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Allied Bank of Pakistan
Annaul Report 1998
AUDITORS' REPORT TO THE MEMBERS
KHALID MAJID HUSAIN RAHMAN RAHIM IQBAL RAFIQ & CO.
Chartered accountants Chartered Accountants
Karachi Karachi
We have audited, in accordance with the International Standards on Auditing, the annexed balance
sheet of Allied Bank of Pakistan Limited as at December 31, 1998 and the related profit and loss
account and the cash flow statement, expressed in Pak Rupees [US Dollar figures are included for
information purposes only as stated in note 2.3 to the financial statements], together with the not
forming part thereof for the year then ended, in which are incorporated the unaudited certified returns
from the branches except for ten branches which have been audited by us, and four branches audited
by auditors abroad, and we state that we have obtained all the information and explanations which to
the best of our knowledge and belief were necessary for the purposes of our audit and, after due verifi-
cation thereof, found them satisfactory and, we report that:
(a) in our opinion, proper books of account have been kept by the Bank as required by the
Companies Ordinance, 1984, and the returns referred to above received from the branches, as
subsequently reviewed and amended at the head office, have been found adequate for the pur-
poses of our audit;
(b) in our opinion:
(i) the balance sheet and profit and loss account together with the notes thereon have been
drawn up in conformity with the Banking Companies Ordinance, 1962, and the Companies
Ordinance, 1984, and are in agreement with the books of account and are further in accor-
dance with accounting policies consistently applied;
(ii) the expenditure incurred during the year was for the purpose of the Bank's business; and
(iii) the business conducted, investments made and the expenditure incurred during the year
were in accordance with the objects of the Bank and the transactions of the bank which have
come to our notice have been within the powers of the Bank;
(c) in our opinion and to the best of our information and according to the explanations given to us, the
balance sheet, profit and loss account and the cash flow statement, together with the notes form-
ing part thereof, give the information required by the Banking Companies Ordinance, 1962, and
the Companies Ordinance, 1984, in the manner so required and respectively give a true and fair
view of the state of the Bank's affairs as at December 31, 1998 and its true balance of the profit,
and cash flow for the year then ended; and
(d) in our opinion, Zakat deductible at source under the Zakat and Ushr Ordinance, 1980, was
deducted by the Bank and deposited in the Central Zakat Fund established under Section 7 of that
Ordinance.
Without qualifying our opinion, we draw attention to note 10.1 of the financial statements. Amounts paid
to the employees under the optional retirement scheme have been deferred due to reasons stated in
that note.
Chartered Accountants Chartered Accountants
March 20, 1999
Performance Highlights 1998
Rupees in Million
Authorised Capital Rs. 2,000
Capital & Reserves Rs. 3,002
Deposits Rs. 76,541
Advances Rs. 42,719
Investments Rs. 25,605
Total Assets (Less Contra) Rs. 89,358
International Business (Import/Export) Rs. 37,467
Home Remittances Rs. 4,232
Clientele (NOs.) 3,536,561
Branch Network (NOs.) 929
Board of Directors
Rashid M. Chaudhry
Chairman & Chief Executive
M. Salim Shaikh
Director
S. Jauhar Husain
Director
I.A. Usmani
Director
Tanwir Ali Agha
Director
Athar Mehmood Khan
Director
M. Yousuf Memon
Director
Mohammadi Yaqoob
Company secretary
Tahir Saeed Effendi
Executive Vice President &
Chief Finance Division
Share Registrars
Share Division
Allied Bank of Pakistan Ltd.
17th Floor, NIC Building,
Abbasi Shaheed Road, Karachi.
Head Office
8-Kashmir/Egerton Road, Lahore.
Central Office
NIC Building, (12-17)
Abbasi Shaheed Road,
Off. Sharea Faisal, Karachi.
BALANCE SHEET AS AT DECEMBER 31, 1998
(Rs. in '000)
1998 1997
Note Rupees Rupees
ASSETS
Cash 4 7,646,937 6,316,337
Balance with other banks 5 1,878,796 1,380,840
Money at call and short notice 100,000 450,000
Investments 6 25,605,470 20,192,699
Advances-Net of provision 7 42,719,179 36,231,357
Operating fixed assets 8 2,488,619 872,730
Capital work-in-progress 8.3 37,472 33,160
Net investment in finance lease 9 53,707 43,755
Other assets 10 8,827,987 6,882,772
---------- ----------
89,358,167 72,403,650
LIABILITIES
Deposits and other accounts 11 76,541,153 63,429,709
Borrowings from other banks, agents etc. 12 6,243,517 4,914,558
Bills payable 1,064,151 802,367
Other liabilities 13 2,487,440 1,741,598
---------- ----------
86,356,261 70,888,232
---------- ----------
Net Assets 3,001,906 1,515,418
========== ==========
REPRESENTED BY
Share capital 14 1,063,156 1,063,156
Reserve fund and other reserves 15 455,760 451,760
Unappropriated profit 16,094 502
---------- ----------
Shareholders' equity 1,535,010 1,515,418
Surplus on revaluation of fixed assets 8.1 1,466,896 -
---------- ----------
3,001,906 1,515,418
========== ==========
MEMORANDUM ITEMS
Bills for collection 16 10,910,897 10,062,812
Acceptances, endorsements and other obligations 13,354,826 13,622,536
Contingent liabilities and commitments 17
The annexed notes form an integral part of these financial statements.
