,520 168,686 3,501,107 7,520 3,508,627 10.4.2 This also includes reversal of provision of Rs. Rs. 8.604 million (2019: 277.078 million) against non-performing loans of a borrower under ‘Debt Property Swap’ transactions, as disclosed in note 13.2. 10.4.3 The Holding Company, in accordance with BPRD circular letter No. 31 of 2020 dated July 10, 2020, has taken the benefit of general provision to make good the specific provision requirement of the consumer financing portfolio till December 31, 2021. 10.4.4 This represents general provision held under IFRS 9 by Bahrain branch of the Holding company. 10.4.5 The State Bank of Pakistan through various circulars has allowed benefit of the forced sale value (FSV) of Plant and Machinery under charge, pledged stock and mortgaged residential, commercial and industrial properties (land and building only) held as collateral against non-performing loans (NPLs) for a maximum of five years from the date of classification. As at December 31, 2020, the Holding Company has availed cumulative benefit of FSV of Rs.4,655.818 million (2019: Rs. 4,120.009 million) under the directives of the SBP. Had the benefit not been taken the unappropriated profit after tax would have reduced by Rs. Rs. 3,026.282 million (2019: Rs. 2,678.006 million). Further, as required by the SBP directives, this unappropriated profit will not be available for distribution as dividend or other appropriations. 10.4.6 Advances - Deferred & Restructured / Rescheduled The SBP vide BPRD circular letter number 13 of 2020 dated March 26, 2020, has relaxed certain classification criteria of SBP Prudential Regulation R-8 (Classification and Provisioning of Assets). Accordingly, certain exposures of the Holding Company as at December 31, 2020 relating to facilities of customers have not been classified as non-performing on account of such relaxation. Annual Report 2020 268
  266. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2020 2019 -------- Rupees in ‘000 -------- 10.5 Particulars of Write Offs: 10.5.1 Against provisions Directly charged to profit and loss account - 4,795 315 5,110 10.5.2 Write offs of Rs.500,000 and above Write offs of below Rs.500,000 - 5,110 5,110 10.6 Details of loan write 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 rupees five hundred thousand or above allowed to a person(s) during the year ended is given in Annexure-I. 11. 11.1 FIXED ASSETS Note Capital work-in-progress Property and equipment Right-of-use assets 11.1 11.2 11.4 2020 2019 ----- Rupees in ‘000 ----298,971 6,099,025 2,628,768 9,026,764 146,181 6,438,632 4,109,132 10,693,945 232,789 1,013 61,794 3,375 298,971 124,350 290 21,541 146,181 Capital work-in-progress Civil works Advance for purchase of furniture and fixtures Advance for purchase of vehicles Advance for purchase of equipment and software 269 Annual Report 2020
  267. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 11.2 Property and equipment 2020 Leasehold land Building on free hold land Building on lease hold land Lease hold improvements Furniture and fixture Electrical, office and computer equipment Vehicles Total -------------------------------------------------------------- Rupees in ‘000 -------------------------------------------------------------At January 01, 2020 Cost / Revalued amount 1,520,254 - 2,187,969 1,650,673 955,778 3,522,707 253,832 10,091,213 - - (285,735) (734,004) (443,155) (2,106,270) (83,417) (3,652,581) 1,520,254 - 1,902,234 916,669 512,623 1,416,437 170,415 6,438,632 1,520,254 - 1,902,234 916,669 512,623 1,416,437 170,415 6,438,632 - - 766,725 190,950 50,484 382,908 49 1,391,116 (89,131) Accumulated depreciation Net book value Year ended December 2020 Opening net book value Additions Disposals Cost - - - (1,852) (14,501) (47,037) (25,741) Accumulated Depreciation - - - (399) 10,444 41,535 11,921 63,501 - - - (2,251) (4,057) (5,502) (13,820) (25,630) - - (76,542) (152,821) (66,364) (452,015) (33,588) (781,330) (1,523) Depreciation charge Exchange rate adjustments Cost - - - (885) (276) (210) (152) Accumulated Depreciation - - - 280 101 105 58 544 - - - (605) (175) (105) (94) (979) (442,506) Write offs Cost - - - (246,248) (35,053) (158,301) (2,904) Accumulated Depreciation - - - 134,307 20,480 104,869 963 260,619 - - - (111,941) (14,573) (53,432) (1,941) (181,887) (739,200) - (2,126) - - - - (741,326) - - 429 - - - - 429 (739,200) - (1,697) - - - - (740,897) 781,054 - 2,590,720 840,001 477,938 1,288,291 121,021 6,099,025 781,054 - 2,952,568 1,592,638 956,432 3,700,067 225,084 10,207,843 - - (361,848) (752,637) (478,494) (2,411,776) (104,063) (4,108,818) 781,054 - 2,590,720 840,001 477,938 1,288,291 121,021 6,099,025 1.01 - 4.78 10 Transferred / other adjustments Cost Accumulated Depreciation Closing net book value At December 31, 2020 Cost / Revalued amount Accumulated depreciation Net book value Rate of depreciation (percentage) - - Annual Report 2020 270 12.5 12.5 - 33.3 20
  268. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2019 Leasehold land Building on free hold land Building on lease hold land Lease hold improvements Furniture and fixture Electrical, office and computer equipment Vehicles Total -------------------------------------------------------------- Rupees in ‘000 -------------------------------------------------------------At January 01, 2019 Cost / Revalued amount Accumulated depreciation Net book value 1,457,289 1,457,289 - 2,293,263 (252,978) 2,040,285 1,288,065 (594,439) 693,626 602,028 (322,718) 279,310 3,070,323 (1,852,560) 1,217,763 1,196,462 (376,207) 820,255 9,907,430 (3,398,902) 6,508,528 1,457,289 - - 2,040,285 41,929 693,626 349,196 279,310 310,749 1,217,763 617,147 820,255 353,254 6,508,528 1,672,275 62,965 - - 279,809 - - - - - 342,774 - - - 12 12 (85,801) 10,512 (13,141) (2,629) (125,610) 42,079 (42,783) (704) (77,361) (165,404) 156,842 (8,562) (410,264) (1,296,372) 450,032 (846,340) (157,073) (1,409,173) 550,950 (858,223) (856,109) - - - 2,900 (814) 2,086 922 (293) 629 641 (288) 353 488 (169) 319 4,951 (1,564) 3,387 - - (427,044) 53,044 (374,000) - - - - (427,044) 53,044 (374,000) Closing net book value 1,520,254 - 1,902,234 916,669 512,623 1,416,437 170,415 6,438,632 At December 31, 2019 Cost / Revalued amount Accumulated depreciation Net book value 1,520,254 1,520,254 - 2,187,969 (285,735) 1,902,234 1,650,673 (734,004) 916,669 955,778 (443,155) 512,623 3,522,707 (2,106,270) 1,416,437 253,832 (83,417) 170,415 10,091,213 (3,652,581) 6,438,632 1.01 - 4.78 10 12.5 Year ended December 2019 Opening net book value Additions Movement in surplus on assets revalued during the year Adjustments in surplpus Disposals Cost Accumulated Depreciation Depreciation charge Exchange rate adjustments Cost Accumulated Depreciation Transferred / other adjustments Cost Accumulated Depreciation Rate of depreciation (percentage) 11.2.1 - - The cost of fully depreciated property and equipment still in use Lease hold improvements Furniture and fixture Electrical, office and computer equipment Vehicles 11.2.2 12.5 - 33.3 20 2020 2019 ----- Rupees in ‘000 ----268,841 195,614 1,192,927 10,669 1,668,051 326,262 147,216 1,104,265 19,752 1,597,495 The details of disposals of assets to related parties are given in annexure II these consolidated financial statements. 271 Annual Report 2020
  269. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 11.2.3 The properties of the group were revalued by independent professional valuers as at December 31, 2019. The revaluation was carried out by M/s. Tristar International Consultants Pvt Ltd. on the basis of professional assessment of present market values. Had there been no revaluation, the carrying value of revalued land and building on land as at December 31, 2020 would have been lower by Rs. 505.342 million and Rs. 1,020.276 million respectively, and net surplus on revaluation of fixed assets, deferred tax liability and incremental depreciation expense would have been lower by Rs. 1,525.618 million, Rs. 240.391 million and Rs. 49,416 million respectively. 11.3 Note Assets held for sale Leasehold land Building on leasehold land 11.3.1 11.3.1 11.3.2 2020 2019 ----- Rupees in ‘000 ----739,200 - 374,000 739,200 374,000 In 2020, the Board of Directors accorded its in-principle approval and authorised the management of the Bank to explore the possibility to sell a land located at Plot No. 201, situated at Upper Mall, Lahore, Pakistan of the following reasons: i) The property is available for immediate sale and can be sold in its current condition subject to completion of certain legal formalities. ii) The actions to complete the sale were initiated and expected to be completed within one year from the date of classification. iii) The Bank expects the legal and procedural formalities for the sale to be completed by the end of 2021. Immediately before the classification of the property as a held for sale, the Property was revalued by independent professional valuer by M/s. Tristar International Consultants (Private) Limited as at December 31, 2020 and resulted no significant change is observed in valuations of the property. 11.3.2 In 2019, the Holding Company had entered into an agreement to sell the Bank property located at 13th floor of Ocean Tower, plot No. G-3, Khayaban-e-Iqbal, Block 9, KDA Scheme No. 5, Clifton Karachi, Pakistan (“Property”) of Rs. 375 million and therefore, measured the property as a non-current asset held for sale. In this respect, during the period end the sale proceeds were realised on August 11, 2020. 11.4 The carrying amounts of right-of-use assets Note Opening balance Additional impact / adjustments arised during the period - net Termination of leases Depreciation Closing balance 12. 4,109,132 31,080 (557,169) (954,275) 2,628,768 5,068,076 26,553 (985,497) 4,109,132 223,901 828,024 1,463,624 2,515,549 107,533 731,316 1,463,625 2,302,474 223,901 107,255 INTANGIBLE ASSETS Capital work-in-progress Computer software Goodwill 12.1 29 2020 2019 ----- Rupees in ‘000 ----- 12.1 12.2 12.2 & 12.6 Capital work-in-progress Advance for purchase of software Annual Report 2020 272
  270. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2020 Trading right entitlement certificate (TREC) 12.2 INTANGIBLE ASSETS At January 1, 2020 Cost Accumulated amortisation and impairment Net book value Year ended December 2020 Opening net book value Additions: - directly purchased Impairment loss recognised in the profit and loss account - net Amortisation charge Useful life (year) Goodwill Total 5,727 (3,227) 2,500 3,500 3,500 1,222,657 (497,340) 725,317 1,463,624 1,463,624 2,695,508 (500,567) 2,194,941 2,500 3,500 725,317 1,463,624 2,194,941 - - 214,582 - 214,582 - - (118,032) - (118,032) - - 230 (73) - 230 (73) - - 157 - 157 - - 68 (68) - 68 (68) 2,500 3,500 822,024 1,463,624 2,291,648 5,727 (3,227) 2,500 3,500 3,500 1,437,401 (615,377) 822,024 1,463,624 1,463,624 2,910,252 (618,604) 2,291,648 - - Write offs Cost Accumulated Amortisation At December 31, 2020 Cost Accumulated amortisation and impairment Net book value Rate of amortisation (percentage) Computer software ---------------------------------------- Rupees in ‘000 ---------------------------------------- Exchange rate adjustments Cost Accumulated Amortisation Other adjustments Closing net book value Membership card - Pakistan Mercantile Exchange Limited 273 10% 10 Annual Report 2020 See note 12.6
  271. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2019 Trading right entitlement certificate (TREC) Membership card - Pakistan Mercantile Exchange Limited Computer software Goodwill Total ------------------------------ Rupees in ‘000 -----------------------------At January 1, 2019 Cost 5,727 3,500 1,046,019 1,463,624 - - (399,159) - (399,159) 5,727 3,500 646,860 1,463,624 2,119,711 5,727 3,500 646,860 1,463,624 2,119,711 - - 175,991 - 175,991 (3,227) - - - (3,227) - - (97,968) - (97,968) - - 647 (213) - 647 (213) 2,500 3,500 434 725,317 1,463,624 434 2,194,941 2,695,508 Accumulated amortisation and impairment Net book value 2,518,870 Year ended December 2019 Opening net book value Additions: - directly purchased Impairment loss recognised in the profit and loss account - net Amortisation charge Exchange rate adjustments Cost Accumulated Amortisation Closing net book value At December 31, 2019 Cost 5,727 3,500 1,222,657 1,463,624 (3,227) - (497,340) - (500,567) Net book value 2,500 3,500 725,317 1,463,624 2,194,941 Rate of amortisation (percentage) - - 10% - - 10 Accumulated amortisation and impairment Useful life (year) See note 12.6 2020 ----- Rupees in ‘000 ----173,623 146,687 12.3 The cost of fully amortized computer software still in use 12.4 This represents Trading Right Entitlement Certificate (TREC) received from PSX in accordance with the requirements of the Stock Exchanges (Corporatisation, Demutalization and integration) Act, 2012 (the Act). The company has also received shares of PSX after completion of the demutualisation process. 12.5 This represents membership cards of Pakistan Mercantile Exchange. It has an indefinite useful life and is carried at cost. 12.6 Goodwill is recorded by the group upon the event fully disclose in note 1.1.2. For impairment testing, goodwill has been allocated to ‘Trading and Sales’ Segment as Cash Generating Unit (CGU), which is also a reportable segment. Annual Report 2020 274
  272. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 12.7 Key assumptions used in value in use calculation The recoverable amount of the CGU has been determined based on value in use calculation, using cash flow projections based on business plan approved by the Board of Directors of the Holding Company covering a five year period. The discount rates applied to cash flows beyond five years are extrapolated using a terminal growth rate. The following rates are used by the Holding Company. 2020 2019 Percentages Discount rate Terminal growth rate 17.41 12.51 22.87 10.00 The calculation of value in use is most sensitive to following assumptions: a) Interest margins Interest margins are based on prevailing industry trends and anticipated market conditions. b) Discount rates Discount rates reflect management estimates of the rate of return required for each business and are calculated after taking into account the prevailing risk free rate, industry risk and business risk. Discount rates are calculated by using cost of equity of the Bank. c) Key business assumptions The assumptions are important as they represent management assessment of how the unit’s position might change over the projected period. Based on the expansion plans, management expects aggressive growth in advances, investments and deposits during the projected periods and thereafter stabilisation in line with industry trends. Management believes that any significant change in key assumptions, on which CGU’s recoverable amount is based, may impact the carrying amount to further exceed its recoverable amount. Value in use calculation of the CGU are sensitive to changes in assumptions for interest rate spreads, Non Funded Income (NFI), long term growth rates and discount rates. d) Sensitivity to changes in assumption The estimated recoverable amount of the ‘Trading and Sales’ CGU exceeds its carrying amount by approximately Rs. 5,345 million (2019: 5,554 million). Management has identified two key assumptions for which there could be a reasonably possible change that could cause the carrying amount to exceed the recoverable amount. The following table shows the amount that these two assumptions are required to change individually in order for the estimated recoverable amount to be equal to the carrying amount. Changes required for carrying amount to equal recoverable amount (%) 2020 2019 - Discount rate - Terminal growth rate 3.16 (4.88) 275 Annual Report 2020 4.85 9.00
  273. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 13. Note OTHER ASSETS Income / mark-up accrued in local currency Income/ mark-up accrued in foreign currencies Trade receivable from brokerage and advisory business - net Advances, deposits, advance rent and other prepayments Acceptances Dividend receivable Taxation (payments less provision) Net defined benefit plan Balances due from funds under management Receivable against bancassurance / bancatakaful Stationery and stamps in hand Receivable in respect of home remittance Due from State Bank of Pakistan Rebates receivable from SBP and others Non-banking assets acquired in satisfaction of claims Mark to market gain on derivative instruments Mark to market gain on forward foreign exchange contracts Advance for subscription of investments securities Inter bank fund transfer settlement Credit card settlement Insurance Others 13.2 13.1 & 13.2 22.2 Less: Provision held against other assets Other assets (net of provisions) Surplus on revaluation of non-banking assets acquired in satisfaction of claims 13.3 2020 2019 ----- Rupees in ‘000 ----6,885,407 93,950 1,515,019 1,082,525 3,603,192 1,103 292,053 317,581 109,501 30,660 22,730 30,656 245,310 305,331 1,176,143 175,454 334,735 1,645 140,899 7,636 667,037 17,038,567 (430,569) 16,607,998 8,746,909 48,511 976,902 1,040,356 3,221,212 794,463 123,074 67,952 23,290 37,139 116,489 465,965 1,088,682 22,989 441,182 63,108 14,477 29,924 39,100 501,690 17,863,414 (432,908) 17,430,506 135,109 16,743,107 93,743 17,524,249 13.1 This includes an amount of Rs. 297.218 million (2019: Rs. 455.370 million) receivable from State Bank of Pakistan in respect of home remittance services provided by the Bank. 13.2 During the year, the Holding Company acquired a property of Rs. 90.178 million (2019: Rs. 998.848 million) against debt swap transaction with the borrower resulting in reversal of provision of Rs. 8.604 million (2019: 277.078 million) (refer note 10.4.2). Note 13.2 Non banking assets acquired in satisfaction of claims Market value of non-banking assets acquired in satisfaction of claims 13.2.1 1,311,252 1,182,425 1,182,425 90,178 41,511 (2,862) 1,311,252 185,290 998,848 Movement of Non banking assets acquired in satisfaction of claims at market value: As at January 01 Addition during the year Surplus recognised during the year Depreciation during the year 13.2.2 2020 2019 ----- Rupees in ‘000 ----- 13.2 21.3 29 (1,713) 1,182,425 Non-banking assets acquired in satisfaction of claims are carried at revalued amount according to the requirements of the ‘Regulation for Debt Property Swap’ (the regulations) issued by SBP vide the BPRD Circular No. 1 of 2016, dated January 01, 2016. Annual Report 2020 276
  274. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Non-banking assets acquired in satisfaction of claims have been revalued by independent professional valuers as at December 31, 2020. The revaluation was carried out by M/s. bfa (Pvt) Ltd. and Engineering Pakistan International (Pvt) Ltd. on the basis of professional assessment of present market values. Had there been no revaluation, the carrying value of non-banking assets acquired in satisfaction of claims would have been lower by Rs. 93.743 million (2019: Rs. 93.743 million), and surplus on revaluation of assets net, deferred tax liability and depreciation expense would have been lower by Rs. 92.694 million (2019: Rs. 92.776 million), Rs. 0.126 million (2019: Rs.0.967 million) and Rs. 0.126 million (2019: Rs. 0.126 million) respectively. Note 2020 2019 ----- Rupees in ‘000 ----- Written down value: Leasehold Land Building on leasehold land 13.3 403,318 27,251 430,569 403,318 29,590 432,908 432,908 100 (2,439) (2,339) 430,569 435,188 (2,280) (2,280) 432,908 4,752,985 228,998 4,981,983 3,583,500 220,991 3,804,491 Movement in provision held against other assets Opening balance Charge for the year Reversal for the year Net (reversal) / charge for the year Closing balance 14. 866,695 221,987 1,088,682 Provision held against other assets Trade receivable from brokerage and advisory business - net Others 13.3.1 944,946 231,197 1,176,143 32 BILLS PAYABLE In Pakistan Outside Pakistan 277 Annual Report 2020
  275. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 15. Note BORROWINGS Secured Borrowings from State Bank of Pakistan under: Export refinancing scheme (ERF) Long-Term Finance Facility (LTFF) 15.2.1 15.2.2 Other borrowings Financing Facility for Storage of Agricultural produce (FFSAP) Financing Facility for Renewable Energy Projects Refinance and credit guarantee scheme for women entrepreneurs Refinance for Wages & Salaries Refinance facility for modernization of Small and Medium Enterprises (SMEs) Refinance facility for combating COVID-19 Refinance facility for working capital of SMEs Temporary economic refinance facility Temporary economic refinance facility 15.2.3 Repurchase agreement borrowings Borrowing from financial institutions Repurchase agreement borrowings Refinancing facility for mortgage loans 15.2.4 15.2.5 Total secured Unsecured Call borrowings Overdrawn nostro accounts Total unsecured 15.1 Particulars of borrowings In local currency In foreign currencies 15.2.1 2020 2019 ----- Rupees in ‘000 ----- 21,496,075 1,985,038 17,792,778 1,877,760 193,029 433,085 32,900 11,543,118 96,192 229,984 33,901 51,871 12,614,080 36,095,193 166,032 133,633 775 300,440 16,849,097 36,820,075 9,667,181 2,397,468 12,064,649 12,746,732 1,961,128 14,707,860 48,159,842 51,527,935 143,570 143,570 2,303,356 636,992 2,940,348 48,303,412 54,468,283 48,079,656 143,570 48,223,226 51,527,935 2,940,348 54,468,283 The Bank has entered into agreement with the SBP for extending export finance to customers. As per the terms of the agreement, the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of finances by directly debiting the current account maintained by the Bank with SBP. These borrowings are repayable on a quarterly basis and to be matured between January 04, 2021 and February 08, 2027 (2019: January 02, 2020 and February 08, 2027). These carry mark-up at the rate from1% to 3% (2019: 1% to 3%) per annum. Annual Report 2020 278
  276. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 15.2.2 These borrowings have been obtained from the SBP for providing financing facilities to exporters for adoption of new technologies and modernization of their plant and machinery. These borrowings will mature between November 04, 2021 and November 18, 2030 (2019: November 30, 2020 and August 08, 2029). These carry mark-up at rates ranging from 2.00% to 3.50% (2019: 2.00% to 3.50%) per annum. 15.2.3 Other borrowings have been obtained from SBP under various facilities on particulars mentioned below: Markup rate Per annum Financing Facility for Storage of Agricultural Produce (FFSAP) Financing Facility for Renewable Energy Projects Refinance and credit guarantee scheme for women entrepreneurs Refinance for Wages & Salaries Refinance facility for modernization of Small and Medium Enterprises (SMEs) Refinance facility for combating COVID-19 Refinance facility for working capital of SMEs Temporary economic refinance facility (TERF) 2% 2% 0% 0% 0% 0% 0% 1% From Matured January 1, 2022 August 1, 2021 October 30, 2021 October 1, 2022 October 1, 2022 April 1, 2025 September 16, 2021 November 22, 2025 To October 27, 2027 August 29, 2029 February 28, 2026 December 31, 2022 June 16, 2025 October 1, 2025 October 1, 2022 November 22, 2025 15.2.4 This represents borrowing against Market Treasury Bills, (2019: Market Treasury Bills, Pakistan Investment Bonds and Bai Muajjal) carrying mark-up at the rates ranging upto 6.70% (2019:12.70% to 13.19%) per annum and will be matured between January 11, 2021 to January 12, 2021 (2019: January 02, 2020 and March 26, 2020). The cost and market value of securities given as collateral of amounting to Rs. 9,766,518 million (2019: Rs. 9,200.503 million) and Rs. 9,767,491 million (2019: Rs. 9,122.620 million) respectively. 15.2.5 The Holding Company has entered into agreement with the Pakistan Mortgage Refinance Company Limited (PMRC) for extending housing finance facilities to the Bank’s customers on the agreed terms and conditions. The borrowing carries mark-up rate of 3 years PKRV less 100bps and will be matured on February 28, 2022 and December 09, 2025. 16. DEPOSITS AND OTHER ACCOUNTS Customers Current deposits Savings deposits Term deposits Margin deposits Financial Institutions Current deposits Savings deposits Term deposits 2020 2019 In Local In Foreign In Local In Foreign Currency currencies Total Currency currencies Total ---------------------------------------------- Rupees in ‘000 ---------------------------------------------90,714,627 98,103,956 186,691,026 5,920,595 381,430,204 9,668,068 3,944,797 15,203,881 163 28,816,909 100,382,695 102,048,753 201,894,907 5,920,758 410,247,113 70,341,319 73,442,779 164,602,876 5,455,786 313,842,760 6,412,941 2,898,794 11,409,815 15,234 20,736,784 76,754,260 76,341,573 176,012,691 5,471,020 334,579,544 1,281,453 11,192,800 8,266,773 20,741,026 435,683 435,683 1,717,136 11,192,800 8,266,773 21,176,709 858,905 12,204,325 20,900,829 33,964,059 - 858,905 12,204,325 20,900,829 33,964,059 402,171,230 29,252,592 431,423,822 347,806,819 20,736,784 368,543,603 279 Annual Report 2020
  277. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 16.1 Composition of deposits - Individuals - Government (Federal and Provincial) - Public Sector Entities - Banking Companies - Non-Banking Financial Institutions - Private Sector 16.2. 17. 2020 2019 -------- Rupees in ‘000 -------- 16.2 147,143,479 92,317,151 52,156,536 2,950,286 18,226,423 118,629,947 431,423,822 135,583,867 73,503,161 37,475,517 2,926,436 31,037,623 88,016,999 368,543,603 This includes deposits eligible to be covered under insurance arrangements amounting to Rs. 143,210.503 million (2019: Rs. 87,425.180 million). Note SUB-ORDINATED DEBT Term Finance Certificates - First Issue Term Finance Certificates - Second Issue Term Finance Certificates - Third Issue 17.1 Note 17.1 17.2 17.3 2020 2019 -------- Rupees in ‘000 -------2,995,200 1,997,600 2,500,000 7,492,800 2,996,400 1,998,400 2,500,000 7,494,800 In 2016, the Holding company has issued Rs.3 billion of rated, privately placed, unsecured and subordinated term finance certificates (“TFCs” or “the Issue”) as an instrument of redeemable capital under Section 120 of the Companies Ordinance, 1984 and as outlined by State Bank of Pakistan, SBP, under the BPRD circular No. 06 dated August 15, 2013 and Basel III guidelines. Summary of terms and conditions of the Issue are: Purpose: To contribute toward the Bank’s Tier II Capital for complying with the Capital Adequacy Ratio requirement and to utilize the funds in the Bank’s business operations as permitted by its Memorandum & Articles of Association. Issue date: December 14, 2016 Tenure: Up to Seven years from the Issue date. Maturity Date: December 14, 2023 Rating: A + (Single A Plus) Profit Rate: Floating rate of return at Base rate + 1.4 percent per annum; Base rate is defined as the average six months KIBOR prevailing on the Base Rate setting date. The Base Rate will be set for the first time on the last working day prior to the Issue Date and subsequently on the immediately preceding business day before the start of each six monthly period Profit payment: Semi-annual Redemption: The instrument is structured to redeem 0.24% of the Issue amount during the first six years after the Issue date and the remaining Issue amount of 99.76% in two equal semi-annual installments of 49.88% each in the last year. Security: The Issue is unsecured and subordinated as to payment of Principal and profit to all other indebtedness of the Bank. Annual Report 2020 280
  278. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Call Option: Exercisable in part or in full on or after the 10th redemption, subject to SBP’s approval. Lock-in-clause: Principal and profit will be payable subject to compliance with MCR or CAR set by SBP. Loss absorbency clause: Upon the occurrence of a Point of Non-Viability event as defined by SBP’s Basel III Capital Rule vide BPRD Circular # 6 of 2013 dated August 15, 2013, SBP may at its option, fully and permanently convert the TFCs into common shares of the Bank and/ or have them immediately written off (either partially or in full). Number of shares to be issued to TFC holders at the time of conversion will be equal to the ‘Outstanding Face Value of the TFCs’ divided by market value per share of the Bank’s common share on the date of trigger as declared by SBP of the non-viability event as declared by SBP, subject to a cap of 467,836,257 shares. 17.2 In 2017, the Holding company has issued Rs. 2 billion of rated, over the counter listed, unsecured and subordinated term finance certificates (“TFCs” or “the Issue”) as an instrument of redeemable capital under Section 66 of the Companies Act, 2017 and as outlined by State Bank of Pakistan, SBP, under the BPRD circular No. 06 dated August 15, 2013 and Basel III guidelines. Summary of terms and conditions of the Issue are: Purpose: To contribute toward the Bank’s Tier II Capital for complying with the capital adequacy requirement and to utilize the funds in the Bank’s business operations as permitted by its Memorandum & Articles of Association. Issue date: December 29, 2017 Tenure: Up to Seven years from the Issue date. Maturity Date: December 29, 2024 Rating: A + (Single A Plus) Profit Rate: Floating rate of return at Base rate + 1.4 percent per annum; Base rate is defined as the average six months KIBOR prevailing on the Base Rate setting date. The Base Rate will be set for the first time on the last working day prior to the Issue Date and subsequently on the immediately preceding business day before the start of each six monthly period. Profit payment: Semi-annual Redemption: The instrument is structured to redeem 0.24% of the Issue amount during the first six years after the Issue date and the remaining Issue amount of 99.76% in two equal semi-annual installments of 49.88% each in the last year. Security: The Issue is unsecured and subordinated as to payment of Principal and profit to all other indebtedness of the Bank. Call Option: Exercisable in part or in full on or after the 10th redemption, subject to SBP’s approval. Lock-in-clause: Principal and profit will be payable subject to compliance with MCR or CAR set by SBP. Loss absorbency clause: Upon the occurrence of a Point of Non-Viability event as defined under SBP BPRD Circular # 6 of 2013 dated August 15, 2013, SBP may at its option, fully and permanently convert the TFCs into common shares of the Bank and/or have them immediately written off (either partially or in full). Number of shares to be issued to TFC holders at the time of conversion will be equal to the ‘Outstanding Face Value of the TFCs’ divided by market value per share of the Bank’s common share on the date of trigger of Point of Non-Viability (PONV) as declared by SBP, subject to a cap of 319,982,544 shares. 281 Annual Report 2020
  279. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 17.3 In 2018, the Holding company has issued Rs.2.5 billion of rated, privately placed, unsecured, subordinated, perpetual and non-cumulative term finance certificates (“TFCs” or “the Issue”) as an instrument of redeemable capital under Section 66(1) of the Companies Act, 2017 and as outlined by State Bank of Pakistan, SBP, under the BPRD circular No. 06 dated August 15, 2013 (the “Circular”) and Basel III guidelines. Summary of terms and conditions of the Issue are: Purpose: To contribute toward the Bank’s Tier I Capital for complying with the capital adequacy requirement and to utilize the funds in the Bank’s business operations as permitted by its Memorandum & Articles of Association. Issue date: December 31, 2018 Maturity Date: Perpetual Rating: A (Single A) Profit Rate: Floating rate of return at Base rate + 2.25 percent per annum; Base rate is defined as the average six months KIBOR prevailing on the Base Rate setting date. The Base Rate will be set for the first time on the last working day prior to the Issue Date and subsequently on the immediately preceding business day before the start of each six monthly period Profit payment frequency: Semi-annually on a non-cumulative basis Redemption: Not applicable Security: The Issue is unsecured and subordinated as to payment of Principal and profit to all other claims except common shares. Call Option: Exercisable in part or in full at a par value on or after five years from the issue date, with prior approval of SBP. The Bank shall not exercise the call option unless the called instrument is replaced with capital of same or better quality. Lock-in-clause: Payment of profit will be made from current year’s earning and subject to compliance with MCR or CAR set by SBP. Loss absorbency clause: Pre-Specified Trigger (“PST”) Upon the occurrence of a Pre-Specified Trigger as defined under SBP BPRD Circular # 6 of 2013 dated August 15, 2013 which stipulates that if an Issuer’s Common Equity Tier 1 (“CET 1”) ratio falls to or below 6.625% of Risk Weighted Assets (“RWA”), the Issuer will have full discretion to determine the amount of TFCs to be permanently converted into common shares or written off, subject to SBP regulations / instructions, and the cap specified below. The Bank will be able to exercise this discretion subject to: - If and when Bank’s CET 1 reaches the loss absorption trigger point, the aggregate amount of Additional Tier-1 capital to be converted must at least be the amount sufficient to immediately return the CET 1 ratio to above 6.625% of total RWA (if possible); - The converted amount should not exceed the amount needed to bring the CET 1 ratio to 8.5% of RWA (i.e. minimum CET 1 of 6.0% plus capital conservation buffer of 2.5%); - In case, conversion of Additional Tier-1 capital Instrument is not possible following the trigger event, the amount of the Instrument must be written off in the accounts resulting in increase in CET 1 of the Issuer; Annual Report 2020 282
