| Al Faysal Investment Bank Limited |
|
|
|
|
|
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|
|
|
| Annual
Report 1999 |
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| Contents |
|
|
| Company
Information |
|
| Financial
Highlights |
|
| Directors'
Report and Chief Executive's Review |
|
| Auditors'
Report to the Members |
|
| Balance Sheet |
|
|
| Profit
and Loss Account |
|
| Statement
of Cash Flow |
|
| Notes
to the Accounts |
|
| Pattern
of Shareholding |
|
| Notice
of Annual General Meeting |
|
| Branch Network |
|
|
|
|
| Company
Information |
|
|
| Board
of Directors |
|
|
|
| HRH
Prince Mohamed Al Faisal Al Saud |
|
| Chairman |
|
|
| Muazzam Ali |
|
| Vice Chairman |
|
|
| Mohammad
Khan Hoti |
|
| Chief Executive |
|
|
| Omar Abdi Ali |
|
| Farook Bengali |
|
| Mahmood
A. Faruqui |
|
| Khaled
Abdulla-Janahi |
|
| Istaqbal Mehdi |
|
|
| Corporate
Secretary |
|
| Mansoor
H. Hamdani |
|
|
| Auditors |
|
| A.
F. Ferguson & Co. |
|
| Chartered
Accountants |
|
|
| Legal Advisors |
|
| Chima
& Ibrahim |
|
| Mohsin
Tayebaly & Co. |
|
| Cornelius
Lane & Mufti |
|
|
| Bankers |
|
| Faysal
Bank Limited |
|
| Muslim
Commercial Bank Limited |
|
| National
Bank of Pakistan |
|
| Allied
Bank of Pakistan |
|
| Societe
Generale Bank |
|
| Al
Baraka Islamic Investment Bank |
|
| Standard
Chartered Bank |
|
|
| Registered
Office |
|
| 15
West, Jinnah Avenue, |
|
| Blue
Area, Islamabad. |
|
|
| Registrars |
|
| Ferguson
Associates (Pvt.) Ltd. |
|
| 1-A
State Life Building, |
|
| I.
I. Chundrigar Road, |
|
| P.O. Box 4716, |
|
| Karachi. |
|
|
|
| Financial
Highlights |
|
| Five
Years at a Glance |
|
|
|
|
Rupees in Million |
|
|
|
|
|
|
1995 |
1996 |
1997 |
1998 |
1999 |
|
| Financial
Position |
|
| Total
paid-up capital |
783 |
783 |
783 |
979 |
979 |
|
| Total
shareholders' equity |
1,031 |
1,066 |
1,385 |
1,520 |
1,432 |
|
| Total assets |
|
9,726 |
12,187 |
12,619 |
19,142 |
24,560 |
|
| Clients'
accounts |
8,282 |
10,470 |
10,596 |
16,866 |
21,924 |
|
| Morabahas |
|
6,411 |
8,096 |
8,856 |
12,349 |
16,551 |
|
|
|
|
| Operating
Results |
|
| Fee
based revenue |
121 |
120 |
96 |
85 |
86 |
|
| Total revenues |
|
1,255 |
1,641 |
2,092 |
2,100 |
3,583 |
|
| Operating
expenses |
143 |
139 |
135 |
132 |
127 |
|
| Profit
before provisions and tax |
203 |
328 |
498 |
381 |
434 |
|
| Provisions
and adjustments |
160 |
145 |
80 |
131 |
198 |
|
| Tax |
|
19 |
30 |
98 |
80 |
55 |
|
| Profit after tax |
|
24 |
153 |
319 |
170 |
181 |
|
|
|
|
| Other Statistics |
|
|
| Earning
per share (Rs.) |
0.57 |
1.95 |
4.08 |
1.74 |
1.85 |
|
| (Basis:
Average number of shares) |
|
| Return
on average equity |
2.71% |
14.59% |
26.06% |
11.55% |
12.29% |
|
| Return
on average assets |
0.29% |
1.40% |
2.57% |
1.07% |
0.83% |
|
|
|
| Directors'
Report and Chief Executive's Review |
|
|
| To
Our Shareholders and Clients |
|
|
| As
Salam Alaykoum Wa Rahmatouh Allah Wa Barakatouh |
|
|
| On
behalf of the Board of Directors, we are pleased to present the annual report
on your Bank's operations for |
|
| the
year ended December 31, 1999. |
|
|
| ECONOMIC
PERSPECTIVE |
|
| The
economic malaise in which Pakistan finds itself is a consequence of the
economic mismanagement in the |
|
| past.
