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Bank Alfalah
Annual Report 1998
AUDITORS REPORT TO THE MEMBERS
We have audited the annexed balance sheet of BANK ALFALAH LIMITED as at December 31, 1998 and the related profit and loss account and the cash flow statement, together with
the notes forming part thereof for the year then ended, in which were incorporated the unaudited certified returns from branches except for three branches which have been audited by
us and we state that we have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit, and after due
verification thereof, 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 branches
have been found adequate for the purposes 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 accordance with amounting policies consistently applied except for the
change in an accounting policy as explained in note 3.6 with which we concur;
(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 cash flow statement, together with the
notes forming part thereof give the information required by the Banking Companies Ordinance, 1962 and the Companies Ordinance, 1984 in the manner so required and 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 flows for the year then ended; and
(d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980, was deducted by the bank and deposited in the Central Zakat Fund established under
section 7 of that Ordinance.
The accounts of Bank Alfalah Limited for the year ended December 31, 1997 were audited by another firm of Chartered Accountants, who have expressed an unqualified opinion
thereon dated April 28, 1998.
Karachi					Chartered Accountants
Dated: 08 March, 1999					A.F. FERGUSON & CO
BALANCE SHEET AS AT DECEMBER 31, 1998
				Note	1998	1997
					(Rupees in thousand)
ASSETS
Cash				4	721,285	471,538
Balances with other banks				5	386,211	60,636
Money at call and short notice					248,000	400,000
Investments				6	3,406,514	3,348,747
Advances - net of provisions				7	7,757,708	4,849,653
Operating fixed assets				8	263,760	175,397
Other assets				9	1,537,629	1,220,666
					----------	----------
					14,321,107	10,526,637
LIABILITIES
Deposits and other accounts				10	11,878,221	9,018,777
Borrowings from other banks, agents etc.				11	1,348,313	553,042
Bills payable					51,737	64,491
Other liabilities				12	176,630	167,079
Deferred liability - staff retirement gratuity					7,400	9,807
					----------	----------
					13,462,301	9,813,196
					----------	----------
NET ASSETS					858,806	713,441
					==========	==========
REPRESENTED BY
Share capital				13	600,000	600,000
Reserve fund and other reserves				14	255,094	111,021
Unappropriated profits					3,712	2,420
					----------	----------
					858,806	713,441
					==========	==========
MEMORANDUM ITEMS
Bills for collection				15	1,759,691	962,570
Acceptances, endorsements and other obligations					963,260	1,570,129
Contingent liabilities and commitments				16
The annexed notes form an integral part of these accounts.
Mohammad Saleem Akhtar		Ikramul Majeed Seghal		Abdullah Naseer Hawaileel Al-Mansoori				Nahayan Mabarak Al-Nahayan
Chief Executive Officer		Director		Director				Chairman
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 1998
				Note	1998	1997
					(Rupees in thousand)
Mark-up/interest and discount and/or return earned					1,625,352	1,056,284
Less: Cost/return on deposits, borrowings etc.					1,313,564	933,996
					----------	----------
					311,788	122,288
					----------	----------
Fees, commissions and brokerage					39,438	49,211
Profit from investment securities					3,345	-
Other operating income - income from dealing
in foreign currencies                                        I					121,764	127,891
					----------	----------
					164,537	177,102
					----------	----------
					476,325	299,390
Operating expenses
Administrative expenses				17	337,447	233,195
Provision against non-performing advances - net				7.2	94,756	74,462
					----------	----------
					432,203	307,657
					----------	----------
					44,122	(9,267)
Other income				18	23,614	14,989
					----------	----------
Profit before taxation					67,736	6,722
Taxation-Current				19	(405,141)	(6,620)
- Deferred					482,770	-
					----------	----------
					77,629	(6,620)
					----------	----------
Profit after taxation					145,365	102
Unappropriated profit brought forward					2,420	2,339
					----------	----------
Profit available for appropriation					147,785	2,441
Appropriations
Transfer to statutory reserve					(29,073)	(21)
Transfer to general reserve					115,000	-
					----------	----------
Unappropriated profit carried forward					3,712	2,420
					==========	==========
The annexed notes form an integral part of these accounts.