  280. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Point of Non-Viability (“PONV”) Upon the occurrence of a Point of Non-Viability event as defined under SBP BPRD Circular # 6 of 2013 dated August 15, 2013, which stipulates that SBP may, at its option, fully and permanently convert the TFCs into common shares of the Issuer and / or have them immediately written off (either partially or in full). Number of shares to be issued to TFC holders at the time of conversion will be equal to the ‘Outstanding Value of the TFCs’ divided by market value per share of the Issuer’s common / ordinary share on the date of the PONV trigger event as declared by SBP, subject to the cap specified below; The PONV trigger event is the earlier of: - “A decision made by SBP that a conversion or temporary / permanent write-off is necessary without which the Issuer would become non-viable; - The decision to make a public sector injection of capital, or equivalent support, without which the Issuer would have become non-viable, as determined by SBP. - The maximum number of shares to be issued to TFC holders at the Pre-Specified Trigger and / or Point of Non Viability (or otherwise as directed by SBP) will be subject to a specified cap of 329,595,476 ordinary shares, or such other number as may be agreed to in consultation with SBP. 18. DEFERRED TAX (ASSETS) / LIABILITIES 18.1 Movement in temporary differences during the year: 2020 Recognised Recognised in Balance as at in other profit and loss December 31, comprehensive account 2020 income -------------------------- Rupees in ‘000 -------------------------- Balance as at January 01, 2020 Note Deductible Temporary Differences on: Provision against investments Provision against loans and advances Other assets General provision under IFRS-9 Intangible other than Goodwill Liability against assets subject to finance lease - net Mark to market gain / (loss) on forward foreign exchange contracts Provision for workers' welfare fund (57,149) (132,305) (845,243) (3,097) (2,507) (7,082) (155,535) 725,913 (40,455) (397) (4,299) - (57,149) (287,840) (119,330) (43,552) (2,904) (11,381) (51,092) (3,143) (1,101,618) 28,199 2,964 556,390 - (22,893) (179) (545,228) 21 260,103 512,268 374,394 (71,570) (58,646) (75,357) 188,533 512,268 240,391 21 967 (51) 3,113 4,029 82,321 (77,019) - 5,302 (665) - 4,697 1,888 - 4,032 1,888 21 (253,627) 975,761 (26,142) (226,843) 952,144 879,900 672,375 1,628,818 18.1.1 (125,857) 329,547 879,900 1,083,590 Taxable Temporary Differences on: Operating fixed assets Goodwill Surplus on revaluation of operating fixed assets Surplus on revaluation of non-banking assets acquired in satisfaction of claims Unrealised (loss) / gain on revaluation of derivative financial instruments Unrealised loss / (gain) on revaluation of investments classified as held for trading Government Grant (Deficit) / surplus on revaluation of investments classified assets as available for sale 283 Annual Report 2020
  281. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2019 Balance as at January 01, 2019 Deferred tax debits arising from: Provision against investments Provision against loans and advances Provision against other assets General provision under IFRS-9 Intangible other than Goodwill Unrealised (loss) / gain on revaluation of investments classified as held for trading Surplus / (deficit) on revaluation of investments classified assets as available for sale Provision for donation Mark to market gain on forward foreign exchange contracts Liability against assets subject to finance lease - net Provision for workers' welfare fund Deferred tax credits arising due to: Operating fixed assets Goodwill Surplus on revaluation of operating fixed assets Surplus on revaluation of non-banking assets acquired in satisfaction of claims Unrealized (loss) / gain on revaluation of derivative financial instruments Note Recognised in profit and loss account Recognised in other comprehensive income Balance as at December 31, 2019 -------------------------- Rupees in ‘000 -------------------------(57,149) (147,207) (171,011) (36,820) (2,235) 14,902 (674,232) 33,723 (272) - (57,149) (132,305) (845,243) (3,097) (2,507) (3,976) 3,575 (264) (665) (1,188,415) (186) 186 934,788 - (253,627) - (17,114) (1,624,113) (51,092) (7,082) 13,971 (666,321) 934,524 (51,092) (7,082) (3,143) (1,355,910) 21 232,731 512,268 390,391 27,372 1,223 (17,220) 260,103 512,268 374,394 21 1,010 (43) - 967 21 78,721 1,215,121 3,600 32,152 (17,220) 82,321 1,230,053 18.1.1 (408,992) (634,169) 917,304 (125,857) 18.1.1 As of December 31, 2020, the JSIL has accumulated losses of Rs. 359.015 million (2019: Rs. 239.238 million). The deferred tax on such losses works out to Rs. 104.751 million (2019: Rs. 69.379 million), however, the JSIL has recognised deferred tax asset on such losses to the extent of deferred tax liability of Rs. 0.637 million (2019: Rs. 24.352 million). Unrecognized deferred tax asset on carried forward business losses as at December 31, 2020 amounted to Rs. 104.011 million 2019 (Rs. 45.027 million). As of December 31, 2019, the JSIL has accumulated losses of Rs. 239.238 million. The deferred tax on such losses works out to Rs. 69.379 million, however, the JSIL has recognised deferred tax asset on such losses to the extent of deferred tax liability of Rs.24.352 million. Unrecognized deferred tax asset on carried forward business losses as at December 31, 2019 amounted to Rs.45.027 million. Annual Report 2020 284
  282. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 19. Note OTHER LIABILITIES Mark-up / return / interest payable in local currency Mark-up / return / interest payable in foreign currencies Unearned commision income on guarantees Accrued expenses Acceptances Trade payable from brokerage business Unclaimed dividends Mark to market loss on derivative instruments Mark to market loss on forward foreign exchange contracts Dividend payable Payable in respect of defined benefit obligation - net Withholding taxes payable Government challan collection Donation payable Security deposits against leases, lockers and others Provision for Workers’ Welfare Fund Payable in respect of home remittance Retention money payable Lease liability against right-of-use assets Advance against assets held for sale Insurance payable Payable to vendors against SBS goods Debit card settlement Inter bank fund transfer Others 19.1 37.5 29.2.1 11.3.2 Lease liabilities 2020 2019 ----- Rupees in ‘000 ----3,132,699 52,729 176,270 809,789 3,603,192 2,353,304 7,576 172,635 400,144 5,183 599,853 94,510 3,490,704 160,165 831,042 42,044 2,891,226 10,137 93,634 65,855 159,136 724,011 19,875,838 4,166,772 72,782 99,505 415,112 3,221,212 1,426,057 7,576 491 375,227 41,102 151,881 539,702 66,867 1,991 4,172,975 113,795 446,387 34,248 4,260,358 37,500 12,693 185 73,084 287,480 20,024,982 4,260,358 22,284 (613,771) 451,047 (1,203,822) 2,916,096 4,781,777 24,333 580,688 (1,126,440) 4,260,358 The carrying amounts of lease liabilities and the movements during the year is as below: Opening balance Additional impact arised during the year - net Termination impact arised during the year-net Markup on Lease liability against right-of-use assets Payments Closing balance 285 25 Annual Report 2020
  283. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 20. SHARE CAPITAL 20.1 Authorised capital 19.1.1 Ordinary shares 2020 2019 ----- Rupees in ‘000 ----- 2020 2019 ----- Number of shares ----2,350,000,000 19.1.2 Ordinary shares of Rs.10 each 23,500,000 23,500,000 1,500,000 1,500,000 7,635,590 5,339,053 12,974,643 7,635,590 5,339,053 12,974,643 (2,855,401) 10,119,242 (2,855,401) 10,119,242 Preference shares 150,000,000 20.2 2,350,000,000 150,000,000 Convertible preference shares of Rs.10 each Issued, subscribed and paid-up capital 763,558,965 533,905,297 1,297,464,262 763,558,965 533,905,297 1,297,464,262 1,297,464,262 1,297,464,262 Ordinary shares Fully paid in cash Issued for consideration other than cash Less: Discount on issue of shares 20.3 As at December 31, 2020, Jahangir Siddiqui & Co. Limited. (the parent company) held 973,307,324 (2019: 973,307,324) ordinary shares of Rs.10 each i.e. 75.02% holding (2019: 75.02%). 21. SURPLUS ON REVALUATION OF ASSETS Note Surplus / (deficit) on revaluation of: Available-for-sale securities Operating fixed assets Non-banking assets acquired in satisfaction of claims Deferred tax on (surplus) / deficit on revaluation of: Available-for-sale securities Operating fixed assets Non-banking assets acquired in satisfaction of claims 21.1 Group’s share Non-controlling interest Annual Report 2020 286 21.1.1 21.2 21.3 2020 2019 -------- Rupees in ‘000 -------2,325,426 1,766,009 135,109 4,226,544 (591,788) 1,955,940 93,743 1,457,895 (672,375) (240,391) (4,029) (916,795) 3,309,749 253,627 (374,390) (967) (121,730) 1,336,165 3,247,593 62,156 3,309,749 1,308,531 27,634 1,336,165
  284. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 21.2 Note Fixed assets Surplus on revaluation as at January 01 Recognised during the year - net Less: Transferred to unappropriated profit: Incremental depreciation during the year Related deferred tax liability Realised on disposal of asset classified under held for sale Related deferred tax liability Surplus on revaluation as at December 31 Less: Related deferred tax liability on: Surplus on revaluation as at January 01 Recognised / transferred during the year Transferred to profit and loss account on account of incremental depreciation Realised on disposal of asset classified under held for sale 2020 2019 -------- Rupees in ‘000 -------1,955,940 1,216 1,957,156 1,628,992 374,493 2,003,485 (40,378) (9,038) (92,126) (49,605) (191,147) 1,766,009 (35,721) (11,824) (47,545) 1,955,940 (374,390) 75,356 (403,434) 17,220 9,038 49,605 (240,391) 11,824 (374,390) 1,525,618 1,581,550 21.2.1 This includes Rs. 195.610 million (2019: Rs. 141.731 million) which relates to assets held for sale as disclosed in note 11.3. 21.3 Non-banking assets acquired in satisfaction of claims Surplus on revaluation as at January 01 (Transferred) / recognized during the year Less: Transferred to unappropriated profit: Incremental depreciation during the year Related deferred tax liability Surplus on revaluation as at December 31 Less: Related deferred tax liability on: Surplus on revaluation as at January 01 Transferred to profit and loss account on account of incremental depreciation Recognized during the year 22. 93,869 93,869 (94) (51) (145) 135,109 (82) (44) (126) 93,743 (967) (1,011) 51 (3,113) (4,029) 44 (967) 131,080 92,776 58,779,594 65,953,138 124,732,732 45,650,803 77,013,578 122,664,381 1,024,422 36,678,881 21,076,291 58,779,594 2,464,411 21,483,841 21,702,551 45,650,803 CONTINGENCIES AND COMMITMENTS Guarantees Commitments 22.1 93,743 41,511 135,254 22.1 22.2 Guarantees: Financial guarantees Performance guarantees Other guarantees 22.1.1 287 Annual Report 2020
  285. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 22.1.1 22.2 Included herein are outstanding guarantees of Rs. 29.054 million (2019: Rs.14.217 million) of related parties. Note Commitments: Documentary credits and short-term trade-related transactions - letters of credit Commitments in respect of: - Forward foreign exchange contracts - Derivative instruments - Forward lending - Bank Guarantee from a commercial Bank in favor of National Clearing Company of Pakistan Limited - Outstanding settlements against margin financing contracts - net Commitments for acquisition of: - operating fixed assets 2020 2019 ----- Rupees in ‘000 ----- 22.2.1 21,111,360 13,965,258 22.2.2 22.2.3 22.2.4 38,178,262 5,564,000 384,230 55,111,366 7,238,695 72,183 22.2.5 22.2.6 400,000 57,411 400,000 5,305 22.2.7 257,875 65,953,138 220,771 77,013,578 22.2.1 Included herein are the outstanding letter of credits of Rs. 86.543 million (2019: Rs.44.368 million) of related parties. 22.2.2 Commitments in respect of forward foreign exchange contracts Purchase Sale 2020 2019 ----- Rupees in ‘000 ----23,137,733 15,040,529 38,178,262 33,104,108 22,007,258 55,111,366 The Holding company utilises foreign exchange instruments to meet the needs of its customers and as part of its asset and liability management activity to hedge its own exposure to currency risk. At period ended, all foreign exchange contracts have a remaining maturity of less than one year. 22.2.3 Commitments in respect of derivative instruments Purchase Sale 2020 2019 ----- Rupees in ‘000 ----1,760,637 3,803,363 5,564,000 3,622,107 3,616,588 7,238,695 1,176,824 1,176,824 2,353,648 2,099,175 2,100,175 4,199,350 582,419 2,425,487 3,007,906 1,023,310 1,023,310 2,046,620 22.2.3.1 Interest rate swaps (notional principal) Purchase Sale 22.2.3.2 Options (notional principal) Purchase Sale Annual Report 2020 288
  286. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Note 22.2.3.3 Commitments in respect of forward securities Purchase Sale 22.2.4 2020 2019 ----- Rupees in ‘000 ----1,394 201,052 202,446 499,622 493,103 992,725 384,230 72,183 Commitments in respect of forward lending Undrawn formal standby facilities, credit lines and other commitments to lend 22.2.4.1 22.2.4.1 These represent commitments that are irrevocable because they cannot be withdrawn at the discretion of the bank without the risk of incurring significant penalty or expense. 2020 2019 ----- Rupees in ‘000 ----- 22.2.5 Bank Guarantee from a commercial Bank in favor of National Clearing Company of Pakistan Limited 22.2.6 Outstanding settlements against margin financing contracts - net 22.2.7 Commitments for acquisition of operating fixed assets 22.2.8 Tax related contingencies are disclosed in note 33.2 to 33.4. 23. DERIVATIVE INSTRUMENTS 400,000 400,000 57,411 5,305 257,875 220,771 Derivative instruments, such as Forward Exchange Contracts, Interest Rate Swaps and Options, are forward transactions that provide market making opportunities / hedge against the adverse movement of interest and exchange rates. Derivatives business also provides risk solutions for the existing and potential customers of the Group. The Group has entered into a Cross Currency Swap transaction with its customer on back-to-back basis with an Authorized Derivative Dealer (ADD) without carrying any open position in its books. Specific approvals for the transactions have been granted by State Bank of Pakistan. Policies in line with SBP instructions have been formulated and are operative. The Holding company has also entered into Foreign Currency & Commodity Options from its Wholesale Banking Branch Bahrain for market making activities. These transactions cover the aspects of both market making and hedging. The risk management related to derivative is disclosed in note 45. Accounting policies in respect of derivative financial instruments are described in note 4.4.2. 289 Annual Report 2020
  287. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2020 Options Interest rate swaps Notional principal 23.1 Product Analysis With Banks Hedging Market making Notional principal Notional principal Mark to market 2,353,648 - 4,943 - 3,007,906 - 10,205 - 201,052 (12,329) - - - - 1,394 - 2,353,648 - 4,943 - 3,007,906 - 10,205 - 202,446 (12,329) 2019 Options Interest rate swaps Notional principal With Banks Hedging Market making Forward securities Mark to market ---------------------------------- Rupees in ‘000 ---------------------------------- With FIs other banks Hedging Market making Total Hedging Market making Mark to market Mark to market Notional principal Forward securities Mark to market Notional principal Mark to market ---------------------------------- Rupees in ‘000 ---------------------------------- 8,885 - 4,199,350 - 13,327 - 992,725 286 With FIs other banks Hedging Market making - - - - - - Total Hedging Market making - 8,885 - 4,199,350 - 13,327 - 992,725 286 Annual Report 2020 290
  288. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 23.2 Maturity Analysis Number of contracts Remaining maturity of contracts Upto 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years 6 1 7 10 2 26 Number of contracts Remaining maturity of contracts Upto 1 month 1 to 3 months 3 to 6 months 6 months to 1 year 1 to 2 years 2 to 3 years 24. 34 1 4 3 1 43 MARK-UP / RETURN / INTEREST EARNED 2020 Mark to market Notional Positive Negative Net principal ---------------------- Rupees in ‘000 ---------------------871,043 317,656 1,345,571 2,914,453 115,277 5,564,000 29,685 13,001 121,563 11,205 175,454 (11,413) (889) 7,705 6,815 601 2,819 2019 Notional Mark to market Positive Negative Net principal ---------------------- Rupees in ‘000 ---------------------493,103 499,622 2,516,330 1,683,020 5,192,075 90 196 9,376 7,785 5,542 22,989 Note On: Loans and advances Investments Lendings to financial institutions Balances with other banks Securities purchased under resale agreements 25. (41,098) (889) (5,296) (114,748) (10,604) (172,635) (491) (491) 90 196 8,885 7,785 5,542 22,498 2020 2019 ----- Rupees in ‘000 ----25,277,186 16,537,576 32,855 85,144 1,259,308 43,192,069 31,003,043 9,717,118 52,679 59,817 858,930 41,691,587 25.1 29,376,526 1,817,487 900,310 28,272,108 3,678,116 1,029,228 19.1 735,977 451,047 33,281,347 936,986 580,610 34,497,048 MARK-UP / RETURN / INTEREST EXPENSED On: Deposits Borrowings Subordinated debt Cost of foreign currency swaps against foreign currency deposits / borrowings Markup on Lease liability against right-of-use assets 291 Annual Report 2020
  289. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 25.1 Borrowings Export refinancing scheme (ERF) Long-Term Finance Facility (LTFF) Other Borrowings from State Bank Bank of Pakistan Securities sold under repurchase agreements Other short term borrowings 26. FEE, COMMISSION AND BROKERAGE INCOME Note Branch banking customer fees Consumer finance related fees Card related fees (debit and credit cards) Credit related fees Investment banking fees Commission on trade Commission on guarantees Commission on cash management Commission on remittances including home remittances Commission on bancassurance Commission on distribution of mutual funds Commission on online Services Postage & Courier income Rebate income Rebate on primary dealership Brokerage income Management fee 26.1 26.1 2020 2019 ----- Rupees in ‘000 ----357,578 46,242 10,941 1,111,507 291,219 1,817,487 337,916 35,388 3,942 2,810,910 489,960 3,678,116 240,843 39,700 652,096 358,650 119,315 671,804 393,993 4,755 252,078 180,460 29,008 372,892 24,096 250,355 27,637 582,761 173,499 4,373,942 174,557 21,098 594,713 328,927 86,244 570,108 266,999 5,966 111,288 180,770 93,343 186,396 22,143 224,598 6,918 327,604 210,488 3,412,160 This includes Rs.149.305 million (2019: Rs. 82.373 million) in respect of commission income from home remittance services provided by the Bank. The amount is earned from State Bank of Pakistan at the rate of Saudi Riyal 20 (2019: Saudi Riyal 20) per transaction over USD 200 (2019: USD 200) and is shared between the Bank and various exchange companies as per terms of agreement with them. Annual Report 2020 292
  290. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 27. Note GAIN / (LOSS) ON SECURITIES - NET Realised Unrealised - held for trading 27.1 27.1 Realised gain on: Federal government securities Market treasury bills Pakistan investment bonds Ijara sukuk certificates Shares Listed companies Non Government Debt Securities Term finance certificates Sukuk certificates Mutual fund units Foreign currency bonds 28. 1,906,308 14,202 1,920,510 (674,365) 8,368 (665,997) 76,912 1,381,058 71 1,458,041 3,671 (247,329) 633 (243,025) 429,881 (386,856) 32,832 450 21,443 150 33,282 (11,538) (3,358) 1,906,308 21,593 8,246 (74,323) (674,365) 10,682 1,000 64,805 32,819 109,306 4,079 493,680 7,430 505,189 OTHER INCOME - NET Rent on Property Gain on sale of fixed assets - net Gain on sale of assets held for sale Gain on termination of leases Others 28.1 2020 2019 ----- Rupees in ‘000 ----- 11.3.2 28.1 This represents, gain on termination of leases against closure of fifty one branches under the Bank’s branch rationalisation strategy. 293 Annual Report 2020
  291. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 29. OPERATING EXPENSES Total compensation expense Property expense Rent & taxes Insurance Utilities cost Security (including guards) Repair & maintenance (including janitorial charges) Depreciation Depreciation on right-of-use assets Depreciation on non banking assets Note 2020 2019 ----- Rupees in ‘000 ----- 29.1 6,735,714 5,713,741 24,143 2,641 365,121 337,223 241,197 243,485 954,275 2,862 2,170,947 39,856 10,553 365,688 296,671 204,875 247,053 985,498 1,713 2,151,907 762,263 189,878 215,310 118,032 133,243 1,418,726 241,700 182,710 184,504 97,968 125,505 832,387 23,100 191,690 290,204 156,524 129,968 45,199 322,535 19,520 100,484 182,699 265,023 461,634 122,341 16,697 205,187 60,168 17,238 18,802 56,849 6,906 27,250 61,605 128,144 76,957 67,988 239,732 160,950 11,444 76,467 74 30,000 54,693 3,628,072 13,953,459 (52,233) 13,901,226 15,625 151,056 209,998 135,005 145,186 40,394 424,574 35,074 82,010 134,965 276,707 338,130 2,809 14,293 224,923 63,468 55,570 21,870 34,658 8,662 31,186 36,949 139,761 67,337 66,161 65,778 106,166 9,035 80,002 46 30,000 38,026 3,085,424 11,783,459 (21,686) 11,761,773 11.4 13.2.1 Information technology expenses Software maintenance Hardware maintenance Depreciation Amortisation Network charges Other operating expenses Directors’ fees and allowances Legal & professional charges Insurance Outsourced services costs Travelling & conveyance NIFT clearing charges Depreciation Depreciation on right-of-use assets Training & development Postage & courier charges Communication Stationery & printing Marketing, advertisement & publicity Donations Auditors remuneration Staff auto fuel & maintenance Bank charges Stamp duty Online verification charges Brokerage, fee and commission Card related fees (debit and credit cards) CDC and other charges Consultancy fee Deposit protection corporation Entertainment expenses Repair and maintenance Cash handling charges Fee and Subscription Employees social security Generator fuel & maintenance Fee and allowances to Shariah Board Royalty Others 36 29.2 29.3 29.4 29.5 Less: Reimbursement of selling and distribution expenses Annual Report 2020 294 29.6
  292. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 29.1 2020 2019 ----- Rupees in ‘000 ----- Total compensation expense Fees and Allowances etc. Managerial Remuneration: i) Fixed ii) Variable of which; a) Cash Bonus / Awards etc. b) Commission Charge for defined benefit plan Contribution to defined contribution Plan Leaving indemnity Medical House rent allowance Utilities Conveyance Insurance Staff Others 29.1.1 29.2 191,025 4,316,171 4,031,190 656,678 292,603 159,436 251,053 6,479 387,404 1,694 188 415,478 41,259 2,535 6,735,714 344,693 252,556 134,712 233,459 4,246 357,750 1,581 176 81,851 74,941 5,561 5,713,741 The Group operates a short term employee benefit scheme which includes cash awards / special bonus for all employees. Under this scheme, the bonus for all employees, including the Chief Executive Officer (CEO) is determined on the basis of employees’ evaluation and the Bank’s performance during the year. Note Donations Future Trust Hope Uplift Foundation Bait-ul-Sukoon Cancer Hospital Agha Khan Foundation 29.2.1 204,736 29.2.1 2020 2019 ----- Rupees in ‘000 ----117,341 5,000 122,341 1,991 618 200 2,809 This represents donation to a related party, wherein below mentioned persons are trustees. The registered office of the donee is located at 7th Floor, The Forum, Block 9, Clifton, Karachi. - Mr. Suleman Lalani Mr. Kalim-ur-Rehman Chief Executive Officer of Jahangir Siddiqui & Co. Ltd. (the parent company) Chairman of the Bank - Mr. Hasan Shahid Chief Financial Officer of the Bank and Director of JS Investments Limited, the Subsidiary Company - Mr. Najmul Hoda Khan Chief Financial Officer of Jahangir Siddiqui & Co. Ltd. (the parent company) - Mr. Tariq Usman Bhati Head of Money Market And Forex of JS Global Capital Limited, subsidiary company 295 Annual Report 2020
  293. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 29.3 Note Auditors’ remuneration Audit fee - Pakistan Audit fee - Bahrain Half-yearly review Fee for audit of employees funds Fee for other statutory certifications Special certification and sundry advisory services Taxation services Out of pocket expenses and sales tax on services 29.3.1 29.3.1 Geographical analysis Pakistan Bahrain 29.4 2020 2019 ----- Rupees in ‘000 ----3,672 1,717 1,228 143 1,177 5,783 270 2,707 16,697 3,442 1,640 1,169 143 753 4,473 275 2,398 14,293 14,092 2,605 16,697 12,140 2,153 14,293 Under the provision of section 5(2) of the Deposit Protection Corporation Act, 2016 (the Act), and DPC Circular No. 04 of 2018, the Bank is liable to pay annual premium, on quarterly basis, to the Deposit Protection Corporation, a subsidiary company of State Bank of Pakistan, @ 0.16% on eligible deposits as of December 31 of each preceding calendar year. The Bank’s eligible deposits as of December 31, 2019 are amounting to Rs. 87,425.180 million on which total premium is payable of Rs. 139.880 million per annum (Rs. 34.970 million per quarter). 29.5 Royalty represents amounts payable to Mr. Jahangir Siddiqui on account of use of name in the subsidiary of the Bank. 29.6 The SECP vide Circular 40/2016 dated December 30, 2016, prescribed certain conditions on Asset Management Companies (AMC) for charging of selling and marketing expenses to open end equity funds, for opening of new branches in cities, except Karachi, Lahore, Islamabad and Rawalpindi. Expenses can be charged to the extent of 0.4% per annum of net assets of fund or actual expenses whichever is lower. 30. Note WORKER’S WELFARE FUND Charge during the year 30.1 2020 2019 ----- Rupees in ‘000 ----46,472 3,358 30.1 Provision held at @ 2% of the higher of profit before tax or taxable income under Sindh Workers’ Welfare Act, 2014 and the Punjab Workers’ Welfare Fund Act, 2019. 31. OTHER CHARGES 2020 2019 ----- Rupees in ‘000 ----- Penalties imposed by State Bank of Pakistan Others Annual Report 2020 91,639 91,639 296 131,444 6,199 137,643
  294. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 32. PROVISIONS / (REVERSALS) AND WRITE OFFS - NET Provisions for diminution in value of investments Provisions against loans & advances Provisions against loans & advances - general Provisions / (reversals) under IFRS-9 -general Fixed assets written off Other assets written off Other reversals Bad debts written off directly Impairment loss against intangible assets 32.1 Note 9.3.1 10.4 249,343 841,895 (161,166) 138,345 181,887 5,620 (2,339) 1,253,585 (345,300) 354,848 5,505 (105,018) (2,280) 315 3,227 (88,703) 384 (79) 124,303 13,737 138,345 (71) (3,434) (97,192) (4,321) (105,018) 745,311 (14,482) 329,547 1,060,376 791,261 13,715 (634,169) 170,807 Profit before taxation 1,108,435 (256,608) Tax at applicable rates in the Group Effect of permanent differences Tax effect of income charged at different tax rates-net Tax effect of exempt capital gains Effect of prior year deferred taxation Effects of current and prior year super tax Deferred tax recognised at higher rate Others 793,461 (50,923) 50,442 46,783 228,459 (7,846) 1,060,376 80,035 34,014 18,617 11,251 31,608 (4,718) 170,807 32 11.2 Provisions / (reversals) under IFRS-9 - general Charge / (reversal) during the year Balances with other banks Lendings to financial institutions Investments Advances 33. TAXATION Current Prior years Deferred 33.1 33.1.1 2020 2019 ----- Rupees in ‘000 ----- Relationship between income tax expense and accounting profit 33.1.1 The Group has recognised taxation impact on the basis of deemed tax return to be file on applicable tax rate with tax authorities, which are as follows: 2020 JS Bank Limited JS Investments Limited JS Global Capital Limited JS ABAMCO Commodities limited Tax Rate 35% 29% 29% 29% 297 Annual Report 2020 2019 35% 29% 29% 29%
  295. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 33.2 JS Bank Limited (Holding Company, the Bank) 33.2.1 Income Tax The income tax returns filed under Section 114 of the Income Tax Ordinance, 2001 for the tax years 2007 through 2020. These returns filed were deemed to have been assessed in terms the provisions prevailing under income tax laws as applicable in Pakistan. However, the Officers of Inland Revenue Services (OIR) conducted the proceedings for making certain amendments in the deemed assessments for tax years 2008 to 2017. This was done by taking recourse of conducting tax audit or alternatively a direct amendment in the assessment contending that certain matters in the deemed assessments were not admissible as not conforming to the law and prejudiced the interest of revenue. Based on the amended assessments in tax year 2008 to tax year 2018, the department had made certain disallowances of expenses and tax deductible claims besides creating minimum tax and Workers’ Welfare Fund liabilities in the tax years 2010, 2011 & 2012 and tax years 2009, 2012 & 2013 respectively. In respect of WWF, the Supreme Court of Pakistan has held in Judgement, PLD 2017 SC 28, that the amendments made in the WWF Ordinance through Finance Act, 2006 and 2008 were illegal and without lawful authority i.e. the Holding Companys do not fall into definition of Industrial Undertaking and thus, not liable to pay WWF. Therefore based on this, the Holding Company’s contention is mandated and it is likely that its pending appeals in this will be decided favorably. The Holding Company has obtained appeal effect orders of respective years except 2013 and resultantly no demand is payable in this respect. As a consequence of the 18th amendment to the Constitution, levy for the WWF was introduced by the Government of Sindh and Punjab through the Sindh WWF Act, 2014 (“the Act”) and Punjab Workers Welfare Fund Act, 2019 respectively. As per the Acts, the Holding Company is liable to pay WWF in both provinces. However in this respect: the Holding Company has challenged the issue of jurisdiction claimed by Sindh Revenue Board before the Honorable High Court of Sindh (SHC) through Constitutional Petition 1546/2017 on grounds that banking companies cannot be considered as industrial establishment and that the Act will be applied to trans-provincial entities to the extent that the obligation under the provincial law is to make distribution to the extent of the proportionate profit of the Sindh Province. The Court has restrained the Sindh Revenue Board to collect / recover Sindh WWF till the next date of hearing. the Holding Company will challenge the recovery of Punjab WWF in the court of law on same grounds in case of SWWF. In 2018, Based on decision of the Supreme Court of Pakistan, the Bank had reassessed the provision of WWF which was previously held on the entire operating results of the Bank (including all provinces, part of Pakistan, AJK and Bahrain Operations) and maintained WWF only to the extent of its operations within Sindh Province till 2019. In 2020 after promulgation of Punjab WWF, the Bank has again decided prudently to maintained provision on the entire results of the Bank. In respect of minimum tax, the Commissioner Inland Revenue-Appeals (the CIR(A)) has the not accepted the Holding Company’s contentions of gross loss position and also decided that non-mark-up income is the fall in the definition of turnover including capital gains and dividend income. As result the demand of Rs. 38.907 million has been payable. The Holding Company has contested the matter in further appeals before Appellate Tribunal Inland Revenue (ATIR) which are pending for hearing. For tax year 2008-2018, the Holding Company has not accepted the amendments of Rs. 6.57 billion and have filed appeals before the Commissioner Inland Revenue-Appeals (the CIRA). CIR(A) has admitted the contention of the Holding Company in case of tax year 2008 that the amended order is barred by time and decided that any addition made in impugned order is annulled and not required to be further adjudicated. However, the department has filed an appeal against the decision of CIR(A) in ATIR which has been partly heard. Annual Report 2020 298