The Government needs to take some bold initiatives, which will hurt, but
there is no other way to correct |
|
| the
situation. The public should be informed that the country is passing through
a period of consolidation, during |
|
| which
we must sacrifice growth and implement painful measures so that we can get
out of the so called 'debt |
|
| trap'
and on to a sustainable development path. The necessary steps include: |
|
|
| -- Reform the tax system. |
|
| --
Eliminate price subsidies. |
|
| --
Align domestic petroleum prices with international prices. |
|
| --
Levy Retail General Sales Tax. |
|
| --
Enforce documentation of the economy. |
|
| --
Restore investors' confidence. |
|
| --
Accountability of tax evaders, loan defaulters and corrupt officials. |
|
| -- Enforce fiscal austerity. |
|
|
| --
Restore credibility of GOP commitments and sovereign guarantees. |
|
| -- Contain the current
account deficit. |
|
| -- Fair and amicable
settlement with IPPs. |
|
|
| This
scenario poses many challenges and all of us will have to tighten our belts
for the national cause. |
|
|
| PERFORMANCE
REVIEW |
|
| Considering
the political uncertainty for most of the period and non-conducive business
environment that |
|
| prevailed,
it is gratifying to note that our assets increased by more than 28% to Rs.
24.6 billion, revenues |
|
| climbed
by 70.6% to Rs. 3.6 billion and the profit after tax at Rs. 181.3 million
recorded a growth of 6.6% over |
|
| the
previous year. This was done notwithstanding: the increase in forward cover
costs; keen competition for |
|
| local
currency deposits with major banks offering lottery type schemes and decline
in profit rates which |
|
| adversely
affected the margins. With disciplined expense management, the general and
administration |
|
| expenses
declined by 4% compared to last year. |
|
|
| Our
core businesses performed as under: |
|
|
| 1.
Morabaha Financings. |
|
|
|
| This
sector continues to represent more than two thirds of our total asset
portfolio. In 1999 the financings |
|
| increased
by 34% to Rs. 16.6 billion. Ours is fundamentally a business of managing risk
and operating |
|
| as
we do in an environment of rapidly changing circumstances, we have decided to
provide Rs. 75.66 |
|
| million
towards doubtful financings. |
|
|
|
|
|
| 2.
Capital Markets and Investment Management Services. |
|
| The
equity market remained volatile during the year affected by developments like
the IPP controversy, |
|
| political
uncertainty and the flaring up of tension at the border with a neighbouring
country. Hopefully the |
|
| new
government will restore some stability to the market. |
|
|
|
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| We
recognise the need for continuing the prudent policy towards our exposure to
the capital market. |
|
| Accordingly,
we have adjusted Rs. 129.737 million for diminution in the value of long-term
investments, |
|
| and
Rs. 0.646 million against investments under purchase and resale agreements. |
|
|
| 3.
Corporate Finance and Advisory Services. |
|
| In
line with the weak stock market and adverse economic conditions this division
performed at around |
|
| the
previous year's level. Considering the general economic environment in the
short to medium term |
|
| we
expect the growth in this sector to be rather slow. |
|
|
| 4.