Mohammad Saleem Akhtar		Ikramul Majeed Seghal		Abdullah Naseer Hawaileel Al-Mansoori				Nahayan Mabarak Al-Nahayan
Chief Executive Officer		Director		Director				Chairman
CASH FLOW STATEMENT OR THE YEAR ENDED DECEMBER 31, 1998
					1998	1997
					(Rupees in thousand)
CASH FLOW FROM OPERATING ACTIVITIES
Profit before taxation					67,736	6,722
Adjustment for non-cash charges
Depreciation					15,274	14,283
Provision against non-performing advances - net					94,756	74,462
Profit on sale of fixed assets					(265)	(295)
Provision for gratuity					15,751	8,546
					----------	----------
					125,516	96,996
					----------	----------
					193,252	103,718
Increase/(decrease) in operating assets
Government securities					82,888	284,912
Advances					(3,002,811)	(1,332,545)
Other assets					(32,510)	(272,010)
					----------	----------
					(2,952,433)	(1,319,643)
Increase/(decrease) in operating liabilities
Deposits and other accounts					2,859,444	1,038,588
Bills payable					(12,754)	32,909
Other liabilities					(5,449)	(73,512)
					----------	----------
					2,841,241	997,985
					----------	----------
Cash flow before gratuity and tax					82,060	(217,940)
Gratuity paid					(3,158)	(4,161)
Income tax paid					(206,824)	(231,987)
					----------	----------
Net cash used in operating activities					(127,922)	(454,088)
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of investments other than Government securities					(147,500)	-
Net proceeds from the redemption of term finance certificates					6,845	8,185
Fixed capital expenditure					(107,057)	(5,035)
Sale proceeds of fixed assets					3,685	1,613
					----------	----------
Net cash flow from investing activities					(244,027)	4,763
CASH FLOW FROM FINANCING ACTIVITIES
Borrowing from other banks, agents etc.					795,271	(6,626)
Dividends paid					-	(75,000)
					----------	----------
Net cash flow from financing activities					795,271	(81,626)
					----------	----------
Increase/(decrease) in cash and cash equivalents during the year					423,322	(530,951)
Cash and cash equivalents at the beginning of the year					932,174	1,463,125
					----------	----------
Cash and cash equivalents at the end of the year					1,355,496	932,174
					==========	==========
Cash and cash equivalents
Cash					721,285	471,538
Balances with other banks					386,211	60,636
Money at call and short notice					248,000	400,000
					----------	----------
					1,355,496	932,174
					==========	==========
The annexed notes form an integral part of these accounts.
Mohammad Saleem Akhtar		Ikramul Majeed Seghal		Abdullah Naseer Hawaileel Al-Mansoori				Nahayan Mabarak Al-Nahayan
Chief Executive Officer		Director		Director				Chairman
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 1998
1. STATUS AND NATURE OF BUSINESS
Bank Alfalah Limited (formerly Habib Credit and Exchange Bank Limited) was
incorporated on June 21, 1992 as a public limited company under the
Companies Ordinance, 1984 and it commenced banking operations from
November 1, 1992. It is engaged in commercial banking and related services as
defined in the Banking Companies Ordinance, 1962.
2. BASIS OF PRESENTATION
In accordance with the directives of the Federal Government regarding the
shifting of the banking system to Islamic modes, the State Bank of Pakistan has
issued various circulars from time to time. Permissible forms of trade related
modes of financing include purchase of goods by the banks from their customers
and immediate resale to them at appropriate mark-up in price on deferred
payment basis. The purchase and sales arising under these arrangements are
not reflected in these accounts as such but are restricted to the amount of facility
actually utilised and the appropriate portion of mark-up thereon.
3. SIGNIFICANT ACCOUNTING POLICIES
3.1 Accounting Convention
These accounts have been prepared under the historical cost convention.
3.2 Advances
These are stated net of provisions for bad and doubtful debts. The provision for
bad and doubtful balances is made in accordance with the Prudential
Regulations of the State Bank of Pakistan.
3.3 Investments
Investments are stated at cost less provisions for any diminution in value. Gains
or losses on disposal during the year are taken to profit and loss account.
Premium/discount on purchase of investments are amortized over the term of
such investments.
3.4 Foreign Currencies
Assets and liabilities in. foreign currencies are translated into Pak rupees at the
rates of exchange approximating those prevailing at the balance sheet date.
Contingent liabilities for outstanding forward contracts, letters of credit and
acceptances are translated at the contracted rates. Exchange gains or losses are
included in the profit and loss account.
3.5 Operating Fixed Assets and Depreciation
These are stated at cost less accumulated depreciation. Depreciation is charged
to income applying the straight line method.