  296. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 With regard to appeals filed for tax year 2009 to 2017, the CIR(A) has decided the appeals accepting the Holding Company’s contentions in respect of significant issues, and certain disallowance including amortization claim of goodwill have been decided in favor of department in all tax years. However, the Holding Company and the tax department are contesting the matters in further appeals before Appellate Tribunal Inland Revenue (ATIR) which are pending for adjudication. The tax department passed appeal effect/rectification orders and allowed deleted and set-aside issues in the light of CIR(A) orders for tax year 2008 to 2014. As a result of these orders, the Holding Company’s taxable losses has increased to Rs. 3.464 billion and reduced the demand of Rs. 1.212 billion in relevant tax years after adjustment of these losses. Further for the tax year 2013, the ATIR has decided appeal filed by tax department in respect of calculating the amount of provisions against advances as allowable under Rule 1(c) of Seventh Schedule to the Income Tax Ordinance, 2001 and has maintained the CIR(A) decision that the allowability of provision for advances to be calculated at 1% of gross amount of advances as against the tax department contention that the same is to be calculated on net advances after deducting the amount of provisions created and allowed against advances. The matter of allowability of amortization relating to goodwill is contentious issue, therefore based on the opinion of lawyer there are arguments available to contend that goodwill on merger is an allowable deduction for tax purposes. Especially in the recent decision given by the High Court of Sindh in the case of merger of another Holding Company in Pakistan where the Court has ruled in favour of taxpayer that goodwill generated in merger is ‘intangible’ and amortization relating to goodwill is allowable deduction. The Sindh High Court has dismissed the Holding Company’s petitions for tax years 2016 through 2019 wherein the Holding Company alongwith other taxpayers challenged the levy of super tax on constitutional grounds. Based on the opinion of legal counsel, the Holding Company has appealed before the Supreme Court against the decision of the Sindh High Court. The Supreme Court has allowed interim relief to the taxpayers subject to the payment of 50% of the super tax liability. However, the Holding Company has adjusted full amount of super tax liability for Tax year 2016 and 2019 against the available tax refunds. Further, the Holding Company has obtained stay from the Sindh High Court on other technical grounds regarding the levy of Super Tax for tax years 2017 and 2018. 33.2.2 Withholding tax monitoring Withholding tax monitoring was initiated against the Holding Company for tax year 2014-2019. Orders in respect of tax years 2014, 2015 and 2017 has been passed against which appeals have been filed before the CIR(A). CIR(A) has reminded back the matters for rectification in respect of tax years 2014 and 2015 against which rectified orders has been passed and demands have been rectified. Appeal for tax year 2017 has been heard and reserved for order. In respect of tax year 2018 and 2019, proceedings are pending. 33.2.3 Sales tax The Holding Company as a registered person under Sindh Sales Tax on Services Act, 2011 has been issued a Sales Tax Order from the Sindh Revenue Board (SRB) creating a demand of Rs.48.838 million (besides Rs.4.440 million is charged as penalty) against the Holding Company for allegedly non-payment of Sindh sales tax on certain ‘presumed non-taxable services / incomes’(i.e. Bancassurance, Home Remittances under Pakistan Remittance Initiative Scheme, SBP rebates on Government securities, Rebates from foreign correspondent Holding Companys, and FX gain on remittance by Western Union)’ on total amounting to Rs.277.488 million for the tax periods July 2011 to December 2013. An appeal was filed before Commissioner (Appeals) Sindh Revenue Board, CA-SRB against the decision of AC-SRB which was decided in favor of the tax department except tax imposed on FX gain on remittance by Western Union. Thereafter, both the Holding Company and ACSRB filed appeals before the Appellate Tribunal SRB against the decision of CA-SRB. Through its Order dated April 18, 2019, the Appellate Tribunal SRB quashedthe demandraised by deciding the Holding Company’s appeal in the Holding Company’s favour and dismissing the AC-SRB’s appeal.The Holding Company and tax department have filed appeals before Appellate Tribunal which are pending for hearing. 299 Annual Report 2020
  297. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 The management of Holding Company is confident that the appeals filed in respect of the above matter will be decided in the Holding Company’s favor and accordingly no demand for payment would arise. 33.2.4 Azad Jammu & Kashmir Operations The Holding Company has commenced operations in Azad Jammu & Kashmir from tax year 2009 and has filed returns for the tax years 2009 to 2019 with the tax authorities of such region. The Commissioner has issued notices for amendment of assessment under section 122 of the Income Tax Ordinance, 2001 (as adopted in AJK Region) for the tax year 2011 to 2017. All assessments orders are rectified and no additional demand has been raised. 33.3 JS Global Capital Limited (Subsidiary, the Company) 33.3.1 Income tax Except for tax year 2009, 2014, 2015, 2016, 2017 and 2018 income tax assessments have been filed and are deemed to have been assessed under the Income Tax Ordinance, 2001 (the Ordinance) unless selected by taxation authorities for audit purposes. For tax year 2009, an ITRA no. 07/2013 was filed by the Commissioner Inland Revenue against an order passed by the Learned Appellate Tribunal Inland Revenue (ATIR) in ITA no. 923/KB/2011 dated August 28, 2012 which was related to the apportionment of expenses, allowability of expenses and claiming of tax deducted at source aggregating to Rs. 61.16 million. However, the same is pending for decision before the Sindh High Court (SHC). For tax year 2014, an amended assessment order dated April 28, 2016, has been passed under section 122 (5A) of the Ordinance by the Additional Commissioner Inland Revenue (ACIR). Through said order, the ACIR raised demand amounting to Rs. 20.081 million. The Company has filed rectification application identifying various errors / details not considered by the ACIR and requested ACIR to rectify the same. In addition to that, the Company has also filed an appeal to the Commissioner Inland Revenue Appeals (CIR-A) which is pending. The Company has also obtained stay against recovery of demand from SHC till the decision of CIR-A. For tax year 2015, an order dated November 23, 2016 was passed under section 4B of the Ordinance by the Deputy Commissioner Inland Revenue (DCIR). Through said order, an income of Rs.810.584 million was computed under section 4B of the Ordinance and resultant demand of super tax of Rs. 24.318 million was raised. An appeal was filed against the above order before CIR-A on December 01, 2016 identifying various errors / details not considered. The CIR-A, has confirmed DCIR’s order vide his order dated May 30, 2017. In pursuance of the order of CIR-A, the Company has filed appeal before ATIR along with application for stay against recovery of demand. The appeal before ATIR has been heard and order is reserved whilst ATIR vide order dated July 18, 2017 has granted stay for 60 days and subsequently the said stay was further extended vide various orders by ATIR. Subsequently, recovery of aforesaid tax demand was previously stayed by the Honorable Sindh High Court (SHC) through C.P No 4915 of 2018 vide order dated June 28, 2018 with direction to the Department not to enforce recovery of tax demand till the decision of ATIR. However, based on its order dated July 21, 2020, the SHC has dismissed the afrementioned C.P and has declared the super tax for TY 2015 to be contitutionally vires. The Company has however filed an Income Tax Reference Application (ITRA) No. 52 of 2020 before SHC which is pending adjudication. For tax year 2016 and 2017, notices dated December 27, 2016 and January 3, 2018 were issued under section 4B of the Ordinance by the DCIR. In the said notices the DCIR has contended that the Company is liable to pay Super Tax amounting to Rs. 24.483 million and Rs. 19.490 million on ‘income’ of Rs. 816.122 million and Rs. 649.676 million for Tax Years 2016 and 2017 respectively. The Company has challenged both notices through writ petition before SHC on constitutional grounds wherein the SHC has, vide its orders dated January 16, 2017 and January 11, 2018 for Tax Years 2016 and 2017 respectively, has stated that no coercive action shall be taken against the Company. The DCIR passed the orders under section 4B vide order dated April 23, 2018 and Annual Report 2020 300
  298. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 May 4, 2018 for tax years 2016 and 2017 respectively to levy Super tax of above mentioned amounts under the view that SHC has not restrained the department from passing the orders. In pursuance of the said orders, Company filed appeals which were rejected by CIR-A vide its order dated October 12, 2018 for both years. As a result, the Company has filed appeals before Appellant Tribunal Inland Revenue (ATIR) against the orders of CIR-A. Meanwhile, the Company paid 50% of tax demand of both tax years to maintain the above suits in light of judgment of Hon’able Supreme Court of Pakistan (Civil Appeals No. 1171/2017 and other connected appeals) wherein, the pending suits are declared to be entertained on the condition that a minimum of 50% of tax demand is deposited with tax authorities during the pendency of appeal. During the year the appeal has been heard before ATIR and is reserved for order. The Company has however filed an Income Tax Reference Application (ITRA) No. 53 and 54 of 2020 before SHC which is pending adjudication. For tax year 2018, a notice under section 4B of the Ordinance by the DCIR dated December 7, 2018 was issued, contending that the Company is liable to pay Super Tax amounting to Rs. 45.211 million on ‘income’ of Rs. 1,507.039 million. The Company had challenged the notice on constitutional grounds before SHC through C.P. No. 8670 of 2018. The SHC, vide its order dated December 14, 2018, had stated that no coercive action shall be taken against the Company. However the SHC based on its order issued in September 2020 has dismissed the aforementioned C.P. The Company is hence awaiting the conclusion of ATIR on the above matter before it files a reference application for TY 2018. To date, no order has been passed by the Department, consequently, no outstanding tax demand exists to date. For tax year 2016, an amended assessment order has been passed under section 122(5A) of the Ordinance by the Additional Commissioner Inland Revenue (ACIR). Through the said order, the ACIR raised demand amounting to Rs. 241.217 million. Upon appeal filed, CIR-A confirmed the ACIR’s order vide its order dated December 12, 2017. In pursuance of the order of CIR-A, the Company had filed an appeal before ATIR. During last year ATIR vide its order dated March 29, 2019 had annulled ClRA’s action on confirming disallowances made in the order passed by ACIR dated November 02, 2017, with directions to CIRA to pass speaking and reasoned order after providing due opportunity of being heard. As a result, the likely assessment position after appeal effect of ATIR’s order under section 124 of the Ordinance is that only tax demand on account of undistributed reserves is outstanding, which has also been stayed by SHC vide interim order in CP No. 0-2343 of 2019 dated April 09, 2019. Furthermore during last year, a rectification application was filed for erroneously considered share premium reserves while computing excess reserves under section 5A of the Ordinance by the AClR, in its order dated November 2, 2017. As a result of which tax demand under section 5A would be reduced to Rs. 7.523 million. For tax year 2017, an amended assessment order has been passed under section 122(5A) of the Ordinance by the Tax Officer. Through the said order, the Tax Officer raised a demand amounting to Rs. 17.649 million. The Company has filed an appeal before CIR-A which has been heard, however, no order has been passed till date. The total tax demand was partially stayed by the order of SHC vide CP No. 5431 of 2017 dated August 16, 2017, while the remaining liability was adjusted from the available refunds as declared in the return for tax year 2017. Furthermore, the case of the Company has been selected for income tax audit under section 214C of the Ordinance and a notice dated April 12, 2019 under section 177 of the Ordinance has been issued requiring submission of details and documents. Partial details have been submitted and extension is requested for submission of remaining details. For tax year 2017, a show-cause notice under section 161/205 of the Ordinance has been issued by tax authority. Through the said order, the Company was alleged for non-deduction of tax under section 150 of the Ordinance on payment made to shareholders in respect of buy back of shares. The said notice has been challenged before Sindh High Court (SHC) through legal counsel of the Company and SHC has prohibited tax department from passing any order without its permission. On the directions of court, detailed reply to showcause notice has also been submitted vide our letter dated January 26, 2018. Tax authorities have issued a subsequent notice dated March 6, 2018, requesting to provide certain factual details which have also been submitted vide our letter dated March 16, 2018 and the matter is now pending adjudication before the SHC. 301 Annual Report 2020
  299. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 33.3.2 Sales Tax During 2013, the Company received a show cause notice from the Sindh Revenue Board (SRB) under section 47 of the Sindh Sales Tax on Services Act, 2011. Subsequently, an order was passed reducing the demand to Rs. 9.86 million along with default surcharge. The Company filed an appeal before the CIR-A and after being decided against the Company, it subsequently filed an appeal before Appellate Tribunal SRB. During the year 2014, the Company paid an amount of Rs. 7.15 million in respect of the abovementioned liability before June 25, 2014 under the notification SRB 3-4/8/2014 to avail the exemption from application of penalty and 75% of default surcharge. Appellate Tribunal SRB vide order dated November 29, 2017 decided the issue of Sindh Sales Tax (SST) in favor of the Company. However, the issue of SST on advisory and consultancy services and commission earned on purchase/sale of mutual funds have been remanded back whilst the issue relating to SST on commission on foreign exchange dealing, services rendered outside Sindh and levy of default surcharge and penalty have been decided against the Company. The Company has filed a reference application before SHC in respect of the issues decided against the Company and remanded back. During 2014, the Company also received another show cause notice from SRB under section 47 of the Sindh Sales Tax on Services Act, 2011. Subsequently, an order was passed raising a tax demand amounting to Rs. 10.77 million. The Company has filed an appeal against the order with CIR-A which is pending. Further, in respect of the same, rectification application has also been filed with the department. The Company and other stock brokers have also filed petition with the SHC and has been granted interim stay against recovery of demand. However, the Company has paid an amount of Rs. 9.24 million before June 25, 2014 under the notification SRB 3-4/8/2014 to avail the exemption of penalty and 75% of default surcharge. Furthermore, for fiscal year 2014 and 2015, SRB alleged short payment of SST vide Notice dated February 02, 2017. The Company has submitted all the required details in response to the notice and no order in this respect has been passed. SRB has also issued an order in another proceeding for tax periods January 2014 to December 2016, which were confronted, vide notice dated August 15, 2017, levying sales tax on certain services and disallowance of input tax of Rs. 35,877,012. In pursuance of the said order the Company filed an appeal before Commissioner (Appeals), SRB which has been partly heard. However the recovery of the of aforesaid tax demand has been stayed by the Hon’able SHC in Suit no 767 of 2018 vide order dated April 13, 2018. 33.3.3 Federal Excise Duty (FED) Tax department issued a show cause notice dated June 08, 2015 confronting (alleged) non payment of Federal Excise Duty (FED) on Company’s services under Federal Excise Act, 2005 and subsequently issued an order raising a demand amounting to Rs.78.003 million for tax year 2010 to tax year 2013. The Company filed a rectification appeal, in addition, to filing an appeal to the SHC, through Stockbroker Association (of which the Company is also the member) against aforementioned order on the grounds that after 18th amendment to the Constitution, the services that were previously subjected to FED under the federal laws are now subject to the provincial sales tax and the Company has accordingly discharged its tax obligation. The SHC initially, stayed Federal Board of Revenue from demanding sales tax on services from stockbrokers and subsequently, disposed of the order in Company’s favor. However, CIR-A on the matter of appeal filed by the Company issued an order in favor of the department vide its order dated January 31, 2017. In pursuance of the order of CIR-A the Company had filed an appeal before Appellate Tribunal SRB along with application for stay of demand which was granted initially for 30 days and was subsequently extended vide various orders. Appellate Tribunal SRB has decided the matter vide order dated December 20, 2017, received by the Company on April 09, 2018, whereby ATIR decided that FED is applicable only on the commission earned from trading of shares and no other type of commission comes under the ambit of FED. With this opinion, ATIR has remanded back the issue related to pre amendment era. For post amendment era, ATIR has relied upon the decision of SHC (stated above) and declared the charge of FED after July 01, 2011 null and void. Annual Report 2020 302
  300. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 33.4 JS Investments Limited (Subsidiary, the Company) 33.4.1 Income tax In respect of the appeals filed by the Company before Commissioner Inland Revenue (Appeals) [CIR (Appeals)] against orders passed for tax years 2006 and 2009 against demand of Rs.162 million and 66 million respectively, the CIR (Appeals) had not accepted the basis of additions by tax authorities and set aside both the orders in respect of allocation of expenses between various sources of income for fresh proceedings with the directions to apportion the common expenditure according to actual incurrence of expenditure to the various sources of income. In respect of the appeals filed by the Company before Commissioner Inland Revenue (Appeals) [CIR (Appeals)] against orders passed for tax years 2006 and 2009 against demand of Rs.162 million and 66 million respectively, the CIR (Appeals) had not accepted the basis of additions by tax authorities and set aside both the orders in respect of allocation of expenses between various sources of income for fresh proceedings with the directions to apportion the common expenditure according to actual incurrence of expenditure to the various sources of income. The Appellate Tribunal Inland Revenue vide order dated May 21, 2016 was deleted the additions of tax amortization of management rights and remand back the issues of disallowed provisions and advertisement expenses for the tax year 2009. The tax authorities issued orders giving effect (hereinafter referred collectively as ‘appeal effect orders’) to the order of CIR (Appeals) for both tax year 2006 and 2009 whereby demands for these tax years were reduced at Rs.77.33 million and Rs.59.93 million respectively. As the allocation of expenditure in the said appeal effect orders were not made according to actual incurrence of expenditure to the various sources of income, therefore, the Company again filed appeals before the CIR (Appeals) against the said orders. In respect of second round of appeal filed by the Company before CIR (Appeals) against appeal effect orders for tax year 2006 and 2009, the CIR (Appeals) for tax year 2006 confirmed apportionment of expenditure made by the tax authorities in appeal effect order, however, adjustment of allowable expenses were set aside. For tax year 2009, CIR (Appeals) had set aside the appeal effect order in entirety for fresh assessment, which is yet to be made by tax authorities. The CIR (Appeals) also rectified the order passed by his predecessor for tax Year 2006, whereby the addition regarding the portion of capital gain included in dividend received from mutual funds was held deleted. Resulted appeal effect order reflects refund of Rs.29 million. The tax authorities have filed an appeal before ATIR against said order of CIR (Appeals) in respect of deletion of addition regarding the portion of capital gain included in dividend. The ATIR vide order dated December 07, 2016 set-aside with the direction that the ACIR should examine the issue in the light of FBR Circular letter dated September 10, 2002. In respect of tax year 2006, management contends, based on views of its tax advisor, that amendment of assessment for such tax year by tax authorities is time barred. Accordingly, the Company has filed an appeal before the Appellate Tribunal Inland Revenue. The ATIR of the view that the amendment of assessment is not time bared however, the ATIR deleted the addition of tax amortization of management right vide order dated February 10, 2017. Order under section 122(1)/(5) dated December 30, 2017 for the tax year 2015 passed by the DCIR created demand of Rs.40 million against which Company filed appeal before the CIR(A). The DCIR consider our request for rectification and passed order under section 221 dated February 27, 2017 as a result of the above order the demand reduced to Rs.36.904 million.The CIR(A) vide order dated May 6, 2019 was partly considered our submissions put before him. The DCIR passed appeal effect order dated February 17, 2020 determined refund of Rs 30.66 million. The company submitted appeal before the CIR (Appeal) against the appeal effect order. The Company also submitted appeal before the ATIR against the order of the CIR(A). 303 Annual Report 2020
  301. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 The DCIR passed order under section 122(1)/(5) of the Income Tax Ordinance, 2001 dated June 23, 2014 and reduce the refund claimed of Rs.8.499 million to Rs.3.102 million for the tax year 2012. The learned CIR (Appeal) vide order dated May 06, 2019 was confirmed the ACIR’s order and held that the appeal was not entertainable being barred by time limitation for the tax year 2012. Company submitted appeal before the ATIR against the order of the CIR(A). Management, based on views of its legal counsel, is confident of a favorable outcome in respect of above matters. 34. 2020 2019 ----- Rupees in ‘000 ----- BASIC AND DILUTED EARNINGS / (LOSS) PER SHARE Profit / (loss) after taxation for the year - attributable to ordinary equity holders of the holding company Preference dividend for the year December 31, 2018 @ 12% p.a Profit / (loss) after taxation for the year - attributable to ordinary equity holders of the holding company 1,110,373 (245,285) - (24,164) 1,110,373 (269,449) ------- Numbers ------- Weighted average number of basic outstanding ordinary shares during the year 1,297,464,262 1,297,464,262 ------- Rupee -------0.856 Basic and diluted earnings / (loss) per share 35. CASH AND CASH EQUIVALENTS Note Cash and balances with treasury banks Balances with other banks Overdrawn nostro accounts 6 7 15 Less: General provision under IFRS 9 36. (0.208) 2020 2019 ----- Rupees in ‘000 ----30,421,531 1,128,585 (143,570) 25,590,173 476,370 (636,992) 31,406,546 (450) 31,406,096 25,429,551 (68) 25,429,483 ----------- Numbers ---------- STAFF STRENGTH Permanent On Group’s contract Group’s own staff strength at the end of the year Outsourced services 36.1 36.1 This represents thrid party contracts other than guards and janitorial services. 36.2 Geographical segment analysis Pakistan Bahrain Annual Report 2020 304 4,038 1,057 5,095 483 5,578 3,904 832 4,736 472 5,208 5,571 7 5,578 5,201 7 5,208
  302. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 37. DEFINED BENEFIT PLAN 37.1 General description The Bank operates a recognized gratuity fund for all employees who opted for this scheme introduced by the management with effect from January 01, 2007. The defined benefit is administered by a separate fund that is legally separate from the Bank. The plan is governed by the trust deed dated September 01, 2007. The trustees of the gratuity fund are composed of representatives from employers. The trustees of the gratuity fund are required by the trust deed to act in the interest of the fund and of all relevant stakeholders in the scheme, i.e. active employees, inactive employees, retirees and employers. The trustees of the gratuity fund are responsible for the investment policy with regard to the assets of the fund. 37.2 The plan in Pakistan typically exposes the Bank to actuarial risks such as: salary risk, discount rate risk, mortality risk and investment risk defined as follow: - Salary increase risk: The risk that the final salary at the time of cessation of services is greater than assumed. Since the benefit is calculated on the final salary (which will closely reflect inflation and other macroeconomic factors), the benefit amount increases as salary increases. - Discount rate risk The discount rate is based on the yield on government bonds. If the market yield of bonds varies, the discount rate would vary in the same manner and would affect the present value of obligation and fair value of assets. - Demographic Risks Withdrawal risk: The risk of actual withdrawals experience is different from assumed withdrawal probability. The significance of the withdrawal risk varies with the age, service and the entitled benefits of the beneficiary. Longevity Risk The risk that the actual mortality experience is different than the assumed mortality. This effect is more pronounced in schemes where the age and service distribution is on the higher side. 37.3 Investment risk This is the risk that the assets are under-performing and are not sufficient to meet the liabilities. Number of employees under the schemes The number of employees covered under defined benefit scheme (gratuity fund) is 3,756 (2019: 3,595). 37.4 Principal actuarial assumptions Principal actuarial assumptions at the end of the reporting period expressed as weighted averages. The actuarial valuations were carried out on December 31, 2020 based on the Projected Unit Credit Method, using the following significant assumptions: 305 Annual Report 2020
  303. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2019 Valuation discount rate for year end obligation per annum 9.75% 11.75% Valuation discount rate for interest cost for the year per annum 11.75% 13.75% Expected return on plan assets per annum 11.75% 13.75% Future salary increase rate upto one years from two to three years more than three years per annum per annum per annum 8.00% 10.00% 9.75% 8.00% 10.00% 11.75% The average duration of the defined benefit obligation years 10 10 Normal retirement age years 60 60 Moderate Moderate SLIC 2001-2005, Setback 1 Year SLIC 2001-2005, Setback 1 Year Withdrawal rates Mortality rates 37.5 2020 Movement in defined benefit obligations, fair value of plan assets and their components Fair value of Net defined benefit liability Defined benefit obligations plan assets (asset) 2020 2019 2020 2019 2020 2019 ---------------------------------------- Rupees in ‘000 ---------------------------------------Balance as at January 01, 2020 Included in profit or loss Current service cost Past service cost Interest cost / income Included in other comprehensive income Actuarial gains / losses arising from: financial assumptions experience adjustments Return on plan assets Other movements Contribution made during the year Benefits paid during the year Balance as at December 31, 2020 844,212 649,062 692,331 546,568 151,881 102,494 148,693 1,820 97,343 247,856 125,676 2,113 87,892 215,681 88,420 88,420 80,969 80,969 148,693 1,820 8,923 159,436 125,676 2,113 6,923 134,712 14,025 (266) 13,759 (8,792) 7,956 (836) 490,776 490,776 (18,005) (18,005) 14,025 (266) (490,776) (477,017) (8,792) 7,956 18,005 17,169 (31,529) (31,529) (19,695) (19,695) 151,881 (31,529) 120,352 102,494 (19,695) 82,799 (151,881) (151,881) (102,494) (102,494) 1,074,298 844,212 1,391,879 692,331 (317,581) 151,881 Annual Report 2020 306
  304. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 37.6 The composition of the plan assets at the end of the reporting period for each category, are as follows: Cost Fair value of plan assets 2019 2020 2020 2019 ------------------------ Rupees in ‘000 ------------------------ 2019 2020 Percentage Cash and cash equivalents Cash at Bank Term deposits receipts 82,793 150,000 171,000 - 82,793 161,806 171,000 - 5.9% 11.6% 24.6% 0.0% 232,793 171,000 244,599 171,000 17.5% 24.6% 388,863 304,064 411,079 297,918 29.5% 42.9% 53,815 114,508 53,660 117,399 3.9% 16.9% Debt securities Pakistan Investment Bonds Market treasury bills Term finance certificates Ordinary Shares of listed companies 50,503 100,590 50,370 94,459 3.6% 13.6% 493,181 448,506 519,162 14,929 515,109 632,172 509,776 13,346 37.0% 45.4% 73.4% 1.9% 1,174,480 705,091 1,391,880 694,122 100% 100% 37.7 Maturity profile 37.7.1 Expected maturity analysis of undiscounted defined benefit obligation (benefit payments) for the gratuity fund is as follows: Over 10 and Up to one year Over Over Over above 1-2 years 2- 5 years 6-10 years years Total ------------------------------ Rupees in ‘000 -----------------------------Balance as at December 31, 2020 45,445 71,699 268,697 1,245,714 11,997,565 13,629,120 Balance as at December 31, 2019 37,261 44,550 217,395 901,479 14,564,443 15,765,128 37.8 Sensitivity analysis 37.8.1 Significant actuarial assumptions for the determination of the defined obligation are discount rate, and expected rate of salary increase. The sensitivity analysis below have been determined based on reasonably possible changes of the respective assumptions occurring at the end of the reporting period, while holding all other assumptions constant: 307 Annual Report 2020
  305. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Particulars Present value of Net defined Fair value of any defined benefit benefit liability / plan assets obligation (assets) ------------- Rupees in ‘000 ------------- Rate Current results - 1,074,298 1,391,879 (317,581) Discount rate 1% Increase 1% Decrease 8.75% 10.75% 977,544 1,185,787 1,391,879 1,391,879 (414,335) (206,092) Salary Rate 1% Increase 1% Decrease 12.75% 10.75% 1,186,928 974,759 1,391,879 1,391,879 (204,951) (417,120) Withdrawal rate 10% Increase 10% Decrease Moderate + one year Moderate - one year 1,046,507 1,104,543 1,391,879 1,391,879 (345,372) (287,336) Mortality rate One year age set back One year age set forward Adjusted SLIC 2001-2005 - one year Adjusted SLIC 2001-2005 + one year 1,073,753 1,074,879 1,391,879 1,391,879 (318,126) (317,000) Furthermore in presenting the above sensitivity analysis, the present value of the defined benefit obligation has been calculated using the projected unit credit method at the end of the reporting period, which is the same as applied in calculating the defined benefit obligation liability recognised in this unconsolidated statement of financial position. 37.9 Maturity profile The weighted average duration of the defined benefit obligation works out to 10 years. Annual Report 2020 308
  306. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 37.10 Experience Adjustments The re-measurement gains / losses arise due to actual experience varying from the actuarial assumptions for the year. 2020 2019 2018 2017 2016 -------------------------- Rupees in ‘000 -------------------------- Particulars Defined benefit obligation Fair value of plan assets 1,074,298 (1,391,879) 844,212 (692,331) 649,062 (546,568) 550,729 (375,611) 367,635 (249,327) Net defined benefit liability (317,581) 151,881 102,494 175,118 118,308 Re-measurement loss / (gain) on obligation Re-measurement loss / (gain) on plan assets 13,759 (490,776) (836) 18,005 (52,391) 25,329 75,269 10,273 56,598 393 Other comprehensive income (477,017) 17,169 (27,062) 85,542 56,991 37.11 The average duration of the payment of benefit obligation at December 31, 2020 is within one year. 37.12 The Bank contributes to the gratuity fund as per actuarial’s valuation of the year. 37.13 Based on actuarial advice and management estimates, profit and loss account charge in respect of defined benefit obligation for the next one year works out to be Rs.139.866 million. The amount of re-measurements to be recognised in other comprehensive income for year ending December 31, 2020 will be worked out as at the next valuation. 38. DEFINED CONTRIBUTION PLAN The Group operates a contributory provident fund scheme for all permanent employees. The employer and employee both make a contribution of equal amount to the fund as follows: Contribution basic salary Holding company - JS Bank Limited Percentages Number of employees 2020 2019 ------- Numbers ------- Contribution made during the year 2020 2019 ----- Rupees in ‘000 ----- 7.1% 3,164 3,092 229,001 209,871 Subsidiary companies - JS Global Capital Limited 10.0% 165 163 13,277 13,596 - JS Investments Limited 8.0% 77 102 8,775 9,990 39. COMPENSATION OF DIRECTORS AND EXECUTIVES 39.1 The aggregate amount charged in the financial statements for the year in respect of the remuneration and benefits to the President / Chief Executive, Directors and Executives are as follows: 309 Annual Report 2020