Private Client Services. |
|
| This
business area has been seeing intense competition for resource mobilisation
over the last two years. |
|
| While
the large commercial banks have been directed by SBP to stop their lottery
type schemes- instead |
|
| the
GOP has launched new similarly tempting Prize Bonds, that are attracting very
substantial funds. |
|
|
| During
1999 deposits grew by 30% to Rs. 21.9 billion. We would like to highlight the
ongoing and excellent |
|
| support
of our principal shareholder, the DMI Group, whose deposits increased by
60.4% to Rs. 14.8 billion. |
|
|
| Considering
the overall satisfactory results for the year, your Board of Directors
proposes a final dividend of 20% |
|
| which
along-with the interim dividend of 7.5% paid earlier represents an
appropriation of 80% of the 1999 profit |
|
| after
tax and Rs.124.077 million from retained earnings. |
|
|
| CREDIT
RATING |
|
| We
are very pleased to report that ARBL has been assigned a rating of AA+ for
the long-term and A1+ for the |
|
| short-term.
This is the highest rating in the financial sector in the country awarded by
the Pakistan Credit Rating |
|
| Agency
(PACRA) an affiliate of FITCH IBCA Inc., the third largest rating agency in
the world after Moody's and |
|
| Standard
& Poor. This rating denotes virtually the lowest expectation of credit
risk and reflects exceptionally strong |
|
| capacity
for timely repayment of financial commitments. |
|
|
| THE BOARD |
|
| We
want to pay special tribute to HRH Prince Amr Mohamed Al Faisal Al Saud, Dr.
Mahmoud El Helw and Mr. |
|
| Imtiaz
Ahmed Pervez who chose to retire and did not seek re-election to the Board at
the AGM held in May 1999. |
|
|
| They
had been associated with the organisation since it's incorporation and have
over the years provided us |
|
| with
the benefit of their experience and expertise. |
|
|
| Mr.
Razi-ur-Rehman Khan had been on our Board since 1996 as a nominee of the
National Investment Trust, |
|
| and
on leaving NIT he also resigned from our Board. |
|
|
| We
take this opportunity of thanking them all for their valuable contributions
and wish them all the best for the |
|
| future. |
|
|
| We
wish to record our appreciation for the efforts put in by staff at all
levels. The employees are our most important |
|
| asset
and AFIBL is committed to investing in their development. |
|
|
| AFIBL's
strategic objective is to enhance it's position as a consistently profitable
market leader and to become |
|
| a
low cost provider of financial products. The strategy includes control of
operating expenses to improve |
|
| competitiveness
and profitability, and growth in revenues through broadening the customer
base. |
|
|
| As
mentioned earlier Pakistan is passing through a critical phase and given
stability and bold leadership we believe |
|
| the
future will be promising. |
|
|
|
|
|
|
Mohammad Khan Hoti |
|
| March 2, 2000 |
|
Chief Executive |
|
|
|
|
| Auditors'
Report to the Members |
|
|
| We
have audited the annexed balance sheet of Al Faysal Investment Bank Limited
as at December 31, 1999 |
|
| and
the related profit and loss account and statement of cash flow together with
the notes forming part thereof, |
|
| for
the year then ended and we state that we have obtained all the information