Rashid M. Chaudhry
Chairman
M. Salim Shaikh S. Jauhar Husain I.A. Usmani
Director Director Director
Tanwir Ali Agha Athar Mehmood Khan M. Yousuf Memon
Director Director Director
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 1998
(Rs. in '000)
1998 1997
Note Rupees Rupees
Mark-up/interest and discount and/or return earned 6,059,060 5,026,784
Less: Cost/return on deposits, borrowings etc. 5,289,971 4,639,053
---------- ----------
769,089 387,731
Fees, commissions and brokerage 426,229 361,322
Profit from dealing securities 1,033,310 1,130,242
Profit from investment securities 755,170 564,453
Dividend income 14,401 18,398
Other operating income 18 607,820 1,191,176
---------- ----------
2,836,930 3,265,591
---------- ----------
3,606,019 3,653,322
Operating expenses
Administrative expenses 19 3,396,440 2,960,699
Provision (written back)/made against
non-performing advances 7.2 (254,985) 712,492
Loss on diminution in the value of investments 218,398 (9,649)
Other provisions 36,587 33,157
---------- ----------
3,396,440 3,696,699
---------- ----------
209,579 (43,377)
Other income 20 88,017 104,144
---------- ----------
297,596 60,767
Other charges 21 128,004 32,001
---------- ----------
Profit before taxation 169,592 28,766
---------- ----------
Taxation    -current 22 1,500,001 335,125
- deferred - (320,023)
---------- ----------
150,000 15,102
Profit after taxation 19,592 13,664
Unappropriated profit brought forward 502 338
---------- ----------
Profit available for appropriation 20,094 14,002
Appropriations
Transfer to statutory reserve 4,000 13,500
---------- ----------
Unappropriated profit carded forward 16,094 502
========== ==========
The annexed notes form an integral part of these financial statements.                             C~
Rashid M. Chaudhry
Chairman
M. Salim Shaikh S. Jauhar Husain I.A. Usmani
Director Director Director
Tanwir Ali Agha Athar Mehmood Khan M. Yousuf Memon
Director Director Director
CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 1998
(Rs. in '000)
1998 1997
Rupees Rupees
Cash Flow From Operating Activities
Profit before taxation 169,592 28,766
Less: Profit from investments (755,170) (564,453)
Dividend income (14,401) (18,398)
---------- ----------
(599,979) (554,085)
Adjustment for non-cash items
Depreciation 125,381 118,836
Provision against non-performing advances (254,985) 712,492
Loss on diminution in the value of investments 218,398 (9,649)
Other provisions 36,587 33,157
Amortization of deferred costs 128,004 32,001
Profit on disposal of fixed assets (21,340) (8,289)
Profit on disposal of investments (64) (32,029)
---------- ----------
231,981 846,519
---------- ----------
(367,998) 292,434
(Increase) in operating assets
Advances (6,232,837) (4,177,966)
Other assets (excluding advance tax) (1,238,302) (974,835)
---------- ----------
(7,471,139) (5,152,801)
Increase in operating liabilities
Deposits and other accounts 13,111,444 7,532,909
Bills payable 281,784 253,792
Other liabilities 746,095 152,451
---------- ----------
14,139,323 7,939,152
---------- ----------
Cash flow before tax 6,300,186 3,078,785
Income tax paid (1,072,808) (688,080)
---------- ----------
Net cash flow from operating activities 5,227,378 2,390,705
Cash Flow From Investing Activities
Net (purchase) of investments (5,631,105) (4,598,308)
Profit from investments 755,170 564,453
Dividend received 14,401 18,398
Net proceeds of finance lease 41,115 40,302
Fixed capital expenditure (342,227) (127,623)
Sale proceeds of fixed assets 84,865 24,630
---------- ----------
Net cash used in investing activities (5,077,781) (4,078,148)
Cash Flow From Financing Activities
Proceeds from issue of shares - 112,359
Borrowings from other banks, assets etc. 1,328,959 899,365
---------- ----------
Net cash flow from financing activities 1,328,959 1,011,724
Increase/(Decrease) in Cash and Cash Equivalents during the year 1,478,556 (675,719)
Cash and Cash Equivalents at January 1 8,147,177 8,822,896
---------- ----------
Cash and Cash Equivalents at December 31 9,625,733 8,147,177
========== ==========
Cash and Cash Equivalents
Cash 7,646,937 6,316,337
Balances with other banks 1,878,796 1,380,840
Money at call and short notice 100,000 450,000
---------- ----------
9,625,733 8,147,177
========== ==========
Rashid M. Chaudhry
Chairman
M. Salim Shaikh S. Jauhar Husain I.A. Usmani
Director Director Director
Tanwir Ali Agha Athar Mehmood Khan M. Yousuf Memon
Director Director Director
NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1998
1. Status and Nature of Business
Allied Bank of Pakistan Limited (the Bank) was incorporated in Pakistan and is a scheduled bank 'I
engaged in commercial banking and related services. The Bank was operating as a nationalized    ·
bank fully controlled by the Government of Pakistan (GOP) until September 11, 1991 when the
GOP handed over the management of the Bank to the Bank's employees. The GOP has since
disinvested 51% of its shareholding to the employees.