  307. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2020 Directors Key Other Material President / Other Management Risk Takers/ NonCEO Executives Personnel Controllers Executives ----------------------------------------------- Rupees in ‘000 ----------------------------------------------2,850 20,250 - Chairman Items Fees and Allowances etc. Managerial Remuneration i) Fixed ii) Total Variable - Cash Bonus / Awards Charge for defined benefit plan Contribution to defined contribution plan Medical Utilities House rent allowance Conveyance Car allowance Others Total Number of persons 2,850 20,250 58,363 14,500 2,430 4,186 5,837 300 219 85,835 398,524 71,352 17,415 26,885 37,375 141 1,268 654 31,715 10,574 590,903 436,946 66,626 25,824 24,789 43,695 68,138 17,748 683,766 184,214 14,153 11,579 17,111 5,052 232,109 1 21 2 32 85 59 2019 Directors Items Fees and Allowances etc. Managerial Remuneration i) Fixed ii) Total Variable - Cash Bonus / Awards Charge for defined benefit plan Contribution to defined contribution plan Medical Utilities House rent allowance Conveyance Car allowance Others Total Number of persons Key Other Material Other President / CEO Management Risk Takers/ NonExecutives Personnel Controllers Executives ----------------------------------------------- Rupees in ‘000 ----------------------------------------------1,950 13,675 - Chairman 1,950 13,675 32,727 1,934 3,279 3,273 667 300 42,180 283,506 14,670 14,757 22,833 26,903 11,196 4,924 943 379,732 365,567 1,440 20,606 30,326 36,557 32,466 11,852 1,885 500,699 188,486 16,513 11,920 16,929 4,478 238,326 1 21 1 26 87 63 39.1.1 The CEO and deputy CEO are provided with free use of Bank maintained cars in accordance with their entitlement. 39.1.2 Managerial remuneration includes joining related payments made to certain Executives in line with their terms of employment. 39.1.3 All Executives, including the CEO of the Bank, are also entitled to certain short term employee benefits which are disclosed in note 39.1 to these unconsolidated financial statements. Annual Report 2020 310
  308. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 39.1.4 The SBP, vide its BPRD Circular No. 01 dated January 25, 2017, issued Guidelines on Remuneration Practices, where the Bank is required to defer a certain portion of variable compensation of the Material Risk Takers (MRTs) and Material Risk Controllers (MRCs) subject to mandatory deferrals for a defined period. In this respect, deferral amount shall be withheld for a period of three years whereas remaining portion of the variable compensation shall be paid upfront to the MRTs and MRCs. The deferred remuneration shall vest proportionately over the deferral period following the year of variable remuneration award. The deferred portion of the variable remuneration shall be paid to the MRTs and MRCs on vesting, proportionally through yearly instalments, during the deferred period, in case no malus triggers are applicable. Details of MRTs and MRCs are given below: 2020 2019 ----- Numbers ----- Employees Covered under: Marterial Risk Takers (MRTs) Marterial Risk Controllers (MRCs) Total amount paid 109 218 218 2020 Board Committees Board Meetings 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 105 218 48,350 (73) 48,495 Meeting Fees and Allowances Paid Name of Director Mr. Kalim-ur-Rahman Mr. Adil Matcheswala Mr. Ashraf Nawabi Mr. G.M. Sikander Mr. Hassan Afzal Mr. Munawar Alam Siddiqui Ms. Nargis Ghaloo Mr. Sohail Aman Mr. Abdul Hamid Mihrez Mr. Munir Hassan Mr. Iftikhar Ahmed Rao Mr. Shahab Anwar Khawaja Mr. Asif Raza Sana Ms. Aisha Fariel Salahuddin Mr. Tahir Ali Shaikh 78 31 2020 2019 ----- Rupees ‘000 ----- Movement of deferred remuneration Opening Deferred during the year Paid during the year Closing 39.1. 66 39 Human Resource, Risk Audit Remuneration Management Committee & Nomination Committee Committee I.T Committee Executive Committee Total Amount Paid ---------------------------------------------------- Rupees in ‘000 ---------------------------------------------------1,500 1,500 1,250 1,500 1,500 1,500 1,500 1,500 350 350 350 350 200 250 200 500 500 500 500 250 250 100 100 - 850 850 750 850 100 25 - 400 500 500 250 - 500 500 500 - 25 1,350 1,350 400 1,250 500 1,000 1,000 1,350 250 250 100 250 100 125 25 13,800 2,700 3,425 1,650 1,500 25 9,300 311 Annual Report 2020
  309. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2019 Board Committees Board Meetings 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Name of Director Mr. Kalim-ur-Rahman Mr. Adil Matcheswala Mr. Ashraf Nawabi Mr. G.M. Sikander Mr. Hassan Afzal Mr. Munawar Alam Siddiqui Ms. Nargis Ghaloo Mr. Sohail Aman Mr. Shahab Anwar Khawaja Mr. Abdul Hamid Mihrez Mr. Munir Hassan Mr. Ammar Talib Hajeyah Mr. Khurshid Hadi Mr. Asif Raza Sana Mr. Ahsen Ahmed Total amount paid 40. Audit Committee Human Resource, Remuneration & Nomination Committee Risk Management Committee I.T Committee Executive Committee Total Amount Paid ---------------------------------------------------- Rupees in ‘000 ---------------------------------------------------1,250 1,000 1,000 1,250 750 1,250 1,250 250 250 300 300 300 500 250 300 300 300 300 200 100 100 600 125 100 200 300 400 300 100 100 300 75 200 200 200 - 300 300 100 - 100 100 25 700 600 200 700 300 600 500 100 100 200 100 100 900 125 200 10,200 2,125 1,775 600 700 225 5,425 FAIR VALUE OF FINANCIAL INSTRUMENTS IFRS 13 “Fair Value Measurement” defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of quoted securities other than those classified as held to maturity, is based on quoted market price. Fair value of fixed term loans, other assets, other liabilities and fixed term deposits cannot be calculated with sufficient reliability due to absence of current and active market for assets and liabilities 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 accounting policy as stated in note 4.6 to these consolidated financial statements. The repricing profile, effective rates and maturity are stated in note 45.2.4 to these financial statements. In the opinion of the management, the fair value of the remaining financial assets and liabilities are not significantly different from their carrying values since assets and liabilities are either short term in nature or in the case of customer loans and deposits are frequently repriced. Fair value hierarchy IFRS 13 requires the Bank to classify fair value measurement using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has following levels: Level 1: Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. Level 2: Fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Fair value measurements using unobservable inputs for the asset or liability. Annual Report 2020 312
  310. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 40.1 Valuation techniques used in determination of fair values within level Item Valuation approach and input used Financial Instruments- Level 1 Shares of listed companies Fair values of investments in listed equity securities are valued on the basis of closing quoted market prices available at the Pakistan Stock Exchange. Financial instruments - Level 2 Units of mutual funds Fair values of investments in units of mutual funds are determined based on redemption prices disclosed at the Mutual Funds Association of Pakistan (MUFAP) as at the close of the business days. Fair values of Pakistan Investment Bonds and Market Treasury Bills are derived Market Treasury Bills(MTB) / Pakistan Investment using PKRV and PKFRV rates (Reuters page). Bonds(PIB), and GoP Sukuks (GIS) Debt Securities (TFCs) and Investments in debt securities (comprising Term Finance Certificates, Bonds Sukuk other than Government 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 Association of Pakistan (MUFAP) in accordance with the methodology prescribed by the SECP. Overseas Government Sukuks, The fair value of Overseas Government Sukuks, and Overseas Bonds are Overseas and Euro Bonds valued on the basis of price available on Bloomberg. Forward foreign exchange The valuation has been determined by interpolating the foreign exchange contracts revaluation rates announced by the State Bank of Pakistan. Derivatives The fair values of derivatives which are not quoted in active markets are determined by using valuation techniques. The valuation techniques take into account the relevant underlying parameters including foreign currencies involved, interest rates, yield curves, volatilities, contracts duration, etc. Non- financial assets- Level 3 Fixed assets - Land and Fixed assets and Non-banking assets under satisfaction of claims are carried building at revalued amounts determined by professional valuers based on their assessment of the market values as disclosed in note 11 and 13 of these consolidated annual financial statements. The valuations are conducted by the valuation experts appointed by the Bank which are also on the panel Non-banking assets under of State Bank of Pakistan. The valuation experts used a market based satisfaction of claims approach to arrive at the fair value of the Bank’s properties. The market approach used prices and other relevant information generated by market transactions involving identical or comparable or similar properties. These values are adjusted to reflect the current condition of the properties. The effect of changes in the unobservable inputs used in the valuations cannot be determined with certainty, accordingly a qualitative disclosure of sensitivity has not been presented in these financial statements. Financial instruments in level 3 Currently, no financial instruments are classified in level 3. The fair value of unquoted debt securities, fixed term loans, other assets, other liabilities, fixed term deposits and borrowings cannot be calculated with sufficient reliability due to the absence of a current and active market for these assets and liabilities and reliable data regarding market rates for similar instruments. 313 Annual Report 2020
  311. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 40.2 The Group’s policy is to recognise transfers into and out of the different fair value hierarchy levels at the date the event or change in circumstances that caused the transfer occurred. There were no transfers between levels 1 and 2 during the year. 40.3 The following table provides an analysis of financial assets that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable. 2020 Level 1 Level 2 Level 3 Total ------------------------- Rupees in ‘000 ------------------------- On balance sheet financial instruments Financial assets - measured at fair value Held-for-trading securities Investments Federal Government Securities Shares Open end mutual funds 207,409 207,409 25,003,774 244,002 25,247,776 - 25,003,774 207,409 244,002 25,455,185 4,296,982 4,296,982 127,406,043 690,048 4,017,289 1,216,288 133,329,668 - 127,406,043 4,296,982 690,048 4,017,289 1,216,288 137,626,650 - 36,109,599 - 36,109,599 4,504,391 194,687,043 - 199,191,434 - - 2,610,299 1,311,252 3,921,551 2,610,299 1,311,252 3,921,551 - 22,942,707 14,910,910 - 22,942,707 14,910,910 188,723 - - 188,723 Interest rate swaps (notional principal) Purchase Sale - 1,120,607 1,125,550 - 1,120,607 1,125,550 Options Purchase Sale - 581,042 2,437,068 - 581,042 2,437,068 Available-for-sale securities Investments Federal Government Securities Shares Non Government Debt Securities Foreign Securities Open end mutual funds Financial assets - disclosed but not measured at fair value Investments Federal Government Securities Non-Financial assets - measured at fair value Revalued fixed assets Non-banking assets acquired in satisfaction of claims Off balance sheet financial instruments Commitments in respect of: Forward foreign exchange contracts Purchase Sale Derivative instruments Forward investments securities Sale Annual Report 2020 314
  312. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2019 Level 1 Level 2 Level 3 Total ------------------------- Rupees in ‘000 ------------------------- On balance sheet financial instruments Financial assets - measured at fair value Held-for-trading securities Investments Federal Government Securities Shares Open end mutual funds 487,185 487,185 55,598,469 455,902 56,054,371 - 55,598,469 487,185 455,902 56,541,556 1,993,246 1,993,246 47,019,374 776,975 1,222,869 49,019,218 - 47,019,374 1,993,246 776,975 1,222,869 51,012,464 - 31,341,410 - 31,341,410 2,480,431 136,414,999 - 138,895,430 - - 3,797,180 1,182,425 4,979,605 3,797,180 1,182,425 4,979,605 - 32,885,546 21,722,741 - 32,885,546 21,722,741 Forward investments securities Purchase Sale - 499,818 493,193 - 499,818 493,193 Interest rate swaps (notional principal) Purchase Sale - 1,474,016 2,738,661 - 1,474,016 2,738,661 Options Purchase Sale - 1,024,638 1,030,868 - 1,024,638 1,030,868 Available-for-sale securities Investments Federal Government Securities Shares Non Government Debt Securities Open end mutual funds Financial assets - disclosed but not measured at fair value Investments Federal Government Securities Non-Financial assets - measured at fair value Revalued fixed assets Non-banking assets acquired in satisfaction of claims Off balance sheet financial instruments Commitments in respect of: Forward foreign exchange contracts Purchase Sale Derivative instruments 315 Annual Report 2020
  313. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 41. SEGMENT INFORMATION 41.1. Segment Details with respect to Business Activities: 2020 Corporate Trading and Retail Commercial finance sales banking banking Brokerage Asset management Others Total ----------------------------------------------------------------- Rupees in ‘000 ----------------------------------------------------------------Profit & Loss Net mark-up / return / profit - 14,372,945 (8,543,152) 4,034,968 66,628 (20,667) - Inter segment revenue - net - (17,035,715) 16,914,719 120,996 - - - - Non mark-up / return / interest income 93,161 2,889,785 2,349,650 1,258,710 700,131 189,780 69,794 7,551,011 Total Income 93,161 227,015 10,721,217 5,414,674 766,759 169,113 69,794 17,461,733 Segment direct expenses 33,286 129,646 6,711,460 1,081,529 570,320 337,332 314,748 9,178,321 - 334,127 2,664,330 1,862,559 - - - 4,861,016 33,286 463,773 9,375,790 2,944,088 570,320 337,332 314,748 14,039,337 Inter segment expense allocation Total expenses Provisions / (reversals) Profit before tax 9,910,722 - 344,219 124,158 811,231 - (26,023) - 1,253,585 59,875 (580,977) 1,221,269 1,659,355 196,439 (142,196) (244,954) 2,168,811 - 20,722,345 10,804,855 - 19,153 3,313 - 31,549,666 2,891,836 196,878,742 - - 347,651 1,689,425 - 201,807,654 251,060,954 Statement of Financial Position Cash & Bank balances Investments Net inter segment lending - - 129,898,985 109,429,008 - - 11,732,961 Lendings to financial institutions - 23,239,672 - - - - - 23,239,672 Advances - performing - - 52,152,981 (76,355) - 242,925,142 Advances - non-performing - - 4,760,888 190,515,793 6,972,667 332,723 - - - 11,733,555 Advances - (provisions) / reversals - net - - (938,040) (3,265,123) - - - (4,203,163) - - 55,975,829 194,223,337 332,723 (76,355) - 250,455,534 - 4,590,700 3,570,545 3,315,506 2,854,534 666,196 14,027,140 29,024,619 2,891,836 245,431,459 200,250,214 306,967,851 3,554,061 2,282,579 25,760,099 787,138,099 Borrowings - 12,208,219 1,996,091 34,099,102 - - - 48,303,412 Subordinated debt - 7,492,800 - - - - - 7,492,800 Deposits & other accounts - - 166,087,049 265,336,773 - - - 431,423,822 2,891,836 227,156,281 21,012,836 - - - - 251,060,953 - 551,556 11,154,238 5,893,204 2,728,064 446,461 5,167,888 25,941,411 2,891,836 247,408,856 200,250,214 305,329,079 2,728,064 446,461 5,167,888 764,222,398 Equity - - - - - - 22,387,255 22,387,255 Non-controlling interest - - - - - - 528,446 528,446 2,891,836 247,408,856 200,250,214 305,329,079 2,728,064 446,461 28,083,589 787,138,099 - 60,973,417 44,793,723 18,141,644 690,306 - 133,642 124,732,732 Others Total Assets Net inter segment borrowing Others Total Liabilities Total Equity & Liabilities Contingencies & Commitments Annual Report 2020 316
  314. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2019 Corporate Trading and Retail Commercial finance sales banking banking Brokerage Asset management Others Total ----------------------------------------------------------------- Rupees in ‘000 ----------------------------------------------------------------Profit & Loss Net mark-up / return / profit - 5,152,276 (7,592,022) 9,614,572 40,939 (21,226) - Inter segment revenue - net - (11,813,244) 19,091,812 (7,278,568) - - - - Non mark-up / return / interest income 59,843 232,860 1,975,153 965,788 491,846 285,936 452,956 4,464,382 Total Income 59,843 (6,428,108) 13,474,943 3,301,792 532,785 264,710 452,956 11,658,921 115,306 136,150 5,506,958 719,110 561,393 372,260 822,243 8,233,420 - 323,430 2,003,084 1,273,491 - - - 3,600,005 115,306 459,580 7,510,042 1,992,601 561,393 372,260 822,243 11,833,425 Segment direct expenses Inter segment expense allocation Total expenses (Reversals) / provisions Profit before tax 7,194,539 - (424,361) (251,729) 584,160 3,227 - - (88,703) (55,463) (6,463,327) 6,216,630 725,031 (31,835) (107,550) (369,287) (85,801) Statement of Financial Position Cash & Bank balances - 17,153,412 8,898,772 - 11,141 3,150 - 26,066,475 Investments - 140,656,932 - - 626,350 1,841,341 - 143,124,623 Net inter segment lending - - 202,362,517 - - - 8,089,077 210,451,594 Lendings to financial institutions - 30,320,540 - - - - - 30,320,540 Advances - performing - - 94,201,743 141,898,229 336,821 3,978 - 236,440,771 Advances - non-performing - - 3,508,735 6,844,429 - - - 10,353,164 Advances - (provisions) / reversals - net - - (469,382) (3,039,245) - - - (3,508,627) - - 97,241,096 145,703,413 336,821 3,978 - 243,285,308 Others - 4,831,115 3,925,690 5,017,351 1,933,157 548,024 14,189,285 30,444,622 Total Assets - 192,961,999 312,428,075 150,720,764 2,907,469 2,396,493 22,278,362 683,693,162 Borrowings - 36,295,878 7,090,687 11,081,718 - - - 54,468,283 Subordinated debt - 7,494,800 - - - - - 7,494,800 Deposits & other accounts - - 295,347,351 73,196,252 - - - 368,543,603 Net inter segment borrowing - 150,619,213 - 59,832,381 - - - 210,451,594 Others - 513,149 9,990,037 5,364,052 1,858,304 762,518 4,765,510 23,253,570 Total Liabilities - 194,923,040 312,428,075 149,474,403 1,858,304 762,518 4,765,510 664,211,850 Equity - - - - - - 18,973,041 18,973,041 Non-controlling interest - - - - - - 508,271 508,271 Total Equity & Liabilities - 194,923,040 312,428,075 149,474,403 1,858,304 762,518 24,246,822 683,693,162 Contingencies & Commitments - 59,810,338 43,939,275 17,795,589 988,086 - 131,093 122,664,381 317 Annual Report 2020
  315. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 41.2. Segment details with respect to geographical locations 2020 Pakistan Bahrain Total ---------- Rupees in ‘000 ---------- Profit & Loss Net mark-up / return / profit Inter segment revenue - net Non mark-up / return / interest income Total Income 9,576,236 20,830 7,388,616 16,985,682 334,486 (20,830) 162,395 476,051 9,910,722 7,551,011 17,461,733 Segment direct expenses Inter segment expense allocation Total expenses Provisions Profit before tax 8,979,112 4,861,016 13,840,128 1,115,240 2,030,314 199,209 199,209 138,345 231,580 9,178,321 4,861,016 14,039,337 1,253,585 2,168,811 Others Total Assets 29,214,457 197,717,282 251,060,954 23,239,672 238,493,260 11,733,555 (4,181,836) 246,044,979 30,276,259 776,133,603 2,335,209 4,090,372 4,431,882 (21,327) 4,410,555 168,360 11,004,496 31,549,666 201,807,654 251,060,954 23,239,672 242,925,142 11,733,555 (4,203,163) 250,455,534 29,024,619 787,138,099 Borrowings Subordinated debt Deposits & other accounts Net inter segment borrowing Others Total Liabilities Equity Non-controlling interest Total Equity & Liabilities 48,211,222 7,492,800 423,892,948 248,719,379 25,862,434 754,178,783 21,426,375 528,446 776,133,604 92,190 7,530,874 2,341,574 78,977 10,043,615 960,880 11,004,495 48,303,412 7,492,800 431,423,822 251,060,953 25,941,411 764,222,398 22,387,255 528,446 787,138,099 Contingencies & Commitments 116,484,604 8,248,128 124,732,732 Statement of Financial Position Cash & Bank balances Investments Net inter segment lending Lendings to financial institutions Advances - performing Advances - non-performing Advances - (Provisions)/reversals - Net Annual Report 2020 318
  316. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 2019 Pakistan Bahrain Total ---------- Rupees in ‘000 ---------- Profit & Loss Net mark-up/return/profit Inter segment revenue - net Non mark-up / return / interest income Total Income 6,922,571 (21,863) 4,489,797 11,390,505 250,105 21,863 5,229 277,197 7,194,539 4,464,382 11,658,921 Segment direct expenses Inter segment expense allocation Total expenses Provisions Profit before tax 8,091,566 3,600,005 11,691,571 16,315 (317,381) 172,498 172,498 (105,018) 209,717 8,233,420 3,600,005 11,833,425 (88,703) (85,801) Others Total Assets 25,987,503 143,124,623 208,787,632 30,037,273 232,688,485 10,353,164 (3,508,627) 239,533,022 30,519,833 677,989,886 78,972 1,663,962 283,267 3,752,286 3,752,286 124,789 5,903,276 26,066,475 143,124,623 210,451,594 30,320,540 236,440,771 10,353,164 (3,508,627) 243,285,308 30,644,622 683,893,162 Borrowings Subordinated debt Deposits & other accounts Net inter segment borrowing Others Total liabilities Equity Non-controlling interest Total Equity & liabilities 53,452,873 7,494,800 364,725,998 210,203,389 23,406,045 659,283,105 18,198,508 508,271 677,989,884 1,015,410 3,817,605 248,205 47,525 5,128,745 774,533 5,903,278 54,468,283 7,494,800 368,543,603 210,451,594 23,453,570 664,411,850 18,973,041 508,271 683,893,162 Contingencies & Commitments 119,787,187 2,877,194 122,664,381 Statement of Financial Position Cash & Bank balances Investments Net inter segment lending Lendings to financial institutions Advances - performing Advances - non-performing Advances - (Provisions)/reversals - Net 319 Annual Report 2020
  317. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 42. TRUST ACTIVITIES The Holding Company under takes Trustee and other fiduciary activities that result in the holding or placing of assets on behalf of individuals and other organisations.These are not assets of the Holding Company and, therefore, are not included as such in these consolidated financial statements. Assets held under trust are shown in the table below: No. of IPS Accounts 2020 Securities Held ( Face Value) Pakistan Total Market Government Investment Treasury Bills Ijara Sukuk Bonds ---------------------------- (Rupees in ‘000) ---------------------------- Category Assets Management Companies Charitable Institutions Companies Employees Funds Individuals Insurance Companies Others 1 1 13 51 43 8 11 23,000 2,373,860 7,194,410 919,290 24,076,000 15,370,700 142,000 25,560,800 17,927,950 431,500 84,255,700 7,882,700 69,000 1,621,500 - 23,000 142,000 27,934,660 25,191,360 1,350,790 109,953,200 23,253,400 Total 128 49,957,260 136,200,650 1,690,500 187,848,410 Category Assets Management Companies Charitable Institutions Companies Employees Funds Individuals Insurance Companies Others Total 2019 Securities Held ( Face Value) Pakistan Total No. of IPS Market Treasury Government Investment Accounts Ijara Sukuk Bills Bonds ---------------------------- (Rupees in ‘000) ---------------------------7 1 15 56 48 10 12 320,000 35,000 4,709,075 11,200,690 1,135,755 16,930,900 16,305,465 1,843,000 9,099,300 12,887,550 404,400 99,466,700 3,126,200 597,500 - 2,163,000 35,000 13,808,375 24,088,240 1,540,155 116,995,100 19,431,665 149 50,636,885 126,827,150 597,500 178,061,535 Annual Report 2020 320
  318. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 43. RELATED PARTY TRANSACTIONS The Group has related party transactions with its parent, associates, directors & Key Management Personnel and other related parties. The Group enters into transactions with related parties in the ordinary course of business and on arm’s length basis i.e. substantially the same terms as for comparable transactions with person of similar standing. Contributions to and accruals in respect of staff retirement benefits and other benefit plans are made in accordance with the actuarial valuations / terms of the contribution plan. Remuneration to the executives / officers is determined in accordance with the terms of their appointment. The details of transactions with related parties, other than those which have been specifically disclosed elsewhere in these consolidated financial statements are as follows: As at December 31, 2020 As at December 31, 2019 Key Key Other related Other related management Associates Parent Directors management Associates parties parties personnel personnel ---------------------------------------------------------------------------------- (Rupees in ‘000) ---------------------------------------------------------------------------------Parent Statement of Financial Position Lendings to financial institutions Opening balance Addition during the year Repaid during the year Closing balance Directors - - - - 4,100,000 (4,100,000) - - - - - - 15,000 (2,500) 12,500 - - 228,972 40,828 269,800 3,234,272 4,298,203 (3,331,279) 4,201,196 20,250 (5,250) 15,000 - - 180,000 48,972 228,972 3,230,125 3,498,164 (3,494,017) 3,234,272 Provision for diminution in value of investments - - - - 277,456 - - - - 65,022 Advances Opening balance Addition during the year Repaid during the year Transfer in / (out) - net Closing balance - 58 (832) 122,880 122,106 596,257 284,284 (157,785) 68,271 791,027 153,128 (2,235) 219,875 370,768 1,946,481 6,402,913 (5,488,750) 1,232,786 4,093,430 - 5,230 316 (5,546) - 448,575 322,590 (120,115) (54,793) 596,257 - 2,823,598 5,086,823 (6,320,068) 356,128 1,946,481 Fixed Assets Purchase of property Cost of disposal Accumulated depreciation of disposal WDV of disposal - - - - 748,845 - - - 43,410 (12,927) 30,483 - 17,657 (8,002) 9,655 344 73,455 281 2,801 - 6 80 - 954 - 52,998 28,051 317,581 158,590 8,889 736 - 48 - 473 - 40,828 49,640 67,952 - 80,255 296 2 - - - 134,238 97,806 26,261 12,095 - - - - - - - - - 2,438 Investments Opening balance Investment made during the year Investment redeemed / disposed off during the year Closing balance Other Assets Interest mark-up accrued Receivable against bancassurance / bancatakaful Advance for subscription of TFC - unsecured Net defined benefit plan Trade receivable Prepaid insurance Advance against purchase of property Other receivable Provision against other assets 321 Annual Report 2020
  319. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 As at December 31, 2019 As at December 31, 2020 Borrowings Opening balance Borrowings during the year Settled during the year Closing balance Deposits and other accounts Opening balance Received during the year Withdrawn during the year Transfer in / (out) - net Closing balance Subordinated debt Other Liabilities Interest / return / mark-up payable on deposits Interest / return / mark-up payable on subordinated debt Trade payable Donation Payable Payable to defined benefit plan Others payable Represented By Share Capital Contingencies and Commitments Letter of guarantee Letter of Credit Key Key Other related Other related Parent Directors management Associates Parent Directors management Associates parties parties personnel personnel ---------------------------------------------------------------------------------- (Rupees in ‘000) ---------------------------------------------------------------------------------11,105,705 (11,105,705) - - - - 4,800,000 - 174,209,491 - (179,009,491) - 23,104 8,622,201 861,135 160,825,941 (834,486) (159,215,607) 132,631 49,753 10,365,166 336,515 4,332,699 (4,364,266) (33,300) 271,648 24,308 160,210 (137,680) (22,394) 24,444 74,950 1,437,872 (1,450,123) (3,106) 59,593 9,656,833 1,023,592 235,460,531 (1,042,362) (236,784,614) 41,874 289,451 23,104 8,622,201 889,432 - - - - 889,588 - 153,374 1,308 783 4,500 1,571 - 1,306 - 114 3,115 - - 286,949 2,220 1,176 147,885 1,464 12,223 - 45,323 9,733,073 17,330 900 - 81,765 - - 29,054 86,543 - - - - 14,217 44,368 - - - - 271,648 5,511,316 (5,610,945) 172,019 24,444 511,942 (324,417) 366 212,335 59,593 973,685 (869,813) (87,228) 76,237 - - - - 75 - 85 6,314 - 9,733,073 19,180 - - For the year ended December 31, 2019 For the year ended December 31, 2020 Profit and loss account Income Mark-up / return / interest earned Fee, commission and brokerage income Dividend income Gain on sale of securities - Net Rental income Other income Expense Mark-up / return / interest paid Preference Dividend Paid Commission, charges and brokerage paid Remuneration paid Non-executive directors’ fee Net charge for defined contribution plans Net charge / (reversal) for defined benefit plans Fee and subscription Donation Rental expense Advisory fee Royalty Other expenses Reimbursement of expenses Payments made during the year Insurance premium paid Insurance claims settled Defined benefit plans paid Other Transactions Sale of Government Securities Purchase of Government Securities Sale of Foreign Currencies Purchase of Foreign Currencies Key Key Other related Other related Parent Directors management Associates Parent Directors management Associates parties parties personnel personnel ---------------------------------------------------------------------------------- (Rupees in ‘000) ---------------------------------------------------------------------------------- 1,522 8,710 - 3,279 11 - 42,627 4,557 - 5,816 - 178,695 444,432 106,277 251,482 - 1,912 1,360 1,230 - 212 134 - 14,846 368 13,456 - 322,607 558,898 105,945 166,803 3,953 - 46,099 225 2,036 3,490 85,851 23,100 - 3,204 646,812 - 2,600 - 1,135,034 181,488 229,001 117,341 38,135 30,000 17,070 35,406 23,419 13,785 - 2,227 161 14,575 - 4,309 558,923 - 2,930 - 1,383,816 38 455 233,159 134,313 746 36,422 15,000 30,000 2,225 7,205 869 - 98,459 1,886 1,240 - - - - - - - 420,957 6,471 151,881 - - - - 365,298 9,936 102,494 585,477 - 1,645 - - - 113,055,811 43,560,278 36,509,253 60,142,942 1,605,975 - 2,968 1,352 - - - 295,412,399 12,797,839 26,836,227 19,213,481 Annual Report 2020 322
  320. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 44. CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS 2020 2019 ----- Rupees in ‘000 ----- Minimum Capital Requirement (MCR): Paid-up capital (net of losses) 10,119,242 10,119,242 Capital Adequacy Ratio (CAR): Eligible Common Equity Tier 1 (CET 1) Capital Eligible Additional Tier 1 (ADT 1) Capital Total Eligible Tier 1 Capital Eligible Tier 2 Capital Total Eligible Capital (Tier 1 + Tier 2) 17,433,159 1,965,291 19,398,450 5,558,052 24,956,502 16,145,623 2,118,958 18,264,581 4,965,069 23,229,650 154,573,487 3,835,995 25,579,240 183,988,722 142,862,324 4,219,399 22,096,563 169,178,286 Risk Weighted Assets (RWAs): Credit Risk Market Risk Operational Risk Total The SBP through its BSD Circular No. 07 dated April 15, 2009 has prescribed the minimum paid-up capital (net of accumulated losses) for banks to be raised to Rs.10,000 million by the year ending December 31, 2013. The paid-up capital of the Bank as at December 31, 2020 stood at Rs. 10,119.242 million (2019: Rs. 10,119.242 million) and is in compliance with SBP requirements. The Banks are also required to maintain a minimum Capital Adequacy Ratio (CAR) of 10.0% plus capital conservation buffer of 1.5% of the risk weighted exposures of the Bank. Further, under Basel III instructions, Banks are also required to maintain a Common Equity Tier 1 (CET 1) ratio and Tier 1 ratio of 6.5% and 7.5%, respectively, as at December 31, 2020. As at December 31, 2020 the Bank is fully compliant with prescribed ratios, as the Bank’s CAR is 13.56% whereas CET 1 and Tier 1 ratios stood at 9.48% and 10.54% respectively. The Bank has complied with all capital requirements throughout the year. Under the current capital adequacy regulations, credit risk and market risk exposures are measured using the Standardized Approach and operational risk is measured using the Basic Indicator Approach. Credit risk mitigants are also applied against the Bank’s exposures based on eligible collateral under comprehensive approach. 2020 2019 ----- Rupees in ‘000 ----Common Equity Tier 1 Capital Adequacy ratio 9.48% 9.54% Tier 1 Capital Adequacy Ratio 10.54% 10.80% Total Capital Adequacy Ratio 13.56% 13.73% Leverage Ratio (LR): Eligiblle Tier-1 Capital Total Exposures Leverage Ratio 19,398,450 623,856,077 3.11% 18,264,581 544,436,725 3.35% Liquidity Coverage Ratio (LCR): Total High Quality Liquid Assets Total Net Cash Outflow Liquidity Coverage Ratio 166,890,275 57,575,341 289.86% 83,221,592 55,819,412 149.09% Net Stable Funding Ratio (NSFR): Total Available Stable Funding Total Required Stable Funding Net Stable Funding Ratio 358,895,534 259,861,191 138.11% 308,715,925 274,288,642 112.55% 323 Annual Report 2020