and explanations which to the |
|
| best
of our knowledge and belief were necessary for the purposes of our audit and,
after due verification thereof, |
|
| we report that: |
|
|
| (a)
in our opinion, proper books of account have been kept by the Company as
required by the Companies |
|
| Ordinance,
1984; |
|
|
|
|
|
|
| (b)
in our opinion |
|
|
|
|
| (i)
the balance sheet and profit and loss account together with the notes thereon
have been drawn |
|
| up
in conformity with the Companies Ordinance, 1984, and are in agreement with
the books of |
|
| account
and are further in accordance with accounting policies consistently applied; |
|
|
|
| (ii)
the expenditure incurred during the year was for the purpose of the Company's
business; and |
|
|
| (iii)
the business conducted, investments made and the expenditure incurred during
the year were |
|
| in
accordance with the objects of the Company; |
|
|
|
|
| (c)
in our opinion and to the best of our information and according to the
explanations given to us, the |
|
| balance
sheet, profit and loss account and the statement of cash flow together with
the notes forming |
|
| part
thereof, give the information required by the Companies Ordinance, 1984 in
the manner so required |
|
| and
respectively give a true and fair view of the state of the Company's affairs
as at December 31, 1999 |
|
| and
of the profit and cash flows for the year then ended; and |
|
|
| (d)
in our opinion, zakat deductible at source under the Zakat and Ushr
Ordinance, 1980, was deducted |
|
| by
the Company and deposited in the Central Zakat Fund established under section
7 of that Ordinance. |
|
|
|
|
| Islamabad |
|
A. F. Ferguson & Co. |
|
| March 3, 2000 |
|
Chartered Accountants |
|
|
|
|
| Balance
Sheet as at December 31, 1999 |
|
|
|
Rupees in
thousand |
|
|
Note |
1999 |
1998 |
|
|
|
|
| SHARE
CAPITAL |
|
|
|
|
|
|
| Authorised
capital |
|
|
|
| 100,000,000
ordinary shares of Rs 10 each |
|
1,000,000 |
1,000,000 |
|
|
|
========== |
========== |
|
| Issued capital |
|
|
|
|
| 97,875,000
(1998: 97,875,000) ordinary |
|
|
|
| shares
of Rs 10 each |
|
978,750 |
978,750 |
|
|
|
|
========== |
========== |
|
|
|
|
|
|
| Subscribed
and paid-up capital |
|
3 |
978,721 |
978,721 |
|
|
|
|
|
|
| CAPITAL
RESERVE |
|
|
|
| Statutory
reserve |
|
3 |
226,707 |
190,439 |
|
|
|
|
|
| REVENUE
RESERVE |
|
|
|
| Unappropriated
profit |
|
3 |
226,562 |
350,639 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
1,431,990 |
1,519,799 |
|
| LONG
TERM LIABILITY AGAINST ASSETS |
|
|
| SUBJECT
TO FINANCE LEASE |
|
4 |
-- |
5,523 |
|
|
|
|
|
| LONG
TERM CERTIFICATES OF INVESTMENT |
|
5 |
2,412,278 |
3,445,969 |
|
|
|
|
|
|
|
|
| CURRENT
LIABILITIES AND PROVISIONS |
|
|
|
| Liability
against assets subject to finance lease |
|
4 |
5,523 |
5,223 |
|
| Certificates
of investment |
|
5 |
16,182,365 |
13,374,716 |
|
| Federal
Government Deposits against sale |
|
|
|
|
| proceeds
of Special US Dollar Bonds |
|
|
3,314,499 |
30,802 |
|
| Due to banks |
|
6 |
15,000 |
15,000 |
|
| Creditors,
accrued and other liabilities |
|
7 |
1,002,978 |
744,304 |
|
| Proposed
dividend |
|
|
195,744 |
-- |
|
|
|
|
------------------ |
------------------ |
|
|
|
20,716,109 |
14,170,045 |
|
| CONTINGENCIES
AND COMMITMENTS |
|
8 |
|
|
|
|
------------------ |
------------------ |