2. Basis of Presentation
2.1 These financial statements have been prepared in accordance with the requirements of BPRD
Circular No. 31 dated August 13, 1997 issued by the State Bank of Pakistan (SBP). This circular
has amended the Second Schedule to the Banking Companies Ordinance, 1962.
2.2 In accordance with the directives of the GOP regarding the shifting of the banking system to Islamic
modes, the SBP has issued various circulars from time to time. One permissible form of trade-relat-
ed mode of financing comprises of purchase of goods by the Bank from its customers and resale to
them at appropriate mark-up in price on deferred payment basis. The purchases and sales arising
under these arrangements are not reflected in these financial statements as such but are restricted
to the amount of facility actually utilized and the appropriate portion of mark-up thereon.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
3.1 Historical Cost Convention
These financial statements have been prepared under the historical cost convention as modified
by revaluation of certain fixed assets as indicated in note 8.1.
3.2 Staff Retirement Benefits
The Bank operates an approved funded pension scheme for eligible employees. Contributions to
the fund are made to discharge the liability on the basis of actuarial valuation. The principal
assumptions used for actuarial valuation are as follows:
- Salary escalation 6% per annum
- Pension escalation 0% per annum
- Discount rate 8% per annum
- Withdrawal 2% per annum upto age 40
Further, the Bank also operates an unfunded gratuity scheme for those employees who have not
opted for the pension scheme.
3.3 Taxation
Current
Provision for current taxation is based on taxable income after taking into account tax rebates, if any.
Deferred
The Bank accounts for deferred taxation on major timing differences using the liability method.
Deferred tax debits are recognized when there is a reasonable expectation of realization.
3.4 Advances
Advances are stated at their principal amount less provision for balances considered doubtful. Specific
provisions are made against advances if their recovery is in doubt and additional provisions are made
in accordance with the requirements specified in the Prudential Regulations issued by the SBP.
Uncollectible advances are recognized as expense where full and final settlements are made,
and/or there are no chances of recoveries.
3.5 Investments
Long term investments in listed securities are carried at cost. Provisions are made for other than
temporary diminution in the value of investments. Short term investments in listed securities are
valued at the lower of cost and market value determined on an aggregate portfolio basis.
Investments in unlisted securities are stated at cost less provision for diminution, other than tempo-
rary in value thereof, determined by using their breakup values.
Securities issued by the Federal and Provincial Governments are shown at amortized values and
accordingly difference between face value and purchase cost is amortized on a straight line basis
over the term of the respective securities.
3.6 Operating Fixed Assets and Depreciation
Fixed assets are stated at cost or revalued amount less accumulated depreciation. Depreciation is
charged to income over the estimated useful lives of the respective assets using the diminishing
balance method except motor vehicles which are depreciated on straight line method. Full year's
depreciation is provided on fixed assets acquired during the year while no depreciation is charged
on the assets disposed of during the year.
Gains and losses on disposal of fixed assets are taken to income currently.
3.7 Revenue Recognition
Revenue from advances is generally recognized on accrual basis except in case of loans classi-
fied under the Prudential Regulations on which return is taken to suspense account until realized.
Fees, commission and brokerage income is recognized when earned.
Dividend income is recognized when the right to receive the dividend is established.
3.8 Foreign Currencies
The financial statements of foreign branches and other foreign balances are translated into Rupees
at the rates of exchange prevailing at the balance sheet date except those convered by forward
exchange contracts which are translated at contracted rates. Foreign currency transactions are
coverted into Rupees by applying the exchange rate at the date of the respective transactions.