  321. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 44.1 The link to the full disclosure is available at https://jsbl.com/knowledge-centre/investor-information/ 45 RISK MANAGEMENT Risk Management is a discipline at the core of every financial institution and encompasses all the activities that affect its risk profile. At the Bank, it involves identification, measurement, monitoring and controlling risks to ensure that: a) The individuals who take or manage risks clearly understand it; b) The Bank's Risk exposure is within the limits established by Board of Directors (BoD); c) Risk taking decisions are in line with the business strategy and objectives set by BoD; d) The expected payoffs compensate for the risks taken; e) Risk taking decisions are explicit and clear; f) Sufficient capital as a buffer is available to take risk; and g) Risk management function is independent of risk taking unit. The Group has a comprehensive set of Risk Management Policies, practices and procedures which enable the Holding Company to take into consideration, in an appropriate manner, all major kinds of risks mainly credit, market, liquidity, operational and IT security risks. Keeping in view the dynamics of internal and external environment, we regularly review and update our Risk Management policies and procedures in accordance with regulatory environment and international standards. Risk Management activities remain at the forefront of all activities of the Group which places the highest priority on conducting its business in a prudent manner in line with the relevant laws and regulatory requirements. Risk management framework of the Group includes: a) Clearly defined risk management policies and procedures covering risk identification, acceptance, measurement, monitoring, reporting and control; b) Well constituted organizational structure, defining clearly roles and responsibilities of individuals involved in risk taking as well as managing it. The Group, in addition to risk management functions for various risk categories, has instituted an Integrated Risk Management Committee (IRMC), Credit Risk Committee (CRC), Operational Risk Management Committee (ORMC), Remedial Management Committee (RMC) as well as Central Credit Committee (CCC). IRMC oversees the overall risk management at the Bank and provides guidance in setting strategic targets as well as concentration limits and monitor progress related to earnings growth, keeping in view the capital constraints and also adheres to the concentration limits. The IRMC monitors the strategic target and aggregate limits at the Business Group level and concentration limits (by industry, geography, size, tenor) so that one category of assets or dimension of risk cannot materially harm the performance of the Bank. CRC monitors the advances portfolio, concentrations limits, aggregate limits at business level and various house keeping elements under Credit Administration. ORMC oversees the effectiveness of operational risk management for maintenance and implementation of operational risk management framework. It also monitors the Business Continuity Planning and reviews findings of any other management or board’s sub committee. Remedial Management Committee (RMC) oversees the progress of non performing loans and cases under litigation along with the recommendation of transferring of any NPL to Corporate Restructuring Company (CRC). Whereas, Central Credit Committee (CCC) is entrusted with the responsibility of monitoring lending risk profile of the Bank. CCC meets regularly to actively supervise credit risk across its lending portfolio. c) An effective management information system that ensures flow of information from operational level to top management and a system to address any exceptions observed; and Annual Report 2020 324
  322. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 d) A mechanism to ensure an ongoing review of systems, policies and procedures for risk management and procedures to adopt changes. While the overall responsibility of risk management rests with the BoD, it is the duty of Senior Management to devise risk management strategy by setting up well defined policies and procedures for mitigating / controlling risks, duly approved by the Board. Giving due consideration to the above, the Group has put in place the following hierarchy of Risk Management: - Board Risk Management Committee (BRMC); - Integrated Risk Management Committee (IRMC) comprises of the President / Chief Executive Officer (CEO), Deputy CEO, Chief Risk Officer, Chief Financial Officer, Group Head Investment Banking & Emerging Business, Group Head Operations & Technology, Head of Compliance, Chief of Staff, Head of Treasury and Head Internal Audit (guest member). - Asset - Liability Committee (ALCO) comprises of the President / Chief Executive Officer (CEO), Deputy CEO, Treasurer, Chief Risk Officer, Chief Financial Officer, Group Head Investment Banking & Emerging Business, Head of Product Management & Business Head Consumer Banking and attended by Other Business Heads. - Central Credit Committee (CCC) comprising of the President / CEO, Deputy CEO, Chief Risk Officer, Chief Financial Officer, Group Head Investment Banking & Emerging Business, Chief of Staff and Head of Operational and Environmental Risk (for environmental risk only) - Credit Risk Committee (CRC) comprises of President/CEO, Deputy CEO, Chief Risk Officer, Chief Financial Officer, Group Head Investment Banking & Emerging Business, Regional Credit Heads, Head CAD, Head of Consumer Risk, Head Enterprise Risk Management and Head Internal Audit (guest member) - Operational Risk Management Committee (ORMC) comprises of the Deputy CEO, Chief Risk Officer, Group Head Operations & Technology, Country Head Branch Banking Operations, Group Head Human Resources Head of Compliance, Head of Service Management, Head Enterprise Risk Management and Head Internal Audit (guest member). - Remedial Management Committee (RMC) comprises of President/CEO, Deputy CEO, Chief Risk Officer, Chief Operating Officer, Chief Financial Officer, Head of SAM, Credit Risk Heads and Head of Legal. - IT Steering Committee (ITSC) comprises of President/CEO, Deputy CEO, Chief Risk Officer, Chief Financial Officer, Group Head Operations & Technology, Chief Information Officer, Chief Information Security Officer, Chief of Staff, Group Head Investment Banking & Emerging Business, Chief Digital Officer, Country Head Branch Banking Operations and Head Product Development & Consumer Business. - Risk Management Group (RMG), a dedicated and independent set-up headed by Chief Risk Officer and comprises of Regional Credit Heads, Heads of Market & Liquidity Risks, Operational Risk and Treasury Middle Office, Consumer Risk, Credit Administration, Special Assets Management, Information Security, Strategic Projects & Quantitative Analysis and Enterprise Risk Management. 325 Annual Report 2020
  323. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 RMG is managed by Chief Risk Officer to supervise the following Divisions: a) Credit Risk Management (CRM) covering Corporate / Commercial, Agricultural and Retail Banking Risks b) Operational Risk Management (ORM) c) Market Risk Management (MRM) d) Treasury Middle Office e) Basel II / III Implementation Unit f) Credit Administration Department (CAD) g) Special Assets Management (SAM) h) Information Security i) Consumer Risk j) Strategic Projects & Quantitative Analysis The Holding Company’s RMG generates the requisite risk reporting for the different tiers of management. These are also subjected to internal audit review. Risk Matrix / Categories The Bank, in common with other banks, generates its revenues by accepting Country, Credit, Liquidity, Interest Rate Risk in the Banking Book, Market, Operational and other risks. Effective management of these risks is the decisive factor in the Bank’s profitability. Risk Appetite The Group’s risk appetite is reflected in its endeavours to maintain a favourable credit rating and encompasses the following: - The business strategy - The expectations of stakeholders at different time horizons - The characteristics of the risk-bearing entities - The nature and characteristics of the risks undertaken - The possible spread of risk situations across organizational units,assets-at-risk, and future time horizons. Risk appetite drives business activity. It combines anticipations in risk and profitability with management preferences to control capital and resource allocation, as well as the distribution of exposure across activities and portfolios. The Group’s hedging strategy is embedded in its risk management practices for addressing material categories of risk. Annual Report 2020 326
  324. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 45.1 Credit Risk Credit risk is the risk which arises with the possibility that one party to a financial instrument will fail to discharge its obligation and cause the other party to incur a financial loss. Credit risk is managed in terms of credit policies, approved by the BoD and regulations issued by the SBP. The bank is exposed to credit risk on loans and advances, fund placements with financial institutions and certain investments. Credit risk management is an ongoing process. The overall credit policy and the credit risk instructions are issued by the Board of Directors. In this regards, a Central Credit Committee (CCC) is entrusted with the responsibility of monitoring lending risk profile of the bank. In order to maintain healthy growth of the credit portfolio, the Groups Credit Risk Management processes are consistently upgraded and improved to meet future challenges. The Group’s strategy is to minimise credit risk through product, geography, industry and customer diversification. Credit limits are established for all counter-parties after a careful assessment of their credit worthiness. An effective credit granting procedure, which requires pre-sanction evaluation of credit proposal, adequacy of security and pre-disbursement examination of charge documents is in place and managed by Risk Management Group (RMG) & Credit Administration Department (CAD). The Bank maintains a sound portfolio diversified in nature to counter the risk of credit concentration and further confines risk through diversification of its assets by geographical and industrial sector. For managing impaired assets in the portfolio, the Bank follows the Prudential Regulations and Risk Management guidelines issued by SBP and the Remedial Management Policy approved by the Board. 45.1.1 Credit risk: Standardised approach The Holding Company has adopted the Standardised Approach of Basel II for risk weighing its Credit Risk Exposures. The following table illustrates the approved External Credit Assessment Institutions (ECAIs) whose ratings are being utilised by the Bank with respect to material categories of exposures: Exposures JCR-VIS PACRA MOODY’S FITCH S&P Corporate P P - - - Banks P P P P P P P - - - SME’s (retail exposures) P P P P P Securitisations Sovereigns N/A N/A N/A N/A N/A Others (specify) N/A N/A N/A N/A N/A The Bank has used Issue Specific Ratings for rating / risk weighing Issue Specific Exposures and Entity Ratings for rating / risk weighing claims against specific counterparties. Both short and long term ratings have been used to rate corresponding short and long term exposures. For this purpose, Mapping Grid has been provided by SBP as given below: 327 Annual Report 2020
  325. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Long - Term Ratings Grades Mapping SBP Rating Grade PACRA JCR-VIS Fitch Moody’s S&P ECA Scores 1 AAA AA+ AA AA- AAA AA+ AA AA- AAA AA+ AA AA- Aaa Aa1 Aa2 Aa3 AAA AA+ AA AA- 1 2 A+ A A- A+ A A- A+ A A- A1 A2 A3 A+ A A- 2 3 BBB+ BBB BBB- BBB+ BBB BBB- BBB+ BBB BBB- Baa1 Baa2 Baa3 BBB+ BBB BBB- 3 4 BB+ BB BB- BB+ BB BB- BB+ BB BB- Ba1 Ba2 Ba3 BB+ BB BB- 4 5 B+ B B- B+ B B- B+ B B- B1 B2 B3 B+ B B- 5,6 6 CCC+ and below CCC+ and below CCC+ and below Caa1 and below CCC+ and below 7 Short - Term Ratings Grades Mapping 45.1.2 SBP PACRA JCR-VIS Fitch Moody’s S&P S1 A-1 A-1 F-1 P-1 A-1+, A-1 S2 A-2 A-2 F-2 P-2 A-2 S3 A-3 A-3 F-3 P-3 A-3 S4 Others Others Others Others Others Policies and processes for collateral valuation and management as regards Basel II; For Credit Risk Mitigation purposes the Bank uses only the eligible collaterals under Comprehensive Approach of Credit Risk Mitigation under Standardised Approach as prescribed by SBP under Circular No. 8 of 2006, which includes Cash and Cash Equivalent Securities including Government Securities (like Cash Margins, Lien on Bank Accounts, Foreign Deposit Receipts, Term Deposit Receipts, Pledge of Defense Saving Certificates, Regular Income Certificates, Special Saving Certificates, T-Bills and Pakistan Investment Bonds etc.) and Shares, TFCs and Mutual Funds Listed on the Main Index. Under the Bank’s policy all collaterals are subject to periodic valuations to monitor the adequacy of margins held. Shares / Marketable securities are valued by the Bank on daily basis to calculate the Drawing Power (DP). In case of any shortfall in the requisite margins, the DP is adjusted to the appropriate level and the business units are informed to take appropriate action as per the agreement with the customer. Particulars of bank’s significant on-balance sheet and off-balance sheet credit risk in various sectors are analysed as follows: Annual Report 2020 328
  326. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Gross lendings 45.1.3 Lendings to financial institutions Non-performing lendings Provision held 2020 2019 2020 2019 2020 2019 ------------------------------------------- Rupees in ‘000 ------------------------------------------- Credit risk by public / private sector Public/ Government Private 45.1.4 Investment in debt securities 23,240,897 23,240,897 30,321,802 30,321,802 - - 1,225 1,225 1,262 1,262 Non-performing Gross investments investments Provision held 2020 2019 2020 2019 2020 2019 ------------------------------------------- Rupees in ‘000 ------------------------------------------- Credit risk by industry sector Textile Chemical and Pharmaceuticals Construction Power (electricity), Gas, Water, Sanitary Refinery Transport, Storage and Communication Financial Services Credit risk by public / private sector Public/ Government Private 391,478 249,860 71,429 308,616 710,902 4,512,331 1,351,531 7,596,147 391,478 258,193 142,857 390,303 854,902 536,672 1,350,000 3,924,405 391,478 149,860 155,169 696,507 391,478 149,860 155,169 696,507 391,478 149,860 155,169 696,507 391,478 149,860 155,169 696,507 Non-performing Gross investments investments Provision held 2020 2019 2020 2019 2020 2019 ------------------------------------------- Rupees in ‘000 ------------------------------------------3,643,402 3,952,745 7,596,147 3,924,405 3,924,405 329 Annual Report 2020 696,507 696,507 696,507 696,507 696,507 696,507 696,507 696,507
  327. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 45.1.5 Gross Advances Non-performing Advances Provision held 2020 2019 2020 2019 2020 2019 ------------------------------------------- Rupees in ‘000 ------------------------------------------- Advances Credit risk by industry sector Agri finance Automobile and transportation equipment Brokerage Cement Chemical Construction Electronics and electrical appliances Engineering, IT and other services Fertilizer Financial Food / confectionery / beverages Individuals Insurance and security Metal and steel Mining and quarrying Paper / board / furniture Petroleum, oil and gas Pharmaceuticals Plastic Power and water Real estate Shipbreaking Storage Sugar Tele-communication Textile Composite Ginning Spinning Weaving Transportation services Trust and non-profit organisations Tyre Wholesale and retail trade Others 7,797,960 3,912,821 8,866,882 2,236,379 1,422,319 356,077 823,973 9,453,353 3,484,915 1,442,302 34,253,338 33,122,827 10,451 9,966,050 137,220 1,674,874 5,122,089 5,289,290 1,962,424 23,897,355 4,203,207 300,214 82,245 2,042,589 2,838,926 5,285,334 3,854,727 6,929,558 2,958,936 1,910,636 5,806,032 237,458 5,013,829 4,446,138 2,110,683 32,353,949 31,512,186 176,116 8,824,579 159,069 1,506,878 4,135,890 5,722,234 2,001,738 27,878,617 3,493,350 1,074,589 103,525 2,609,984 2,709,181 433,949 117,937 314,405 5,991 82,124 1,367,103 1,057,765 2,041,082 2,607,092 82,782 95,053 4,577 561,763 156,241 1,306,057 20,000 200,000 - 207,192 227,878 314,405 112,803 35,911 38,738 1,348,824 157,010 1,533,451 1,614,845 8,000 80,053 4,577 538,745 159,806 1,300,000 805,000 200,000 - 107,329 64,829 31,683 1,349,130 351,621 506,898 722,969 2,608 37,160 19,130 13 200,000 - 397 69,596 3,236 26,325 1,348,943 63,221 238,185 339,372 29,618 483 256,706 200,000 - 7,573,233 1,281,801 5,768,619 8,669,251 23,292,904 35,246,740 56,043 267,203 12,161,474 18,934,253 6,639,722 1,612,059 5,349,247 9,988,010 23,589,038 39,397,687 475,240 288,551 10,671,924 9,556,279 322,262 34,539 278,441 47,284 682,526 73,283 372,302 151,523 339,310 48,949 278,441 47,284 713,984 127,290 502,852 321,800 304,345 9,065 278,441 19,653 611,504 53,958 106,964 16,040 303,094 20,157 278,441 3,726 605,418 53,493 64,928 40,020 254,658,697 246,793,935 11,733,555 10,353,164 4,181,836 3,339,941 52,248,485 202,410,212 254,658,697 56,471,970 190,321,965 246,793,935 11,733,555 11,733,555 10,353,164 10,353,164 4,181,836 4,181,836 3,339,941 3,339,941 Credit risk by public / private sector Public/ Government Private Annual Report 2020 330
  328. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 45.1.6 Contingencies and commitments 2020 2019 ------- Rupees in ‘000 ------- Credit risk by industry sector Automobile and transportation equipment Brokerage Cement Chemical Construction Electronics and electrical appliances Engineering, IT and other services Fertilizer Financial Food / confectionery / beverages Individuals Insurance and security Metal and steel Mining and quarrying Paper / board / furniture Petroleum, oil and gas Pharmaceuticals Plastic Power and water Real estate Shipbreaking Sugar Tele-communication Textile Composite Ginning Spinning weaving Transportation Trust and non-profit organisations Tyre Wholesale and retail trade Others 2,371,968 1,540,806 779,749 1,126,160 22,694,392 496,139 3,293,028 2,350,294 43,920,788 2,855,033 592,229 28,234 4,629,296 808,302 656,214 856,079 715,399 795,807 16,516,933 56,758 8,601 1,172,080 2,163,575 796,500 247,368 779,205 18,350,913 190,170 3,033,858 4,262,960 62,551,629 3,054,819 989,889 12,197 3,709,350 888,015 586,136 721,858 324,356 495,534 4,299,209 77,614 24,301 1,460,186 1,384,271 277,552 3,497,170 1,532,406 6,691,399 30,537 116,293 89,489 3,320,259 6,220,466 124,732,732 1,037,819 369,793 1,485,788 1,118,339 4,011,739 24,896 217,780 9,584 4,328,745 5,051,995 122,664,381 124,732,732 124,732,732 122,664,381 122,664,381 Credit risk by public / private sector Public/ Government Private 331 Annual Report 2020
  329. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 45.1.7 Concentration of Advances The Holding Company top 10 exposures on the basis of total (funded and non-funded exposures) aggregated to Rs. 95,329.829 million (2019: Rs. 85,937.967 million) are as following: 2020 2019 ----- Rupees in ‘000 ----- Note Funded Non Funded Total Exposure 45.1.7.1 64,985,417 30,344,412 95,329,829 45.1.7.2 65,309,390 20,628,577 85,937,967 45.1.7.1 There are no classified advances placed under top 10 exposures. 45.1.7.2 The sanctioned limits against these top 10 exposures aggregated to Rs. 107,031.73 million (2019: 85,937.967 million). 45.1.8 Advances - Province / Region-wise Disbursement & Utilization 2020 Disbursements Utilization Punjab Sindh KPK & FATA Balochistan Islamabad AJK & Gilgit Baltistan Bahrain ---------------------------------------------------------------- Rupees in ‘000 ---------------------------------------------------------------Province / Region Punjab 87,425,286 87,425,286 - - - - - - Sindh 152,726,852 - 152,726,852 - - - - - 1,055,415 - - 1,055,415 - - - - Balochistan 244,399 - - - 244,399 - - - Islamabad 16,845,491 - - - - 16,845,491 - - 247,017 8,441,218 266,985,678 87,425,286 152,726,852 1,055,415 244,399 16,845,491 247,017 247,017 8,441,218 8,441,218 Islamabad AJK & GilgitBaltistan KPK including FATA AJK including Gilgit-Baltistan Bahrain Total 2019 Disbursements Utilization Punjab Sindh KPK & FATA Balochistan Bahrain ---------------------------------------------------------------- Rupees in ‘000 ---------------------------------------------------------------Province / Region Punjab 80,305,925 80,305,925 - - - - - - Sindh 146,335,149 - 146,335,149 - - - - - 1,456,326 - - 1,456,326 - - - - Balochistan 111,734 - - - 111,734 - - - Islamabad 13,423,194 - - - - 13,423,194 - - AJK including Gilgit-Baltistan 197,627 4,727,124 246,557,079 80,305,925 146,335,149 1,456,326 111,734 13,423,194 197,627 197,627 4,727,124 4,727,124 KPK including FATA Bahrain Total Annual Report 2020 332
  330. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 45.2 Market Risk Market risk is the risk of loss due to adverse changes in interest rates, foreign exchange rates, equity prices and market conditions. From the perspective of the Group, market risk comprises of interest rate risk, foreign exchange risk and equity position risk, which the Group is exposed to in its trading book. The Group has an approved market risk policy wherein the governance structure for managing market risk, measurement tools used and the market risk exposure limits have been addressed. The Group’s strategy for managing market risk is to relate the level of risk exposures to their risk appetite and the capital at hand. The Board of Directors (BoD) and the Asset and Liability Committee (ALCO) are responsible for addressing market risk from a strategic perspective and are assisted by the market risk function in meeting these objectives. The Market Risk Unit reports directly to Head ERM and is responsible for ensuring the implementation of market risk policy in line with the Group’s strategy. Risk reporting undertaken by the market risk function includes: a) b) c) d) Portfolio Reports Limit monitoring reports Sensitivity analysis ; and Stress testing of the portfolio Currently, the Group is using the market risk standardised approach for the purpose of computing regulatory capital, the details of which are set out above. 45.2.1 Balance sheet split by trading and banking books 2019 2020 Banking book Trading book Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets Other assets Assets held for sale 45.2.2 Total Banking book Trading book Total -------------------------------------------- Rupees in ‘000 -------------------------------------------30,421,531 30,421,531 25,590,173 25,590,173 1,128,135 1,128,135 476,302 476,302 23,239,672 23,239,672 30,320,540 30,320,540 176,803,880 25,003,774 201,807,654 87,526,154 55,598,469 143,124,623 250,455,534 - 250,455,534 243,285,308 - 243,285,308 9,026,764 9,026,764 10,693,945 10,693,945 2,515,549 2,515,549 2,302,474 2,302,474 125,857 125,857 16,743,107 16,743,107 17,524,249 17,524,249 739,200 739,200 374,000 374,000 511,073,372 25,003,774 536,077,146 418,219,002 55,598,469 473,817,471 Foreign Exchange Risk Main objective of foreign exchange risk management is to ensure that the foreign exchange exposure of the Group lies within the defined appetite of the Group. Daily reports are generated to monitor the internal and regulatory limits with respect to the overall foreign currency exposures. The overall net open position, whether short or long has the potential to negatively impact the profit and loss depending upon the direction of movement in foreign exchange rates. 333 Annual Report 2020
  331. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Foreign exchange open and mismatched positions are marked to market on a daily basis. Currency risk arises where the value of financial instruments changes due to changes in foreign exchange rates. In order to manage currency risk exposure the bank enters into ready / spot, forward and swap transactions with SBP and in the interbank market. The Group’s foreign exchange exposure comprises of forward contracts, foreign currencies cash in hand, balances with banks abroad, foreign placement with SBP and foreign currencies assets and liabilities. The net open position is managed within the statutory limits, as fixed by SBP. Counter parties limit are also fixed to limit risk concentration. Appropriate segregation of duties exists between the front and back office functions while compliance with the net open position limit is independently monitored on an ongoing basis. 2020 Net foreign Off-balance currency Assets Liabilities sheet items exposure -------------------- Rupees in ‘000 -----------------United States Dollar Great Britain Pound Euro Other currencies 20,731,596 690,248 2,028,206 542,006 23,992,056 28,340,649 2,767,203 1,324,879 397,092 32,829,823 7,925,120 1,692,641 (938,258) (96,962) 8,582,541 316,067 (384,314) (234,931) 47,952 (255,226) 2019 Net foreign Off-balance currency Assets Liabilities sheet items exposure -------------------- Rupees in ‘000 -----------------United States Dollar Great Britain Pound Euro Other currencies 12,248,588 879,840 585,843 41,154 13,755,425 20,805,267 2,696,794 901,267 34,019 24,437,347 8,586,023 1,778,936 326,018 4,829 10,695,806 29,344 (38,018) 10,594 11,964 13,884 2019 Banking Trading Banking book Trading book book book ------------------ Rupees in ‘000 -----------------2020 Impact of 1% change in foreign exchange rate on - Profit and loss account - Other comprehensive income 45.2.3 - 2,552 - - 159 - Equity position Risk Equity positions in the banking book include Investment in equities that are available-for-sale or held for strategic investment purposes. These investments are generally regarded as riskier relative to fixed income securities owing to the inherent volatility of stock market prices. The Group mitigates these risks through diversification and capping maximum exposures in a single company, compliance with regulatory requirement, and following the guidelines laid down in the Group’s Investment Policy as set by the Board of Directors (BoD). The Bank follows a delivery versus payment settlement system thereby minimizing risk available in relation to settlement risk. Annual Report 2020 334
  332. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 Equity price risk is managed by applying trading limit and scrip-wise and portfolio wise nominal limits. 2020 2019 Banking Trading Banking Trading book book book book ------------------ Rupees in ‘000 ------------------ Impact of 5% change in equity prices on - Profit and loss account - Other comprehensive income 45.2.4 211,938 15,750 105,788 29,943 Yield / Interest Rate Risk in the Banking Book (IRRBB)-Basel II Specific Yield/ Interest rate sensitivity position for on-balance sheet instruments is based on the earlier of contractual re-pricing or maturity date and for off-balance sheet instruments is based on settlement date. This also refers to the non-trading market risk. Apart from the gap analysis between the market rate sensitive assets and liabilities as per the table given below: 2020 2019 Banking Trading Banking Trading book book book book ------------------ Rupees in ‘000 ------------------ Impact of 1% change in interest rates on - Profit and loss account - Other comprehensive income 20,570 1,033,253 335 235,507 - Annual Report 2020 301,595 248,246 534,770 -
  333. 45 .2.5 Annual Report 2020 336 58,401,071 129,405,524 71,004,453 71,004,453 Total yield / interest risk sensitivity gap Cumulative yield / interest risk sensitivity gap (3,031,387) 11,419,586 68,133,802 50,012,872 13,316,211 54,817,591 - 4,887,700 92,486,042 20,772,932 118,146,674 8,388,199 6,054,478 (10,903,258) 8,127,500 185,135,280 73,780,211 12,866,768 164,775,712 7,492,800 2,261,337 24,317 18,351,972 33,368,890 204,908,975 258,915,491 (2,775,758) Off-balance sheet gap (18,843,892) Commitments in respect of forward exchange contracts - sale 19,875,838 512,077,855 9,301,271 - 24,898,370 4,981,983 48,303,412 431,423,822 7,492,800 30,421,531 1,128,135 23,239,672 201,807,654 250,455,534 14,326,600 521,379,126 2.88 6.94 10.12 6.56 8.03 8.36 - 143,976,086 14,570,562 1,376,854 (2,619,805) 3,996,659 39,823,149 13,193,708 4,720,046 35,103,103 - 42,997,826 10,019,031 53,016,857 92,917,564 (51,058,522) (934,817) (2,231,803) 1,296,986 64,705,547 (50,123,705) 70,980 64,634,567 - 13,940,359 641,483 14,581,842 85,100,196 (7,817,368) - (57,639) 57,639 15,355,103 (7,817,368) 13,221,857 2,133,246 - 7,273,895 263,840 7,537,735 86,699,726 1,599,530 - - - 525,084 1,599,530 540,672 (15,588) - 1,428,940 695,674 2,124,614 84,378,694 (2,321,032) - - - 4,342,497 (2,321,032) 2,387,895 1,954,602 - 135,586 1,885,879 2,021,465 88,633,911 4,255,217 - - - 1,178,983 4,255,217 1,178,983 - 3,759,785 1,674,415 5,434,200 91,608,067 2,974,156 - - - 2,974,156 - 2,974,156 2,974,156 (76,252,318) - - - 19,875,838 132,878,410 (76,252,318) 4,981,983 108,020,589 - 28,160,194 1,103,818 6,416,331 6,619,149 14,326,600 56,626,092 Non-interest Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 bearing Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above financial Total month months months 1 year years years years years 10 years instrument --------------------------------------------------------------------------------------------- Rupees in ‘000 --------------------------------------------------------------------------------------------- Commitments in respect of forward purchase and commitments to extend credits On-balance sheet financial instruments Bills payable Borrowings Deposits and other accounts Subordinated debt Liabilities against assets subject to finance lease Other liabilities Liabilities Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Other assets Assets On-balance sheet financial instruments Effective yield interest rate - % 2020 Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in the market interest rates. The Group is exposed to interest / mark-up rate risk as a result of mismatches or gaps in the amount of interest / mark up based assets and liabilities that mature or re-price in a given period. The Group manages this risk by matching/re-pricing of assets and liabilities. The assets and liabilities committee (ALCO) of the Bank monitors and manages the interest rate risk with the objective of limiting the potential adverse effects on the profitability of the Group. Mismatch of interest rate sensitive assets and liabilities Notes to the Consolidated Financial Statements For the year ended December 31, 2020
  334. 337 Annual Report 2020 137 ,036,565 135,128,286 Cumulative yield / interest risk sensitivity gap Less: Non financial assets Fixed assets Intangible assets Deferred tax assets - net Other assets Assets held for sale Balance as per balance sheet Reconciliation to total assets 1,908,279 135,128,286 Total yield / interest risk sensitivity gap 9,026,764 2,515,549 2,416,507 739,200 14,698,020 458,515,198 473,213,218 10,693,945 2,302,474 125,857 2,246,071 374,000 15,742,347 458,075,124 473,817,471 2020 2019 Rupees in ‘000 381,468 67,995 (10,524,045) Off-balance sheet gap (7,721,576) 8,103,044 121,966 60,486,862 1,526,811 (10,834,905) 10,902,900 (69,111) 161,818,995 135,060,291 13,068,280 47,296,616 - (35,203,283) 20,024,982 454,336,159 3,738,965 - 31,977,964 129,910,142 - 41,046,043 20,967,630 62,013,673 Commitments in respect of forward exchange contracts - sale 3,804,491 54,468,283 368,543,603 7,494,800 9.26 8.70 13.73 2,566,714 97,659 30,192,074 66,158,225 197,864,614 296,879,286 24,679,238 25,590,173 476,302 30,320,540 143,124,623 243,285,308 15,278,178 458,075,124 0.17 11.80 9.73 12.89 - 103,310,046 (33,726,519) (6,413,233) (10,450,305) 4,037,072 182,949 37,543,115 (27,313,286) 4,693,216 29,670,550 2,996,400 128,466 707,500 9,393,863 10,229,829 40,289,465 13,123,811 1,000 (1,119,185) 1,120,185 731,796 7,613,071 13,122,811 207,839 6,673,436 - 20,378,927 356,955 20,735,882 Less: Non financial liabilities Other liabilities Deferred tax liabilities - net Balance as per balance sheet Reconciliation to total liabilities 27,165,654 (76,144,392) (4,561,275) (5,019,673) 458,398 365,898 73,728,133 (71,583,117) 193,571 68,670,264 4,498,400 1,656,084 488,932 2,145,016 44,828,902 4,539,437 - (57,639) 57,639 682,219 4,318,722 4,539,437 2,120,779 1,515,724 - 8,022,522 835,637 8,858,159 43,712,283 52,687 - 454,336,159 512,077,855 454,336,159 1,083,590 1,083,590 513,161,445 - - - 381,703 1,408,788 52,687 1,027,085 - 204,943 1,256,532 1,461,475 2020 2019 Rupees in ‘000 43,659,596 (1,169,306) - - - 1,168,857 4,070,846 (1,169,306) 1,179,549 1,722,440 - 503,646 2,397,894 2,901,540 46,422,311 2,710,028 - - - 2,710,028 - 2,710,028 2,710,028 (53,207,391) - - - 16,458,705 103,347,627 (53,207,391) 3,804,491 83,084,431 - 23,023,459 378,643 4,446,733 7,013,223 15,278,178 50,140,236 Non-interest Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 bearing Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above financial Total month months months 1 year years years years years 10 years instrument ---------------------------------------------------------------------------------------------- Rupees in ‘000 --------------------------------------------------------------------------------------------- Commitments in respect of forward purchase and commitments to extend credits On-balance sheet financial instruments Liabilities Bills payable Borrowings Deposits and other accounts Subordinated debt Liabilities against assets subject to finance lease Other liabilities Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Other assets On-balance sheet financial instruments Effective yield interest rate - % 2019 Notes to the Consolidated Financial Statements For the year ended December 31, 2020