|
|
|
24,560,377 |
19,141,336 |
|
|
========== |
========== |
|
|
|
| FIXED ASSETS |
|
|
9 |
124,850 |
35,990 |
|
| LONG
TERM MORABAHA FINANCING |
|
10 |
5,483,404 |
3,896,675 |
|
| LONG
TERM INVESTMENT |
|
11 |
1,370,996 |
1,280,940 |
|
| LONG
TERM RECEIVABLES AND PREPAYMENTS |
12 |
23,617 |
42,660 |
|
| DEFERRED
COSTS |
|
13 |
-- |
75 |
|
| DEFERRED
TAXATION |
|
|
69,850 |
42,991 |
|
|
|
|
|
|
| CURRENT
ASSETS |
|
|
|
|
| Deposits,
prepayments and other receivables |
|
14 |
1,739,812 |
1,061,700 |
|
| Shod
term morabaha financing |
|
15 |
11,067,754 |
8,452,732 |
|
| Shod
term investment |
|
16 |
313,460 |
325,257 |
|
| Cash
and bank balances |
|
17 |
4,366,634 |
4,002,316 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
17,487,660 |
13,842,005 |
|
|
|
|
------------------ |
------------------ |
|
|
|
24,560,377 |
19,141,336 |
|
|
|
|
========== |
========== |
|
|
|
|
|
| The
annexed notes form an integral pad of these accounts. |
|
|
|
|
|
|
|
|
|
|
Mohammad Khan Hoti |
|
Farook Bengali |
|
|
Chief Executive |
|
Director |
|
|
|
|
|
|
| Profit
and Loss Account |
|
| for
the year ended December 31, 1999 |
|
|
|
|
Rupees in
thousand |
|
|
|
|
|
Note |
1999 |
1998 |
|
|
|
|
| INCOME |
|
|
|
| Profit
on morabaha financing |
|
|
|
2,552,807 |
1,389,435 |
|
| Income
on investment and bank placements |
|
18 |
824,299 |
571,573 |
|
| Net
gain on sale of investment |
|
|
120,334 |
54,315 |
|
| Other income |
|
19 |
85,607 |
84,994 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
3,583,047 |
2,100,317 |
|
|
|
|
| EXPENDITURE |
|
|
|
| Return on |
|
|
|
| Certificates
of investment and related costs |
|
20 |
2,737,600 |
1,556,263 |
|
| Federal
Government Deposits against sale |
|
|
|
| proceeds
of Special US Dollar Bonds |
|
|
211,376 |
195 |
|
| Due to banks |
|
|
|
73,371 |
31,315 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
3,022,347 |
1,587,773 |
|
| Administrative
and other operating expenses |
|
21 |
126,715 |
132,019 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
3,149,062 |
1,719,792 |
|
|
|
|
| OPERATING
PROFIT BEFORE PROVISION AND ADJUSTMENT |
|
433,985 |
380,525 |
|
| Provision
against doubtful morabaha financing |
|
|
75,658 |
10,946 |
|
| Morabaha
Financing written off |
|
|
|
-- |
3,565 |
|
| Provision
against investment under purchase and |
|
|
|
|
| resale
agreements |
|
|
|
(8,207) |
10,762 |
|
| Investment
under purchase and resale agreements |
|
|
|
|
| written off |
|
|
|
646 |
-- |
|
| Adjustment
for diminution in value of long term investment |
22 |
129,737 |
105,612 |
|
|
|
|
------------------ |
------------------ |
|
| PROFIT
BEFORE TAXATION |
|
|
|
236,151 |
249,640 |
|
| PROVISION
FOR TAXATION |
|
|
23 |
54,812 |
79,502 |
|
|
|
|
------------------ |
------------------ |
|
| PROFIT
AFTER TAXATION |
|
|
181,339 |
170,138 |
|
| Unappropriated
profit brought forward |
|
|
350,639 |
214,529 |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
531,978 |
384,667 |
|
| Appropriations: |
|
|
|
|
|
| Transfer
to statutory reserve |
|
|
|
36,268 |
34,028 |
|
| Interim
dividend - 7.5% |
|
|
|
73,404 |
-- |
|
| Proposed
final dividend - 20% |
|
|
|
195,744 |
-- |
|
|
|
|
------------------ |
------------------ |
|
|
|
|
|
|
305,416 |
34,028 |
|
|
|
|
|
|
------------------ |
------------------ |
|
| UNAPPROPRIATED