Maintenance and normal repairs are charged to income as and when incurred.
Major renewals and improvements are capitalized. Gains or losses on disposal of
fixed assets are taken to the profit and loss account.
3.6 Taxation
Taxation charge in the accounts is based on the taxable income.
The bank accounts for deferred taxation on timing differences using the liability
method. From the current year the bank has started recognizing the net deferred
tax debits in the accounts. Previously net deferred tax debits were not accounted
for. This change in accounting policy resulted in recognition of net deferred tax
debit of Rs. 482.770 million in the current year's accounts, consequentially the
profit after tax for the year has increased by the same amount.
3.7 Staff Retirement Benefits
The bank operates an unapproved unfunded gratuity scheme for its clerical staff
who have completed the qualifying service period under the scheme. Provision
was made annually to cover the obligation.
The bank operates an approved funded gratuity scheme for officers and
executives. Provision has been made in the accounts for estimated initial
contribution permissible under the income tax laws.
3.8 Deferred Costs
These are amortised over a maximum period of five years commencing from the
year in which these are incurred.
3.9 Revenue Recognition
Mark-up/return on advances and investments are recognized on accrual basis.
Exchange earning, fees, commission and brokerage except income from letters
of guarantee are accounted for on receipt basis.
					1998	1997
					(Rupees in thousand)
4. CASH
In hand
- local currency					89,281	44,656
- foreign currencies					89,239	64,379
					----------	----------
					178,520	109,035
					65,734	17,193
In transit-foreign currency
With State Bank of Pakistan in
- Current account					477,031	345,310
					----------	----------
					721,285	471,538
					==========	==========
5. BALANCES WITH OTHER BANKS
In Pakistan
- On current accounts					8,248	19,269
Outside Pakistan
- On current accounts					107,668	41,367
- On deposit accounts					270,295	-
					----------	----------
					386,211	60,636
					==========	==========
6. INVESTMENTS
Investment securities
Federal and Provincial Government Securities
Central Government Loans					320,000	352,121
Provincial Government Loans					18,350	49,350
Federal Investment Bonds					1,375,000	1,375,000
Short Term Federal Bonds					-	1,445,000
Treasury Bills					1,425,158	-
Government Bonds					85,341	85,341
Prize Bonds					195	120
					----------	----------
					3,224,044	3,306,932
					1998	1997
					(Rupees in thousand)
Others
Term Finance Certificates - Unquoted					147,500	-
Term Finance Certificates - Quoted					34,970	41,815
					----------	----------
					3,406,514	3,348,747
					==========	==========
Market value of quoted investments Rs. 35.739 million
(1997: Rs. 43.383 million)
Book value of unquoted investments Rs. 3,371.544 million
(1997: Rs. 3,306.932 million)
7. ADVANCES
Loans, cash credits, overdrafts etc.
in Pakistan					8,264,486	5,656,050
Bills discounted and purchased
Payable in Pakistan					403,742	22,818
Payable outside Pakistan					505,898	505,317
					----------	----------
					909,640	528,135
					----------	----------
					9,174,126	6,184,185
Specific provision for non-performing
advances - note 7.2					(1,416,418)	(1,334,532)
					----------	----------
					7,757,708	4,849,653
					==========	==========
Advances include Rs. 2,006.099 million which have been placed on non-performing
status. However, due provision has been made there against as required under pru-
dential regulations issued by the State Bank of Pakistan.
7.1 Particulars of advances
- In local currency					7,757,708	4,649,653
					==========	==========
Debts considered good in respect of
which the bank is fully secured					7,752,369	4,844,127
Debts considered good for which the bank
holds no other security than the debtors'					5,339	5,526
personal security
Debts considered good secured by the
personal liabilities of one or more parties
in addition to the personal security of the					-	-
debtors
Debts considered bad or doubtful not
provided for					-	-
					----------	----------
					7,757,708	4,849,653
					==========	==========
					Balance	Maximum total amount
					outstanding	of advances including
					at December	temporary advances
					31, 1998	granted during the year
					(Rupees in thousand)
Debts due by directors or executives of
the bank or any of them either severally
or jointly with any other persons					475	506
Debts due by companies or firms in which
the directors of the bank are interested as
directors, partners or in case of private
companies, as members					-	-
Debts due by the subsidiary companies,
controlled firms, managed modarabas and
other associated undertakings					-	-
					1998	1997
					(Rupees in thousand)
7.2 Particulars of provision against non-performing advances
Specific
Opening