  335. 45 .3.1 45.3 Annual Report 2020 23,239,672 201,807,654 250,455,534 10,055,881 2,530,060 Lendings to financial institutions Investments Advances Fixed assets Intangible assets 338 7,492,800 Subordinated debt (92,073,892) 23,959,329 10,119,242 1,991,169 Net assets Share capital - net Reserves 7,029,251 528,446 Non-controlling interest 22,915,701 3,247,593 assets - net of tax Unappropriated profit Surplus on revaluation of 3,334,684 220,927,512 19,875,838 Other liabilities 513,161,445 - - 1,083,590 to finance lease - 217,192,381 234,381 166,066 128,853,620 - 2,064,679 - 15,846 1,031,116 91,706,484 - 2,485,829 1,128,135 30,421,531 Deferred tax liabilities - net - 431,423,822 Deposits and other accounts Liabilities against assets subject 4,981,983 48,303,412 Borrowings 537,120,774 739,200 16,743,107 Bills payable Liabilities Assets held for sale Other assets - 1,128,135 Balances with other banks Deferred tax assets - net 30,421,531 Cash and balances with treasury banks Assets day days to 7 days to 14 Over 7 month days to 1 Over 14 months to 2 Over 1 months to 3 Over 2 2020 months to 6 Over 3 months to 9 Over 6 Over 9 year months to 1 years to 2 Over 1 years to 3 Over 2 years to 5 Over 3 years Over 5 (4,637,857) 10,666,251 - - - - 9,135,642 368,146 1,162,463 6,028,394 - - - 2,008 11,092 2,515,294 - 3,500,000 - - (14,660,790) 33,449,790 - - - - 21,400,684 9,724,181 2,324,925 18,789,000 - 433,835 - 2,343 12,941 1,262,175 13,786,643 3,291,063 - - 25,603,039 23,406,487 385,097 5,722 - - 19,147,079 2,540,060 1,328,529 49,009,526 - 13,115,780 - 5,356 78,862 9,566,816 17,167,632 9,075,080 - - (25,857,065) 45,488,962 10,561,165 (70,276) - - 29,458,673 5,539,400 - 19,631,897 - 518,574 - 10,043 121,156 14,457,348 4,524,776 - - - 58,888,304 33,398,418 266,283 (3,587) - - 25,358,911 7,776,811 - 92,286,722 - 41,047 - 223,310 411,539 13,560,823 73,162,303 4,887,700 - - 24,572,954 40,226,904 502,414 (99,650) - 1,000 35,103,094 4,720,046 - 64,799,858 - 534,067 - 29,820 356,226 19,372,137 44,507,608 - - - 8,905,202 14,023,443 101,165 (99,702) - - 13,995,688 26,292 - 22,928,645 - 35,125 - 29,612 352,328 9,544,829 12,966,751 - - - (41,934,166) 57,263,341 700,828 (42,802) - 1,000 56,559,628 44,687 - 15,329,175 739,200 - - 29,598 320,673 13,087,897 1,151,807 - - - 23,963,944 17,246,584 1,778,734 110,765 - 2,000 2,133,228 13,221,857 - 41,210,528 - - - 117,664 1,198,183 31,914,264 7,980,417 - - - 19,892,631 7,506,540 1,311,459 176,412 - 5,493,600 (15,603) 540,672 - 27,399,171 - - - 115,429 947,931 21,520,367 4,815,444 - - - 12,409,099 7,324,661 827,329 159,820 - 1,995,200 1,954,417 2,387,895 - 19,733,760 - - - 226,108 2,394,899 13,641,989 3,470,764 - - - - - - 28,887,926 2,232,552 106,680 946,888 - - - 1,178,984 - 31,120,478 - - - 1,722,923 2,818,935 8,305,111 18,273,509 ------------------------------------------------------------------------------------------------------------------------- Rupees in ‘000 ------------------------------------------------------------------------------------------------------------------------- Total Upto 1 Over 1 Maturities of Assets and Liabilities - based on contractual maturity of the assets and liabilities of the Bank For monitoring and controlling liquidity risk, the Group generates a scenario sensitive maturity statement of financial position, and run controlled mismatches that are monitored and discussed by ALCO members regularly. The Group prepares various types of reports and analysis for assisting ALCO in taking necessary strategic actions for managing liquidity risk in the Group. These include liquidity ratios, Concentration analysis, Gap reports, Stress testing, Liquidity Coverage ratio & Net Stable Funding Ratio analysis etc. Treasury is responsible for the managing liquidity risk under the guidance of Asset-Liability Committee of the Group. The Group’s liquidity risk management approach starts at the intraday level (operational liquidity) managing the daily payments queue and factoring in our access to the qualifying securities of State Bank of Pakistan. It then covers tactical liquidity risk management dealing with the access to unsecured funding sources and the liquidity characteristics of our asset inventory (asset liquidity). Finally, the strategic perspective comprises the maturity profile of all assets and liabilities on our statement of financial position. The Group’s policy to liquidity management is to maintain adequate liquidity at all times and in all currencies under both normal and stress conditions, to meet our contractual and potential payment obligations without incurring additional and unacceptable cost to the business. Liquidity risk is the risk that the Group will not be able to raise funds to meet its commitments. The Group’s Asset and Liability Committee (ALCO) manages the liquidity position on a continuous basis. Liquidity risk Notes to the Consolidated Financial Statements For the year ended December 31, 2020
  336. 243 ,285,308 10,693,945 2,302,474 125,857 Advances Fixed assets Intangible assets Deferred tax assets - net 339 374,000 368,543,603 7,494,800 Deposits and other accounts Subordinated debt Annual Report 2020 (47,167,680) 19,481,312 10,119,242 1,749,672 Share capital - net Reserves 5,795,596 508,271 Non-controlling interest 19,481,312 1,308,531 assets - net of tax Unappropriated profit Surplus on revaluation of 173,263,288 454,336,159 Net assets 2,492,761 - - - 166,168,660 797,376 3,804,491 126,095,608 - 14,453,316 - 280 3,941 85,571,596 - - 476,302 25,590,173 20,024,982 - Other liabilities - to finance lease Deferred tax liabilities - net Liabilities against assets subject 54,468,283 3,804,491 473,817,471 Borrowings Bills payable Liabilities Assets held for sale 17,524,249 143,124,623 Investments Other assets 30,320,540 476,302 25,590,173 Lending to financial institutions Balances with other banks Cash and balances with treasury banks Assets day days to 7 days to 14 Over 7 month days to 1 Over 14 months to 2 Over 1 months to 3 Over 2 2019 months to 6 Over 3 months to 9 Over 6 Over 9 year months to 1 years to 2 Over 1 years to 3 Over 2 years to 5 Over 3 years Over 5 (8,635,042) 38,187,731 12,197 - - - 8,285,705 29,889,829 - 29,552,689 - - - 1,677 23,255 1,362,955 28,164,802 - - - (5,570,970) 7,148,040 14,229 - - - 7,047,887 85,924 - 1,577,070 - - - 1,957 27,132 1,547,981 - - - - 43,608,397 27,446,711 220,575 - - - 26,021,300 1,204,836 - 71,055,108 - - (1,291) 4,472 62,014 5,108,573 37,843,425 28,037,915 - - (18,133,353) 37,491,820 9,146,741 - - - 20,516,154 7,828,925 - 19,358,467 - - 30,869 106,130 253,908 16,502,480 465,080 2,000,000 - - (4,863,253) 32,603,014 583,198 - - - 26,780,462 5,239,354 - 27,739,761 - 501,432 56,850 8,386 115,232 11,197,698 15,706,004 154,159 - - (10,297,702) 34,642,099 277,733 - - 600 29,670,550 4,693,216 - 24,344,397 374,000 - 354,806 24,979 343,568 18,301,471 4,945,573 - - - (12,656,920) 20,818,187 221,422 - - 400 20,422,018 174,347 - 8,161,267 - 95,457 354,413 24,841 339,980 5,730,118 1,616,458 - - - (42,743,970) 54,541,196 801,705 - - 1,000 53,719,267 19,224 - 11,797,226 - - 32,583 24,829 335,195 11,227,145 177,474 - - - 41,229,119 9,218,065 2,334,790 - - 2,000 6,673,436 207,839 - 50,447,184 - 789,263 18,223 97,819 1,291,426 27,467,362 20,654,625 128,466 - - 30,953,189 5,408,056 1,769,553 - - 2,000 1,515,724 2,120,779 - 36,361,245 - 411,160 165,503 96,371 1,143,993 26,540,865 8,003,353 - - - 12,316,716 12,132,670 1,741,881 - - 7,488,800 1,722,440 1,179,549 - 24,449,386 - 81,864 12,706 192,919 2,375,452 19,525,477 2,260,968 - - - - - - 41,442,781 1,435,282 408,197 - - - - 1,027,085 - 42,878,063 - 1,191,757 (898,805) 1,717,814 4,378,849 13,201,587 23,286,861 ------------------------------------------------------------------------------------------------------------------------- Rupees in ‘000 ------------------------------------------------------------------------------------------------------------------------- Total Upto 1 Over 1 Maturity of assets and liabilities - based on contractual maturities of assets and liabilities of the Bank Notes to the Consolidated Financial Statements For the year ended December 31, 2020
  337. 45 .3.2 Annual Report 2020 340 Share capital - net Reserves Surplus on revaluation of assets - net of tax Unappropriated profit Non-controlling interest Net assets Liabilities Bills payable Borrowings Deposits and other accounts Subordinated debt Liabilities against assets subject to finance lease Deferred tax liabilities - net Other liabilities Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Fixed assets Intangible assets Deferred tax assets - net Other assets Assets held for sale 5,722 3,719,781 75,817,365 54,699,920 1,083,590 19,875,838 513,161,445 21,779,659 10,119,242 1,991,169 3,247,593 7,029,251 528,446 22,915,701 4,981,983 12,866,768 54,243,111 - 30,421,531 1,128,135 18,351,972 30,954,275 33,881,197 104,894 10,042 15,614,294 130,517,285 4,981,983 48,303,412 431,423,822 7,492,800 30,421,531 1,128,135 23,239,672 201,807,654 250,455,534 9,026,764 2,515,549 16,743,107 739,200 534,941,104 (73,863) 10,827,448 85,409,537 30,293,673 13,429,576 61,226,376 - 4,887,700 77,687,079 31,703,662 532,695 233,353 559,621 115,703,210 (99,650) 502,414 48,692,053 22,890,337 4,606,681 43,681,608 1,000 44,507,608 26,006,020 356,226 29,820 534,067 71,582,390 (142,504) 801,993 80,913,727 15,566,137 70,979 80,182,259 1,000 14,118,558 80,557,471 673,001 59,210 35,125 739,200 96,479,864 110,765 1,778,734 33,181,948 8,623,176 13,221,857 18,068,592 2,000 7,980,417 31,914,264 1,198,183 117,664 41,805,124 176,412 1,311,459 20,524,867 3,698,598 540,672 13,002,724 5,493,600 4,815,444 17,826,671 947,931 115,429 24,223,465 159,820 827,329 166,389,396 (146,956,067) 2,387,895 161,019,152 1,995,200 3,470,764 13,641,989 2,394,899 227,108 19,433,329 946,888 106,680 2,232,552 19,607,267 1,178,984 - 18,273,509 5,182,115 668,086 259,299 21,839,819 13,356,618 - 9,742,145 2,150,849 1,463,624 13,356,618 2020 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above Total month months months 1 year years years years years 10 years ------------------------------------------------------------------------------------ Rupees in ‘000 ------------------------------------------------------------------------------------ Maturity of assets and liabilities - Based on working prepared by the Asset and Liability Committee (ALCO) of the Bank Notes to the Consolidated Financial Statements For the year ended December 31, 2020
  338. 45 .3.3 8,386 341 3,804,491 2,739,762 81,895,339 79,434,315 20,024,982 19,481,312 10,119,242 1,749,672 Net assets Share capital - net Reserves Annual Report 2020 5,795,596 508,271 Non-controlling interest months to 6 1 year months to Over 6 - (26,456,467) 74,974,160 9,729,939 - - - 52,175,941 13,068,280 - 48,517,693 - 501,432 87,719 114,516 369,140 31,273,801 16,171,085 - - - (10,325,441) 41,102,361 277,733 - - 600 36,130,812 4,693,216 - 30,776,920 374,000 - 354,806 24,979 343,568 24,733,994 4,945,573 - - 2019 128,466 - (3,322,859) 82,731,974 1,023,127 - - 1,400 81,513,876 193,571 - 79,409,115 - 95,457 386,996 49,670 675,175 76,279,419 1,793,932 years to 2 Over 1 years to 3 Over 2 years to 5 Over 3 years to 10 Over 5 Above 10 years - 28,898,455 21,420,263 2,334,790 - - 2,000 18,875,634 207,839 - 50,318,718 - 789,263 18,223 97,819 1,291,426 27,467,362 20,654,625 - - - 19,977,690 16,383,555 1,769,553 - - 2,000 12,491,223 2,120,779 - 36,361,245 - 411,160 165,503 96,371 1,143,993 26,540,865 8,003,353 - - - (110,167,162) 134,393,225 1,741,881 - - 7,488,800 123,982,995 1,179,549 - 24,226,063 - (141,459) 12,706 192,919 2,375,452 19,525,477 2,260,968 - - - 28,516,896 1,435,282 408,197 - - - - 1,027,085 - 29,952,178 - 1,191,757 (386,519) 254,190 1,707,232 3,898,657 23,286,861 - - - 12,925,885 - - - - - - - - 12,925,885 - - (512,286) 1,463,624 2,671,617 9,302,930 - - - For determining the core portion of non contractual liabilities (non-volatile portion), the Group has used the average method whereby average balance maintained over past five year has been classified as core and has been placed in ‘over 3 to 5 years’ maturity bucket. Non contractual assets and remaining volatile portion of non contractual liabilities have been stratified in relevant maturity bucket using bucket wise percentages determined by using average volatility in respective period / bucket. To identify the behavioural maturities of non-contractual assets and liabilities, the Group has used the following methodology: 19,481,312 1,308,531 assets - net of tax Unappropriated profit Surplus on revaluation of Other liabilities 454,336,159 - - to finance lease - - 43,373,122 31,977,964 Deferred tax liabilities - net Liabilities against assets subject 7,494,800 368,543,603 Deposits and other accounts Subordinated debt 3,804,491 161,329,654 473,817,471 54,468,283 - 374,000 Bills payable 14,676,639 17,524,249 Borrowings Liabilities Assets held for sale Other assets (1,291) 2,302,474 125,857 116,342 10,693,945 Intangible assets 24,262,803 243,285,308 Advances Fixed assets 30,192,074 66,008,226 30,320,540 476,302 25,590,173 143,124,623 476,302 25,590,173 Lending to financial institutions Deferred tax assets - net months to 3 Over 3 -------------------------------------------------------------------------------------------- Rupees in ‘000 ------------------------------------------------------------------------------------------- month Investments Balances with other banks Cash and balances with treasury banks Assets Total Up to 1 Over 1 Notes to the Consolidated Financial Statements For the year ended December 31, 2020
  339. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 45.4 Operational risk The Group currently uses Basic Indicator Approach to Operational Risk for regulatory capital calculations. We define operational risk as the risk of loss resulting from inadequate or failed internal processes, people and system or from external events. With the evolution of Operational Risk Management into a separate distinct discipline, the Group’s strategy is to further strengthen its risk management system along new industry standards. Accordingly ,the Group has set up a separate Operational Risk Management (ORM) Unit. ORM Unit resides within Risk Management Group (RMG). Its responsibility is to implement Operational Risk management tools across the Group for effective measurement and monitoring of operational risk faced by different areas of the Group. The Group’s operational risk management process involves a structured and uniform approach across the bank. It includes risk identification and assessments, the monitoring of Key Risk Indicators (KRIs) and Risk Control Self-Assessment (RCSA) activities for key operational risks. In order to build a robust operational risk monitoring mechanism, an Operational Risk Steering Committee (ORSC) has been constituted to effectively address operational risk issues. The Group has implemented a comprehensive “Operational Risk Management Framework” which has also been approved by the Board of Directors. The purpose of bank-wide Operational Risk Management Framework is aimed at laying out clearly defined roles and responsibilities of individuals / units across different functions of the Group that are involved in performing various operational risk management tasks. Operational risk is much more pervasive in a financial institution and every operating unit is exposed to operational risk, regardless of whether it is a business or a support function. This framework has been devised to explain the various building blocks of the operational risk management processes, and their inter-relationships. The framework also captures both qualitative and quantitative guidelines for managing and quantifying operational risks across the Group. The ORM Unit conducts operational risk profiling for all major operational areas of the Group and assists various functions of the bank in developing KRIs which are monitored against predefined thresholds. Findings from KRIs are used as predictive indicators of potential operational risks. Operational risk incidents and loss data collection is governed by Group’s Operational Risk Management Policy and process documents which have been developed and implemented to collate operational losses and near misses in a systematic and organized way. The Group’s Business Continuity (BCP) Policy includes risk management strategies to mitigate inherent risks and prevent interruption of mission critical services caused by disaster events. The resilience of BCP is tested and rehearsed on an annual basis by the Group. 46. DERIVATIVE RISK The policy guidelines for taking derivative exposures are approved by the Board of Directors (BOD). The Holding Company’s Asset & Liability Committee (ALCO) is responsible for reviewing and managing associated risks of the transactions. The nature, scope and purpose of derivatives business, for trading purposes or hedging purpose and the types of derivative in which they deal. The overall responsibility for offering derivative products and sustaining profitability lies with the Treasurer and in his absence with his delegate. The Market Risk nit / Treasury Middle Office of the Holding Company responsible for measurement & monitoring of the market risk exposures, analysis of present and potential risk factors. Annual Report 2020 342
  340. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 The Market Risk Unit also monitors associated Credit, Market and Liquidity Risk in line with Board of Directors approved limit framework. The unit coordinates with the business regarding approvals for derivatives risk limits and produces various reports / analysis for ALCO / BRMC on periodic basis. These reports provide details of outstanding un-hedged positions, profitability and status of compliance with limits. Treasury Operations records derivatives activity in the Bank’s books and is responsible for reporting to the SBP. The derivative transaction such as Cross Currency Swaps carries credit risk which is the risk that a party to a derivative contract will fail to perform its obligation. There are two types of credit risk associated with derivative transactions; 1) settlement, and 2) pre-settlement risk. The Holding Company’s Central Credit Committee is responsible for reviewing and managing associated Counterparty Credit Risks of the transaction. The Holding Company has also entered into Foreign Currency & Commodity Options from its Wholesale Banking Branch Bahrain for market making activities. The Bank can hedge its risk by taking on & off-balance sheet position in interbank market, where available. 47. CUSTOMER SATISFACTION AND FAIR TREATMENT The Holding Company is committed to providing its customers with the highest level of service quality and satisfaction. The Holding Company has established an independent Customer Experience function that oversees customer care, branch services, contact centre, customer insights and business conduct. The Holding Company’s Complaint Handling Policy and Grievance Redressal Mechanism ensure that complaints are resolved in a timely manner and recurrence of complaints is prevented where possible. Customers have the option of registering their complaints at the Holding Company’s branches, contact center, The Holding Company’s website or via email. The complaint handling policy and grievance redressal mechanism ensures that complaints are resolved in a timely manner and recurrence of complaints is prevented where possible. Customers have the option of registering their complaints at our Branches, contact centre, the Holding Company’s website and via email. Complaint management process is kept as transparent as possible through registration, acknowledgement, interim response where applicable and resolution of complaints. Customers are also given the option of contacting the Banking Mohtasib office in case they are dissatisfied with the response received from the Holding Company. To create enhanced visibility of the recourse mechanism available to its customers, the Holding Company has incorporated awareness messages of its complaint handling function in several customer communications such as account statements, ATM screens and SMS messages. Complete grievance redressal mechanism, touchpoints and online feedback forms have been made available through the Holding Company’s website, and email broadcasts have been sent to the customers for customer education and awareness. Fair Treatment of Customers is an integral part of our corporate culture. The Holding Company has institutionalized a ‘Consumer Protection Framework’. Our priority is to keep customer benefits in mind while designing, selling and managing products and services, without any discrimination. Our focus is to maintain fairness in our customer dealings, clarity in communication, develop a service culture and design an effective grievance handling mechanism. We also focus on financial literacy of our customers, for promoting responsible conduct and informed financial decisions by consumers, through our consumer education and Financial Literacy Program. 343 Annual Report 2020
  341. Notes to the Consolidated Financial Statements For the year ended December 31 , 2020 48. RECLASSIFICATION Corresponding figures have been re-arranged and re-classified to reflect more appropriate presentation of events and transactions to enhance comparability with the current period’s financial statements, which are as follows: From Statement of financial position Statement of financial position Cashflow Statement Reclassified To Other liabilities Other assets Others Others Others Credit card settlement Inter bank fund transfer settlement Others Other assets Other liabilities Mark to market gain on derivative instruments Mark to market gain on forward foreign exchange contracts Mark to market loss on derivative instruments Mark to market loss on forward foreign exchange contracts Cash Flow from Operating Activities Other liabilities Other assets Rs. in ‘000 32,027 (91,642) 290,068 (491) (375,227) (1,748,987) 49. GENERAL 49.1 These consolidated financial statements have been prepared in accordance with the revised format for financial statements of Banks issued by the SBP through BPRD Circular no. 2 dated January 25, 2018 and related clarifications / modifications. 49.2 The figures in these consolidated financial statements have been rounded off to the nearest thousand. 50. DATE OF AUTHORISATION FOR ISSUE These consolidated financial statements were authorized for issue by the Board of Directors of the Holding Company in their meeting held on February 24, 2021. __________________ President and Chief Executive Officer ___________________ Chief Financial Officer Annual Report 2020 ___________ Director 344 ___________ Director ___________ Chairman
  342. Annexure I S . No. Name and address of the borrower Name of individuals/ partners/ directors (with CNIC No.) Father’s/ Husband’s name 1 2 3 4 1 Mahboob Hussain Mahboob Hussain Mubashir Ali Outstanding Liabilities at beginning of year Principal Interest/ Other financial Total Other Mark-up Interest/ relief Principal than Interest/ Total written-off written-off/ (9+10+11) Mark-up provided Mark-up waived 5 6 7 8 9 10 11 12 -------------------------------------------------------- Rupees in ‘000 -------------------------------------------------------9,327 729 386 10,442 729 386 1,115 House No. 263, Measuring 05 Marlas, Situated at 37405-0502581-5 Block A, Street 11, Rawalpindi Press Club Cooperative Housing Society (Media Town), Rawalpindi. 2 Sabir Hussain Sabir Hussain Ali Madad 10,596 1,163 472 12,231 - 1,163 472 1,635 Basher Ahmed 13,856 798 284 14,938 - 798 284 1,082 Sharfuddin 22,658 7,766 70 30,494 - 6,580 70 6,650 117,090 34,576 - 151,666 - 18,666 - 18,666 Muhammad Yaqoob 12,905 3,465 68 16,438 - 1,299 68 1,367 Syed Bagh Ali Shah 12,413 5,644 - 18,057 - 2,023 - 2,023 - 15,694 - 15,694 - 11,894 - 11,894 - 5,847 - 5,847 - 3,846 - 3,846 20,000 5,096 - 25,096 - 4,096 - 4,096 7,764 2,082 - 9,846 - 1,281 - 1,281 226,609 82,860 1,280 310,749 - 52,375 1,280 53,655 Immovable Property Bearing Residential Flat No. 42201-9527166-5 A-205, On 2nd Floor, Admeasuring 1480 Square Feet, Project Known As “Shaes Residency”, 1/9Th Undivided Share Of Sub-Plot No.Fl-4/A-V, of Plot No. Fl-4, Block No.3-A, Situated At KDA Scheme No.36, Gulistan-e-Jauhar, Karachi. 3 Abdul Ghaffar Abdul Ghaffar Flat No.A-204, 2nd Floor, Admeasuring 1000 Square 42301-0882280-1 Feets, Building Known As “Clifton Garden-1”, 1/4th undivided Share Of Sub Plot No.A-4, of Plot No.Fl-1, Block-3, Situated At Kda Scheme No.5, Kehkashan Clifton, Karachi. 4 Iqbal Ahmed Iqbal Ahmed Immovable Property Bearing Residential Plot Town 42301-3811362-3 House No.9, Fl-12, Admeasuring 280 Square Yards, Block-5, Situated At Kda Scheme No.5, Clifton, Karachi. 5 Naveed Naiyar Hussain Naveed Naiyar Hussain Naiyar Hussain Immovable Property Bearing Residential Double Storied 42301-4883876-9 Bungalow Constructed on Plot of Land No. D-37, Admeasuring 925 Square Yards, Block 9, KDA Scheme No. 5, Kehkashan Clifton, Karachi. 6 Muhammad Ayub Muhammad Ayub House 19, Measuring 01 Kanal, Situated at Block-J, 35201-9838927-3 Phase 6, Defence Housing Authority, Lahore. 7 Jinsung International (Private) Limited Syed Asghar Ali Shah 279 Q Block, Commerciaol Area, 27637-4875875-1 DHA Phase II, Lahore. Muhammad Sarfraz Ahmed Muhammad Sarwar 31303-3942323-3 Maryam Zehra Shah Syed Asghar Ali Shah 27637-4783110-4 8 Kissan Supplies Muhammad Mushtaq Butt 8-Km, Sardar Town, Raiwind Road, Lahore. 34104-1969246-5 Muhammad Waqas Butt Muhammad Yousaf Butt Dost Muhammad Ali 34104-2285573-9 Muhammad Mushtaq Butt Irfan Ali 34101-9002563-4 9 Kohsar Industries Lal Chand Plot No. H5-B, Site Area, Kotri. 44203-9781662-5 Haraish Kumar Relumal Haraish Kumar 41306-7572470-3 10 Rehman Metal Atiq ur Rehman Muhammad Rafique Gala Maher Aziz ur Rehman Chan Link Sheikhupura 34101-2535196-7 Road Gujranwala. 11 RegentAgroventure Omar Danial Baweja H No. 44 Khayaban-e-Badr Phase 5 DHA Karachi.H 42301-3857295-9 No. 82 Khayaban-e-Sehr Street No 30,DHA Phase Fiza Ahmed 6, Karachi. 42301-5766535-8 Mahmood Baweja Omar Danial Baweja TOTAL: * Relief includes amounts which would be due to the Bank under contractual arrangements whether or not accrued in the books. 345 Annual Report 2020
  343. Annexure - II As at December 31 , 2020 As referred to in note 11.2.2 to the unconsolidated and consolidated financial statements Details of disposal of fixed assets made to related parties Particulars Cost Accumulated depreciation Written down value Sale proceeds Mode of disposal Gain Buyers’ particulars and relationship with Bank (if any) --------------------------------- Rupees in ‘000 -------------------------------Electrical, office and computer equipment Communication Equipment Office Machines and Equipments Computer 1,615 5,006 1,529 869 3,415 1,423 746 1,591 106 778 32 1,954 363 512 406 8,150 5,707 2,443 3,244 801 2,405 460 1,945 2,750 805 Insurance Insurance Insurance Name EFU General Insurance Limited - related party, Address 1st Floor, Kashif Centre, Main Shahra-e-faisal, Karachi Name EFU General Insurance Limited - related party, Address 1st Floor, Kashif Centre, Main Shahra-e-faisal, Karachi Name EFU General Insurance Limited - related party, Address 1st Floor, Kashif Centre, Main Shahra-e-faisal, Karachi Name EFU General Insurance Limited - related party, Address 1st Floor, Kashif Centre, Main Shahra-e-faisal, Karachi Name EFU General Insurance Limited - related party, Address 1st Floor, Kashif Centre, Main Shahra-e-faisal, Karachi Name EFU General Insurance Limited - related party, Address 1st Floor, Kashif Centre, Main Shahra-e-faisal, Karachi Name EFU General Insurance Limited - related party, Address 1st Floor, Kashif Centre, Main Shahra-e-faisal, Karachi Name EFU General Insurance Limited - related party, Address 1st Floor, Kashif Centre, Main Shahra-e-faisal, Karachi Name Afham Elahi Usmani Vehicles Toyota Corolla Honda Motorcycle Honda Motorcycle Honda Motorcycle Honda Motorcycle 107 124 110 104 17 7 23 83 90 117 87 21 90 - 124 7 100 13 75 54 2,850 590 2,260 3,139 879 1,922 1,922 - 1,922 1,922 12,922 8,219 4,703 8,305 3,602 Insurance Insurance Insurance Insurance Insurance The Subsdiary Companies Vehicles Honda City Total Annual Report 2020 346 Dispoal
  344. Branch Network SINDH KARACHI Shaheen Complex Branch 111 572 265- 021-32610928 & 021-32272569-92 26th Street Dha Phase V Branch 021-35304685 Bahadarabad Branch 021-34922802/05 Boat Basin Branch 021-35177903/4 Chase Store Jail Chowrangi Branch 021-34370270-71 Cloth Market Branch 021-32464042 - 47 Dehli Colony Branch 021-35168646/8 DHA Phase VIII Branch 021-35171731/33/ 0345-8211949/0345-8211951 Electronic Market Branch 021-32700430-437 Fisheries Branch 021-32384011-14 Garden East Branch 021-32244281-284 Garden West Branch 021-32240093/7 Gulistan-E-Jauhar Branch 021-3466 2002-4-6 Gulshan Chowrangi Branch 021-34833290-5 Gulshan-E-Hadeed Branch 021-34715201-3 Gulshan-E-Iqbal Branch 021-34829055-60-61 Hawksbay Road Branch 021-32373030-32 Orangi Town Branch 021-36697925-30 Ibrahim Hyderi Branch 0346-1012281 Paposh Nagar Branch 021-36700071-3 Jheel Park Branch 021-34544831-35 Park Towers Clifton Branch 021-35832011/ 021-35369525 Jodia Bazar Branch 021-32435304-06 Progressive Centre Sh-E-Faisal Branch 021-34324682-5 Branch Stock Exchange 021-32462851/54 Khadda Market Dha Phase V Branch 021-35242401-4 Kh-E-Ittehad Dha Phase II Ext Branch 021-35313811-4 Kh-E-Shahbaz Dha Phase Vi Branch 021-35243416/15 Korangi Industrial Area Branch 021-35052416, 021-35055826-7, 021-35052773-5 Korangi Rd Dha Phase I Branch 021-35803541/46 Lucky Star Branch 021-35622434-39 Nazimabad Branch 021-36612325 New Challi Branch 021-32602100 New Sabzi Mandi Branch 0345-8211641-43 North Branch Ind Area Branch 021-36962912/11/15 North Napier Road Branch 021-32467791-94 North Nazimabad Branch 021-36721010/4 Ocean Tower 021-35166601-6 347 Safoora Goth Branch 021-34661805-15 Shah Faisal Colony Branch 021-34686191-94 Shahrah-E-Faisal Branch 021-34373240 Site Branch 021-32550082-84 Soldier Bazar, Branch 021-32244531-33 Teen Talwar Branch 021-35835867 / 021-35856974 / 021-35873279 The Center Saddar Branch 021-35165563/7 Timber Market Branch 021-32763079 Urdu Bazar Branch (AWT Plaza) 021-32603073-77 Zamzama Branch 021-35295221-4 HYDERABAD Anaj Mandi Branch 022-2638802 Citizen Colony Branch 022-2100893-91 Annual Report 2020
  345. Cloth Market Branch 022-2618271 Jamshoro Branch 022-3878103-104 , 022-3878109 Shahdadkot Branch 074-4013169 DHA Branch 022-2108078 Kandhkot Branch 072-2573048 Shahdadpur Branch 023-5581523-18 Kohsar, Branch 022-3400913-14 Kashmore Branch 0722-577705-7 Sheikh Bhirkio Branch 0345-8211923/24 Latifabad Branch 022 3817984 Khairpur Branch 024-3715316-18 Shikarpur Branch 072-6540374-75 Latifabad Unit No VI Branch 022-3422521-6 Khipro Branch 0235-879071-74 Sultanabad Branch 022-3404106-7 Qasimabad Branch 022-2652190-92 Kot Ghulam Muhammad Branch 0233-866242-4 Tando Adam Branch 023-5571880-85 Saddar Branch 022-2730925-26-32 Kunri Branch 023-8558163-66 Tando Allah Yaar Branch 022-3892001/4 Site Branch 022-3885192-93 Larkana Branch 074-4058603 Tando Jam Branch 022-2765612-14 Maatli Branch 029-7841514 Tando Mohammad Khan Branch 022-3340594/022-3340617-8 Mehar Branch 025-4730307-308-309 Thatta Branch 029-8550934 Mirpur Khas Branch 023-3876001-4 Umer Kot Branch 023-8570156-59 SUKKUR Military Road Branch 071-5630825-32 Shaheed Gunj Branch 071-5627482 Society Branch 071-5815210 Badin Branch 0297-861203 Behar Colony Kotri Branch 022 3410507-09 Bhiria City Branch 0242-432131/35 Chambar Branch 022 -3897032-35-36 Daharki Branch 0723-641290 Digri Branch 023-3870245 Ghotki Branch 072-3600484 Mirpur Mathelo Branch 0723-663315 BALOCHISTAN Mithi Branch 0232-261650 Gawadar Branch 086-4210246 Moro Branch 0242-413200 Nawabshah Branch 024-4330564 Nowshero Feroz Branch 0242-448415-16-18 Khuzdar Branch 0848-550334-336 Loralai Branch 0824-410104 MA Jinnah Road Branch 081-2865503-04 Pano Aqil Branch 071-5809304 Muslim Bagh Branch 0823-66933-36 Sanghar Branch 023-5800163 Sehwan Shareef Branch 025-4620305/7 Ormara Branch 086-3310142-0-3 Quetta Cantt Branch 081-2863335 Annual Report 2020 348
  346. Turbat Branch 085-2414201-4 DHA Phase VI Branch 042-37180745 Zarghoon Road Branch 081-2472981-2 Ferozepur Road Branch 042-35402151-53 Zhob Branch 0822-412027028 Gulberg Branch 042-35771036-38 Gulshan Ravi Branch 042-35464541- 45 PUNJAB LAHORE Air Port Road DHA Devine Mega Branch 042-35700081-84 Allama Iqbal Town Branch 042-37805026-37804479 Azam Cloth Market Branch 042-37671195-96 Badami Bagh Branch 042-37946853 /54 Baghbanpura Branch 042-36858873/74 Bahria Town Branch 042-35976212-14 Brandreth Road Branch 042 3738 1316 /9 / Cavalry Branch 042-36610282-87 Chowburji Branch 042-37362981/8 Circular Road Branch 042-37667921/24 College Road Township Branch 042 -35117491-3 Daroughawala, Branch 042-36530311-15 DHA Block ‘’T” Phase 2 Branch 042-35707651/6 DHA Phase 3 III Block “Y” Branch 0423-5898010-11 Gulyana Branch 053-7588459 State Life Cooperating Housing Society Branch 042-35474163 Sundar Industrial Estate Branch 0311-0013425-26 The Mall Branch 042-36285673-75 Upper Mall Branch 042-35776515-18/35776530 Urdu Bazar Branch 042-37115915 /7,20 Ichra Bazar Branch 042-37428406 / 08 Johar Town Branch 042-35241088/89 Mandi Faizabad Branch 056-2882081-83 Mcleod Road Branch 042-36311176 MM Alam Road Branch 042 -35778721 /24 Model Town Branch 042-35915613/14 Valancia Society Branch 042-35226045-47 Walton Road Branch 042-0556-333151 Wapda Town Branch 042- 35182877-74-75 Zarar Shaheed Road Branch 042-36639902-05 GUJRANWALA Mughalpura Branch 042-36533818-822 Bank Square Gujranwala II Branch 055-4234401-3 New Garden Town Branch 042-35940463-67 GT Road Branch 055-3257363/055-3257365/ 055-3254407 PECO Road Branch 042-35203014-13 Raiwind Road Branch 042-35291247-70 Shadbagh Branch 042-37604549-51 Wapda Town Branch 055-4285571 Shadman Branch 042-37503712/20 FAISALABAD Shah Alam Market Branch 042-37375734-37 Shahdara Branch 0423-7931903-5 Sheikhupura Road Branch 055-4233855-56 Ghulam Mohammad Abad Branch 041-2692192-94-97 Grain Market Branch 041-2633382/84 Gulistan Colony Branch 041-8785791-5 349 Annual Report 2020