PROFIT CARRIED FORWARD |
|
226,562 |
350,639 |
|
|
|
|
|
|
========== |
========== |
|
|
|
|
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
Mohammad Khan Hoti |
|
Farook Bengali |
|
|
Chief Executive |
|
Director |
|
|
|
| Statement
of Cash Flow |
|
| for
the year ended December 31, 1999 |
|
|
|
|
Rupees in
thousand |
|
|
|
Note |
1999 |
1998 |
|
|
|
|
| CASH
FLOWS FROM OPERATING ACTIVITIES |
|
|
| Cash
generated from operations |
|
26 |
3,380,752 |
53,506 |
|
| Net
increase in certificates of investment |
|
|
1,773,958 |
6,264,672 |
|
| Net
increase in morabaha financing |
|
|
(4,277,409) |
(3,504,118) |
|
| Taxes paid |
|
|
(127,584) |
(146,405) |
|
|
|
|
------------------ |
------------------ |
|
| Net
cash provided by operating activities |
|
|
749,717 |
2,667,655 |
|
|
|
|
| CASH
FLOWS FROM INVESTING ACTIVITIES |
|
|
| Sale
proceeds of fixed assets |
|
9,644 |
2,537 |
|
| Additions
to fixed assets |
|
(115,666) |
(2,663) |
|
| Long
term investment |
|
(219,793) |
(356,227) |
|
| Long
term prepayments and receivables |
|
19,043 |
(10,747) |
|
|
|
------------------ |
------------------ |
|
| Net
cash used in investing activities |
|
(306,772) |
(367,100) |
|
|
|
|
| CASH
FLOWS FROM FINANCING ACTIVITIES |
|
|
| Dividend paid |
|
(73,404) |
-- |
|
| Liability
against assets subject to finance lease |
|
(5,223) |
(4,386) |
|
|
|
|
------------------ |
------------------ |
|
| Net
cash used in financing activities |
|
|
(78,627) |
(4,386) |
|
|
|
|
| NET
INCREASE IN CASH AND |
|
|
|
| CASH
EQUIVALENTS |
|
|
364,318 |
2,296,169 |
|
|
|
|
| CASH
AND CASH EQUIVALENTS AT BEGINNING OF |
|
| THE YEAR |
|
|
4,002,316 |
1,706,147 |
|
|
|
|
------------------ |
------------------ |
|
| CASH
AND CASH EQUIVALENTS AT END OF THE YEAR |
18 |
4,366,634 |
4,002,316 |
|
|
|
|
========== |
========== |
|
|
|
|
|
|
| The
annexed notes form an integral part of these accounts. |
|
|
|
Mohammad Khan Hoti |
|
Farook Bengali |
|
|
Chief Executive |
|
Director |
|
|
|
| Notes
to the Accounts |
|
| for
the year ended December 31, 1999 |
|
|
| 1.
LEGAL STATUS AND OPERATIONS |
|
| Al
Faysal Investment Bank Limited is a public limited company and its shares are
quoted on the Stock |
|
| Exchanges
in Pakistan. |
|
|
| The
Company was incorporated in Pakistan on October 17, 1991 to promote
application of Islamic |
|
| principles,
laws and traditions to the transactions of financial institutions and related
business affairs |
|
| including
investment of funds as notified in SRO 585(I)/87 dated July 13, 1987 issued
by the Ministry |
|
| of Finance. |
|
|
| 2.
SIGNIFICANT ACCOUNTING POLICIES |
|
|
|
|
|
| 2.1
Accounting convention |
|
|
|
| These
accounts have been prepared under the historical cost convention. |
|
|
|
|
|
|
| 2.2 Taxation |
|
|
| Provision
for current taxation is based on taxable income at the current rates of tax.
Provision for |
|
| deferred
taxation is made on all major timing differences, using the liability method. |
|
|
|
| 2.3 Fixed assets |
|
| Fixed
assets are stated at cost less accumulated depreciation. Depreciation is
charged on straight |
|
| line
method over the estimated useful life of the asset, commencing from the month
in which the |
|
| asset
is purchased. Gain or loss on deletion of assets is included in current
year's income. |
|
|