  347. RAWALPINDI Jaranwala Branch 041-4313032-35 Air Port Cop Housing Society (AECHS) Branch 051-5497012-15 Karkhana Bazar Branch 041-2624501-3 Bahria Town Phase IV Rawalpindi Branch 051-5731351-4 Liaquat Road Branch 041 2541284-86 Satiana Road Branch 041-8556382/84 Bahria Town Phase VII Rawalpindi Branch 051-5154891-4 SIALKOT Bank Road Branch 051-5120731-3 Cantt Sailkot Branch 052-4272351/53 Chaklala Scheme 3 Branch 051-5766277-78 Gohadpur Branch 052-4265498-99 Kashmir Road Sialkot Branch 052-4272703-04-05 Paris Road Sialkot Branch 052-4266535-6 Pasroor Road Nekapura Branch 052-3543582-4 Chakri Road Branch 051-5129024 GHQ Branch 051-5202354-55 Gulberg Geen Islamabad Road Branch 0310-5998931 Bara Kahu Branch 051-2165032-7 Dha Phase II Islamabad Branch 051-5161525 F-10 Markaz Branch 051-2112960/61 F-11, Islamabad Branch 051-2103404-402 F-7 Markaz Branch 051-2653901/4-051-2608404/05 F-8 Markaz Branch 051-2818296-98 G-11 Markaz Branch 051-2363475/77 G-15 Markaz Branch 051-2160240-41 G-8 Islamabad Branch 051-2340537-8 I-8 Markaz Branch 051-4862471-2 Jinnah Road Branch 051 5778560-62-64 I-9 Markaz Branch 051-4431296/8 Kurri Road Branch 051-4930342/43/45 Islamabad Stock Exchange Branch 051-2894407/09 Peshawar Road Branch 051-5492873-75 Khanna Pul Branch 051-4478006/07 MULTAN Range Road Rawalpindi Cant Branch 051-5128871,051-5128875 NPF O-9 Pwd Road Branch 051-5170584-5 RCCI Industrial Estate Rawat Branch 0345-8210861/71 Tarlai Branch 051-2241860-4-66 Saidpur Road Branch 051-5768049/51/53 Wah Cantt Islamabad 051-4256308/309 Satellite Town Branch 051-4264187-86, 4842991, Agrow Chishtian Branch 0345-8233957 Arifwala Branch 0457-835478-81 Shahabpura Sialkot Branch 052-3242681/84 Ugoki Branch 052-3513953/54 Abdali Road Branch 061-4574363/4574496/97 Bosan Road Branch 061-6223416 /17 Vehari Road Branch 061-6241102-4 Wapda Town Phase I Branch 061-6524733-38 Mailsi Branch 067-3370163 ISLAMABAD Blue Area Branch 051 111 572 265 & 051 281 0121/4 Annual Report 2020 350 Bahawalnagar Branch 063-2279435/38
  348. Bahawalpur Branch 062-2889176 /78 Kacheri Chowk Branch 053-3600584-6 Pak Pattan Sharif Branch 045-7352591-93-94 Bhakkar Branch 0453-510407-9 Kamoki Barnch 055-6810282-83-85 Pattoki Branch 049-4424053-4 Burewala Branch 067-3770363/65 Kasur Chandni Chowk Branch 049 2761581-84 Qaboola Dist Pak Pattan Branch 045-7851248-51 Chak 89 Dist Sahiwal Branch 040-4550409/10/11/16 Khanewal Branch 065-2557491-93 Rabwa Branch 047-6214042/44 Chak#72 Rahim Yar Branch 068-5708072 Kharian Branch 0537-602781-84 Rahimyar Khan Branch 068 5879511/14 Chichawatni Branch 040 5481792/95 Lala Musa Branch 0537-519656/8 Sadiqabad Branch 068-5803933/38 Chiniot Branch 047-633259192 Layyah Branch 0606-415045/47 Sahiwal Branch 040 4222733/35 Daska Branch 052-6610461/63 Lodhran Branch 0608-361892/93/96 Sambrial Branch 052-6524106/07 Depalpur Branch 044-4542246-49 Luddon Road Branch 067-3351443 ,0673351441 Sargoodha Branch 048-3768123/24/25 DG Khan Branch 064-2470952/56 Mandi Bahauddin Branch 0546-509452-53-55 Shiekhupura Branch 056 3810273/6 Dharanwala Branch 063-2440080 Mian Channu Branch 065-2661282-85 Taunsa Sharif Branch 064-2601155 EXT 107 Dinga Branch 053-7401368 Mouza Gajju Hatta Shujabad Branch 061-4396082-9 Toba Tek Singh Branch 046- 2512052-55 Ghakkhar Mandi Branch 055-3882556-59,055-3882561 Mouza Kachi Jamal Khanpur Branch 068-5577191-195 Vehari Branch 067-3360715/18 Gojra Branch 046-3513637/40 Mouza Parhar Sharqi Kot Addu Branch 066-2240146-49 Wazirabad Branch 055-6605841-4 GT Road Gujrat Branch 053-3729479-76 Hafizabad Branch 0547-583249-252,276 Haroonabad Branch 063-2250615 Hasilpur Branch 062-2441302-1310-1308 Jhang Branch 047-7652941 /43 Muridke Branch 042 37166454-7 KPK Muzaffargarh Branch 066-2424691-92 PESHAWAR Nankana Sahab Branch 056-2877503-504 Dabgari Garden Branch 091-2591425-7 Narowal Branch 0542-411271/73 Fakhr-E-Alam Road Branch 091-5279981/4 Okara Branch 044-2528728-30 Gallanai Branch 351 GT Road Peshawar Branch Annual Report 2020
  349. 091-2593901 /4 Mardan Branch 0937-873445/ 0937-873647 Khui Ratta Branch 058-26414907 Naz Cinema Branch 091-2211024-26 Mingora Branch 0946-711740/43 Kotli Branch 05826-448228/31 Ring Road Peshawer Branch 0310-5998903-01 Nowshera Branch 092-3612004 Mirpur Branch 5827448867-70 Shakas Khyber Agency Branch 091-5602382-83-85 Nowshera Saleh Khana Branch 0923-651113-17 Muzaffarabad Branch 05822-923251-2 University Road Peshawar Branch 091-5711573/75 Parachinar Branch 092-6311777 Naarr Branch 058-26420784-85 Abbottabad Branch 099-2416110/12/13/14 Shaidu, Nowshera Branch 0923-510013-14 Sehensa Branch 058-26422779-058-26422300 Attock Branch 057-2610500,057-2610480, 057-2610780 Talagang District Chakwal Branch 0543-662574 Seri Branch 058-26-432731/3 Taxila Branch 0514-535315-17 Skardu Branch 05815-457404-05 Bafa Branch 0997-389232-233 Timergara Branch 0945-821921 Bannu Branch 0928-6601673 INTERNATIONAL BRANCH Topi Branch 0938-272005 ChakDara Branch 0945-703334-8 Chakwal Branch 054-3554319/22 Charsadda Branch 091-6512051-55 AZAD JAMMU & KASHMIR (AJK) Chitral Branch 0943-413027-29 Bagh Branch 0345-8210861/71 Dara Adam Khel (FR Kohat) Branch 0922-180187 Chaksawari Branch 05827-454791-94 DI Khan Branch 0966-733216 Charohi Branch 0582-6415474-76 Dir Upper Branch 0944-880190 Chillas Branch 05812-450657 Haripur Branch 099-5627370 Dadyal Branch 05827-465668 Jhelum Branch 0544 611840 -3 Gilgit Branch 05811-450615/6 Mansehra Branch 0997-301882-4 Jatlan Branch 05827-404391-2 Annual Report 2020 352 Bahrain Branch 00973-17104603
  350. Pattern of Shareholding As at December 31 , 2020 S.No. No. of Shareholders Shareholdings Total Shares Held 1 576 Shareholding From 1 to 100 7,126 2 606 Shareholding From 101 to 500 245,221 3 606 Shareholding From 501 to 1,000 569,139 4 1,258 Shareholding From 1,001 to 5,000 3,637,821 5 409 Shareholding From 5,001 to 10,000 3,262,407 6 613 Shareholding From 10,001 to 50,000 14,826,099 7 113 Shareholding From 50,001 to 100,000 9,246,040 8 102 Shareholding From 100,001 to 500,000 20,464,402 9 17 Shareholding From 500,001 to 1,000,000 12,790,081 10 40 Shareholding From 1,000,001 to 1,297,464,262 1,232,415,926 Percentage: 100% 1,297,464,262 Total 4,340 353 Annual Report 2020
  351. Pattern of Shareholding As at December 31 , 2020 Particulars Shares Held Directors and their spouse(s) and minor children Mr. Kalim-ur-Rahman Mr. Adil Matcheswala Mr. Ashraf Nawabi Mr. G.M.Sikander Mr. Munawar Alam Siddiqui Ms. Nargis Ghaloo Mr. Hassan Afzal Mr. Sohail Aman Mr. Basir Shamsie Mrs. Safia Munawar Mrs. Hafsa Shamsie Sub-Total Percentage % 1,500,001 200,000 1 1 1 33,001 1 1 1 185,000 1,132,320 3,050,328 0.12 0.02 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.01 0.09 0.24 973,307,324 75.02 1,002 0.00 972 0.00 172,451 0.01 19,509,194 1.50 9,216,143 0.71 11,104 0.00 Others 140,346,465 10.82 Individual - Local 151,849,279 11.70 1,297,464,262 100.00 Associated companies, undertakings and related parties Jahangir Siddiqui & Co. Limited Executives NIT & ICP Banks, development finance institutions, non-banking finance companies, Insurance Companies Modarabas and Mutual Funds Foreign Investors Totals Details of the transactions carried out by the Directors, Chief Executive Officer, Chief Financial Officer, Company Secretary and their spouse and minor children during the period from January 01, 2020 to December 31, 2020. None of the Directors, CEO, CFO and Company Secretary their spouse and minor children during the year Januray 01, 2020 to December 31, 2020 carried out transactions in the shares of the bank, except Ms. Hafsa Shamsie spouse of Mr. Basir Shamsie who purchase 804,000 shares of the Bank and Ms. Safia Munawar spouse of Mr. Munawar Alam who purchase 30,000 shares of the Bank. Annual Report 2020 354
  352. Notice of Fifteenth Annual General Meeting Notice is hereby given that the Fifteenth Annual General Meeting (“AGM”) of the shareholders of JS Bank Limited (the “Bank”) will be held on Monday, March 29, 2021 at 10:00 a.m. 15th Floor, The Centre, Plot No. 28, SB-5, Abdullah Haroon Road, Saddar, Karachi to transact the following business: The resolutions to be passed by the members as Special Resolutions are as under: “Resolved that with respect to the Tier-II capital raised by JS Bank Limited (the “Bank”) in the amount of up to PKR 3,000,000,000/- (Pak Rupees Three Billion) in the form of rated, privately placed and unsecured, subordinated, Term Finance Certificates (“TFC-I”) as approved by the Board of Directors on August 25, 2016, and in accordance with the ‘Instructions for Basel III Implementation in Pakistan’ (“Basel III Regulations”) issued by the State Bank of Pakistan (“SBP”) under BPRD Circular No. 06 dated August 15, 2013, as amended from time to time, regarding loss absorbency, in the event SBP exercises its option to convert the TFC-I into ordinary shares of the Bank upon the occurrence of a Point of Non-Viability (“PONV”), such ordinary shares shall be issued, subject to the approval of the Securities and Exchange Commission of Pakistan (“SECP”), other than by way of rights in accordance with Section 83(1)(b) of the Companies Act, 2017 (the “Act”), subject to a maximum of 467,836,257 shares, or such other number as may be agreed to in consultation with the SBP (“TFC-I Additional Shares”).” “Further resolved that with respect to the Tier-II capital raised by the Bank in the amount of up to PKR 2,000,000,000/- (Pak Rupees Two Billion) in the form of rated, privately placed, listed, unsecured and subordinated Term Finance Certificates (“TFC-II”) as approved by the Board of Directors on September 27, 2017, and in accordance with the ‘Instructions for Basel III Implementation in Pakistan’ (“Basel III Regulations”) issued by the SBP under BPRD Circular No. 06 dated August 15, 2013, as amended from time to time, regarding loss absorbency, in the event SBP exercises its option to convert the TFC-II into ordinary shares of the Bank upon the occurrence of a PONV, such ordinary shares shall be issued, subject to the approval of the SECP, other than by way of rights in accordance with Section 83(1)(b) of the Act, subject to a maximum of 319,982,544 shares, or such other number as may be agreed to in consultation with the SBP(“TFC-II Additional Shares”).” ORDINARY BUSINESS: i. To receive, consider and adopt the Annual Audited Standalone and Consolidated Financial Statements of the Bank for the year ended December 31, 2020 together with the Directors’ and Auditors’ Reports thereon. ii. To appoint Bank’s Auditors for the year ending December 31, 2021 and fix their remuneration. The term of the present auditors Messrs. EY Ford Rhodes, Chartered Accountants, (a member firm of Ernst & Young Global Limited) shall expire at the AGM and cannot, in compliance of the Listed Companies (Code of Corporate Governance) Regulations, 2019, be re-appointed as having completed a term of five years. The Board of Directors, on the suggestion of the Audit Committee of the Bank, has recommended KPMG Taseer Hadi & Co., Chartered Accountants as auditors for the year 2021. SPECIAL BUSINESS: i. To consider and if thought fit, approve the conversion of Term Finance Certificates (“TFCs”), rated, privately placed, unsecured and subordinated TFCs of PKR 3,000 Million (TFC-I; issued on December 14, 2016) and PKR 2,000 Million (TFC-II; issued in December 29, 2017) of JS Bank Limited (the “Bank”) into common shares if (i) directed by State Bank of Pakistan (“SBP”) on the occurrence of a point of non-viability as determined by SBP, pursuant to the ‘Instructions for Basel III Implementation in Pakistan’ issued by the SBP, subject to a maximum of 467,836,257 in respect of TFC-I and 319,982,544 in respect of TFC-II additional ordinary shares to be issued respectively, and which ordinary shares shall be issued other than by way of rights in accordance with Section 83(1)(b) of the Companies Act, 2017. 355 Annual Report 2020
  353. “Further resolved that any two of the President & CEO, Chief Operating Officer, Chief Financial Officer and Company Secretary of the Bank be and are hereby authorized to take all steps necessary, ancillary, and incidental to the abovementioned resolutions, as and when required, and are further authorized to sign, execute, and deliver all necessary documents, agreements, and letters on behalf of the Bank, as may be deemed appropriate and as may be required for the purposes above-mentioned.” For Attending the Meeting • In case of Individuals, the account holder and/or sub-account holder whose registration details are uploaded as per the CDC Regulations, shall authenticate his/her identity by showing his/her original CNIC or original Passport along with Participant ID number and the account number at the time of attending the Meeting. • In case of corporate entity, the Board’s resolution / power of attorney with specimen signature of the nominee shall be produced (unless it has been provided earlier) at the time of the Meeting. ii. To approve the remuneration paid to the Directors of the Bank for attending Board and Board‘s SubCommittees meetings on post facto basis in terms of Prudential Regulation No. G-1 C(2) by passing the following ordinary resolution: • Members whose names are appearing in the register of members as of 21 March, 2021 are entitled to attend and vote at the meeting. • The proceedings of the AGM shall also be held online through video link. • The members who wish to attend the Annual General Meeting through video link are requested to get themselves registered by sending the particulars prescribed in the table below at the following email address AGM@jsbl.com by the close of business hours (5:00pm) on March 26, 2021. “Resolved that the remuneration of PKR 250,000/per meeting payable to the Directors of the Bank for attending Board meetings and PKR 150,000 per meeting payable to the Directors for attending Board‘s Sub-Committees meetings, be and is hereby approved.” By Order of the Board Karachi: March 8, 2021 Ashraf Shahzad Company Secretary Name of member Authorised Notes: a) Share transfer books of the Bank will remain closed from March 22, 2021 to March 28, 2021 (both days inclusive). Transfers received in order at Bank’s Independent Share Registrar, CDC Share Registrar Services Limited, CDC House, Shahra-eFaisal, Karachi at the close of business on March 21, 2021 will be treated in time for purpose of attending and vote at the Meeting. b) A member of the Bank entitled to attend, and vote may appoint another member as his/her proxy to attend and vote instead of him/her. c) Proxies must be received at the Registered Office of the Bank not later than 48 hours before the time of the Meeting. d) Beneficial owners of the shares registered in the name of CDC Share Registrar Services Limited (CDCSRSL) and/or their proxies will have to follow the following guidelines as laid down by the Securities and Exchange Commission of Pakistan: Annual Report 2020 Representative (in case of corporate member) CNIC No. /NTN No. CDC Participant ID / Folio No. Cellphone # Email address • The Video Conference Link would be emailed to the registered members or their proxies who have provided all the requested information. For Appointing Proxies • In case of individuals, the account holder and/or sub-account holder whose registration details are uploaded as per the CDC Regulations, shall submit the proxy form as per above requirements. • 356 The proxy form shall be witnessed by two persons, whose names, addresses and CNIC numbers shall be mentioned on the form.
  354. • Attested copies of the CNIC or the passport of beneficial owners and the proxy shall be furnished with the proxy form. • The proxy shall produce his original CNIC or original passport at the time of the Meeting. • In case of corporate entity, the Board’s resolution / power of attorney with specimen signature shall be furnished (unless it has been provided earlier) along with proxy form to the Bank. • Shareholders are requested to notify immediately for any change in their address to the Bank Registrar. Notice to Shareholders who have not provided CNIC: The Companies (Distribution of Dividends) Regulations, 2017 requires that the dividend warrants should bear the Identification Number which includes: (i) in the case of a registered shareholder or an authorized person, the Computerized National Identity Card Numbers (CNIC); (ii) in the case of a minor, child registration number or juvenile card number; and (iii) in the case of corporate shareholders registration number or national tax number. The Identification Number of the shareholders is, therefore, mandatory for the issuance of dividend warrants and in the absence of such information, payment of dividend may be withheld in terms of the Companies (Distribution of Dividends) Regulations, 2017. Therefore, the shareholders who have not yet provided their Identification Numbers advised to provide their Identification Numbers (if not already provided) directly to our Independent Share Registrar at the address given herein above without any further delay. Placement of Financial Statements The Bank has placed the annual Audited Financial Statements for the year ended December 31 2020, along with the Auditors and Directors Reports on its website: www.jsbl.com. Mandate for E-DIVIDENDS for shareholders Under the provisions of Section 242 of the Companies Act, 2017, it is mandatory for a listed Company to pay cash dividend to its shareholders only through electronic mode directly into bank account designated by the entitled shareholders. In order to receive dividends directly into their bank account, 357 shareholders are requested to fill in Electronic Credit Mandate Form available on Company’s website and send it duly signed along with a copy of CNIC to the Registrar of the Company M/s. CDC Share Registrar Services Limited, CDC House, Shahra-e-Faisal, Karachi in case of physical shares. In case shares are held in CDC then Electronic Credit Mandate Form must be submitted directly to shareholder’s broker/participant/ CDC account services. Deduction of Income Tax from Dividend at Revised Rates Pursuant to the provisions of the Finance Act deduction of income tax from dividend payments shall be made on the basis of filers and non-filers as follows: S.No Nature of Shareholders Rate of deduction 1 2 Filers of Income Tax Return Non-Filers of Income Tax Return 15% 30% Income Tax will be deducted on the basis of Active Tax Payers List posted on the Federal Board of Revenue website. Members seeking exemption from deduction of income tax or are eligible for deduction at a reduced rate are requested to submit a valid tax certificate or necessary documentary evidence, as the case may be. E-Voting Pursuant to SECP S.R.O. No. 43(I)/2016 dated January 22, 2016, members can also exercise their right to vote through e-voting by giving their consent in writing at least 10 days before the date of meeting to the Bank on the appointment by the Intermediary as a Proxy. Provision of Video Link Facility Shareholders may participate in the meeting via video-link facility. If the Bank receives a demand (at least 7 days before the date of meeting) from shareholder(s) holding an aggregate 10% or more shareholding residing in any other city, to participate in the meeting through video link, the Company will arrange video link facility in that city. Shareholders, who wish to participate through videolink facility, are requested to fill in ‘Video Link Facility Form’ available at Bank’s website and send a duly signed copy to the Registered Address of the Company. Annual Report 2020
  355. Distribution of Annual Report The audited financial statements of the Bank for the year ended December 31 , 2020 have been made available on the Company’s website (http://www.jsbl. com/) in addition to annual and quarterly financial statements for the prior years. Further, Annual Report of the Bank for the year ended December 31, 2020 is dispatched to the shareholders through CD. However, if a shareholder, in addition, requests for hard copy of Annual Audited Financial Statements, the same shall be provided free of cost within seven days of receipt of such request. For convenience of shareholders, a “Standard Request Form for provision of Annual Audited Accounts” has also been made available on the Bank’s website (http://www.jsbl.com/). i. The terms and conditions of all non-CET1 and Tier 2 instruments issued by banks must have a provision in their contractual terms and conditions that the instruments, at the option of the SBP, will either be fully and permanently converted into common share or immediately written off upon the occurrence of a non-viability trigger event called the Point of Non-Viability (PONV) as described below; ii. The PONV trigger event is the earlier of; a. A decision made by SBP that a conversion or temporary/ permanent write-off is necessary without which the bank would become nonviable. b. The decision to make a public sector injection of capital, or equivalent support, without which the bank would have become nonviable, as determined by SBP. Statement Under Section 134(3) of the Companies Act, 2017 This statement sets out the material facts pertaining to the special business to be transacted at the Annual General Meeting of JS Bank Limited (the “Bank”) to be held on March 29, 2021. Conversion of Tier –II Term Finance Certificates of PKR 3,000 million (TFC-I) and/or PKR 2,000 million (TFC-II) into common shares. The Bank on December 14, 2016 and December 29, 2017 issued rated, privately placed, unsecured, subordinated and non-cumulative Term Finance Certificates (“TFCs”) of PKR 3,000 million (TFC-I) and PKR 2,000 million (TFC-II) respectively, as Tier-II Capital. The State Bank of Pakistan (“SBP”), through Banking Policy and Regulation Department Circular No. 06 dated August 15, 2013 (“SBP Circular”), prescribes a “loss absorbency” feature for it to be qualified as Tier-II capital instruments, pursuant to which the TFCs will be converted into ordinary shares of the Bank at the Point of Non-Viability (“PONV”) trigger event as defined in the Basel III regulations. In accordance with the requirements of the SBP Circular, the Bank has agreed with the SBP for the issuance of common shares against TFC-I and TFC-II in case of the occurrence of a conversion event as per the terms of the TFCs and SBP Circular (“Conversion Events”). The relevant portion of the SBP Circular relating to “loss absorbency” is reproduced below: “A-5-3 Loss Absorbency of Non-Equity Capital Instruments at the Point of Non-Viability Annual Report 2020 iii. The issuance of any new shares as a result of the trigger event must occur prior to any public sector injection of capital so that the capital provided by the public sector is not diluted. iv. The amount of non-equity capital to be converted/ written-off will be determined by the SBP. v. Where an Additional Tier-1 capital instrument or Tier-2 capital instrument provides for conversion into ordinary shares, the terms of the instruments should include provision that upon a trigger event the investors holding 5% or more of paidup shares (ordinary or preferred) will have to fulfill fit and proper criteria (FPT) of SBP. vi. The conversion terms of the instruments must contain pricing formula linked to the market value of common equity on or before the date of trigger event. However, to quantify the maximum dilution and to ensure that prior shareholder/ regulatory approvals for any future issue of the required number of shares is held, the conversion method must also include a cap on the maximum number of shares to be issued upon a trigger event. vii. The conversion method should describe and take into account the order (hierarchy of claims) in which the instruments will absorb losses in liquidation/ gone concern basis. These terms must be clearly stated in the offer documents. However, such hierarchy should not impede the 358
  356. ability of the capital instrument to be immediately converted or to be written off . viii. There should be no impediments (legal or other) to the conversion i.e. the bank should have all prior authorizations (sufficient room in authorized capital etc.) including regulatory approvals to issue the common shares upon conversion. ix. The contractual terms of all Additional Tier 1 and Tier 2 capital instruments must state that SBP will have full discretion in deciding/ declaring a bank as a non-viable bank. SBP will, however, form its opinion based on financial and other difficulties by which the bank may no longer remain a going concern on its own unless appropriate measures are taken to revive its operations and thus, enable it to continue as a going concern. The difficulties faced by a bank should be such that these are likely to result in financial losses and raising the CET1/ MCR of the bank should be considered as the most appropriate way to prevent the bank from turning non-viable. Such measures will include complete write-off/ conversion of nonequity regulatory capital into common shares in combination with or without other measures as considered appropriate by the SBP.” As per the loss absorbency conditions, upon the occurrence of a “Point of Non-Viability” event (“PONV”), SBP may at its option, fully and permanently convert the TFCs into common shares of the issuer, i.e. the Bank and / or have them immediately written off (either partially or in full). In light of the above contemplated PONV events, the Bank is required to obtain all approvals for the issuance of such additional shares, which additional shares shall be issued based on the market value of the shares of the Bank, on the date of trigger of PONV as declared by the SBP, and shall be subject to a cap of 467,836,257 for TFC-I and 319,982,544 for TFC-II additional ordinary shares being issued, or such other number as may be agreed to in consultation with the SBP. It may be noted that issuance of such additional shares shall further be subject to approval of the Securities and Exchange Commission of Pakistan (“SECP”) in accordance with the proviso under Section 83(1)(b) of the Companies Act, 2017. At the time of obtaining prior approval from SECP for conversion of TFC-I and TFC-II into ordinary shares of the Bank at the Point of Non-Viability trigger event as defined in the Basel III regulations, the SECP vide its letter dated March 16, 2020 advised the Bank to submit the revised approval from the shareholders in this regard. The information required to be annexed to the notice is set out below: Name and brief profile of the banks/financial institutions to whom such shares are proposed to be issued The shares will be issued to the holders of TFC-I and/or TFC-II (at that time) in accordance with the directions of SBP at the time of trigger of PONV. Price at which the proposed shares will be issued The price of the shares shall be issued at the market value of the shares of the Bank, on the date of trigger of PONV as declared by the SBP. Purpose of the issue of shares other than right, utilization of the proceeds of the issue and benefits to the Bank and its shareholders with necessary details To convert the outstanding TFC-I and/or TFC-II (in whole or part) into shares of the Bank, as per the directions of the SBP. Existing shareholding of the banks / financial institutions to whom the proposed shares will be issued Not Applicable Total shareholding of the banks / financial institutions after the proposed issue of shares Not Applicable Whether the banks/financial institutions have provided written consent for purchase of such shares The terms of the Trust Deeds for the TFC-I issue and TFC-II issue contain the details regarding such conversion. 359 Annual Report 2020
  357. Justification as to why proposed shares are to be issued otherwise than rights and not as rights shares This is in accordance with the requirements of the SBP vide its Circular No . 6 of Banking Policy and Regulation Department dated August 15, 2013 and further directions of SBP in this matter. Justification, with details of the latest available market price and break-up value per share, if such price differs from par value. Not Applicable Details of the average market price during the last 3 (three) months and 6 (six) months preceding the board announcement as well as the latest available market price. Not Applicable The shares issued will rank pari passu in all respects with the existing ordinary shares of the Bank. The issue of shares other than by way of rights is subject to approval from the SECP The directors of the Bank, whether directly or indirectly, have no personal interest in the resolutions except in their capacity as shareholders of the Bank, to the extent of their respective shareholdings in the Bank. To approve the remuneration paid to the Directors of the Bank for attending Board and Board‘s SubCommittees meetings: The remuneration paid to Directors was approved by the Board of Directors in terms of Article 64 of the Articles of Association of the Bank. The remuneration requires approval (which is permissible on post facto basis) of the shareholders in the Annual General Meeting in accordance with the requirements of the Prudential Regulations (Regulation G 1 C(2)) issued by the State Bank of Pakistan. Statement under Regulation 4 (2) of the Companies (Investment in Associated Companies or Associated Undertaking) Regulations, 2012 The Bank in its Annual General Meeting held on March 27, 2020 had approved long term equity investments of up to PKR 675 million in ordinary shares of EFU Life Assurance Limited an associated company of the Bank. The resolution is valid for a period of three years commencing from March 27, 2020. S.No 1 Name of Company Total Investment approved upto PKR Amount of Investment till Dec. 31, 2020 PKR Reasons for not making complete investment in the specified time Material change in Financial Statement of Associated Company EFU Life Assurance Ltd 675 million 250.7 million Time Remaining No Annual Report 2020 360
  358. FORM OF PROXY 15th Annual General Meeting The Company Secretary JS Bank Limited Shaheen Commercial Complex Dr . Ziauddin Ahmed Road P.O. Box 4847 Karachi 74200 Pakistan I/We __________________________ of _____________ being member(s) of JS Bank Limited holding _____________ Ordinary shares as per Register Folio No/CDC /A/c No. __________________ hereby appoint _____________________ of ___________________or failing him __________________ of _____________________ as my / our proxy to attend, act and vote for me / us and on my / our behalf at the 15th Annual General Meeting of the Bank to be held on March 29, 2021 and / or any adjournment thereof. As witness my / our hand / seal this ____ day of _______________ 2021 signed by _________________________ in the presence of (name & address) Witness: 1. Name: _________________________ Address _________________________ CNIC or _________________________ Passport No. _________________________ Signature_________________________ Witness: 2. Name: _________________________ Address _________________________ CNIC or _________________________ Passport No. _________________________ Signature_________________________ Signature on Rs. 5/Revenue Stamp The signature should agree with the specimen registered with the Bank
  359. Important : 1. A member of the Bank entitled to attend and vote may appoint another member as his / her proxy to attend and vote instead of him / her. 2. The proxy form, duly completed and signed, must be received at the Office of the Bank situated at Shaheen Commercial Complex Dr. Ziauddin Ahmed Road, Karachi 74200 not less than 48 hours before the time of holding the meeting. 3. No person shall act as proxy unless he / she himself is a member of the Bank, except that a corporation may appoint a person who is not a member. 4. If a member appoints more than one proxy and / or more than one instruments of proxy are deposited by a member with the Bank, all such instruments of proxy shall be rendered invalid. 5. Beneficial Owner of the physical shares and the shares registered in the name of CDC Share Registrar Services Limited (CDCSRSL) and / or their proxies are required to produce their original Computerized National Identity Card (CNIC) or Passport for identification purposes at the time of attending meeting. The Form of proxy must be submitted with the Bank within the stipulated time, duly witnessed by two persons whose names, address and CNIC numbers must be mentioned on the form, along with attested copies of CNIC or the Passport of the beneficial owner and the proxy. In case of a corporate entity, the Board of Directors’ Resolution / Power of Attorney along with the specimen signature shall be submitted (unless it has been provided earlier along with the proxy form to the Bank).
  360. Shaheen Commercial Complex , Dr. Ziauddin Ahmed Road, P.O Box 4867, Karachi-74200, Pakistan. UAN: (021-051)111-654-321

Related Publications

JS Bank Limited: Annual Report 2020 (2)

Indonesia: Market Evening Update - 20 April

IM Insights

JS Bank Limited: Annual Report 2020 (3)

IM Insights

JS Bank Limited: Annual Report 2020 (4)

بورصة قطر: ملخص التداول اليومي - ٢٣ أبريل

IM Insights

JS Bank Limited: Annual Report 2020 (5)

MENA Market Report - 24 April

IM Insights

JS Bank Limited: Annual Report 2020 (6)

IM Insights

JS Bank Limited: Annual Report 2020 (7)

Egypt: Monthly Inflation Developments - March 2018

IM Insights

JS Bank Limited: Annual Report 2020 (8)

Pakistan Daily Economy Update - 28 April

IM Insights

JS Bank Limited: Annual Report 2020 (9)

CIMB Islamic Institutional Sukuk Fund Report - 29 April

IM Insights

JS Bank Limited: Annual Report 2020 (10)

IM Insights

JS Bank Limited: Annual Report 2020 (11)

Producer Price Index Malaysia March 2018

IM Insights

JS Bank Limited: Annual Report 2020 (2024)
Top Articles
Latest Posts
Recommended Articles
Article information

Author: Sen. Emmett Berge

Last Updated:

Views: 6545

Rating: 5 / 5 (60 voted)

Reviews: 83% of readers found this page helpful

Author information

Name: Sen. Emmett Berge

Birthday: 1993-06-17

Address: 787 Elvis Divide, Port Brice, OH 24507-6802

Phone: +9779049645255

Job: Senior Healthcare Specialist

Hobby: Cycling, Model building, Kitesurfing, Origami, Lapidary, Dance, Basketball

Introduction: My name is Sen. Emmett Berge, I am a funny, vast, charming, courageous, enthusiastic, jolly, famous person who loves writing and wants to share my knowledge and understanding with you.