What makes us Burj - State Bank of Pakistan · What makes us Burj — Purity Purity, Integrity and...

What makes us Burj

A n n u a l R e p o r t 2 0 1 3

Our Values!

What makes us Burj

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01 Vision & Mission

02 Values

03 Corporate Information

04 Board of Directors

05 Management Committee

06 Chairman’s Message

07 Message from the President & CEO

08 Directors’ Report to the Shareholders

09 Shari’ah Advisor’s Report

10 Corporate Social Responsibility

11 Statement of Compliance with the Best

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Practices of Code of Corporate Governance

12 Auditors’ Review Report to the Members on

Statement of Compliance with the Best

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Practices of the Code of Corporate Governance

13 Statement on Internal Controls

14 Auditors’ Report to the Members

15 Financial Statements

16 Pattern of Shareholdings

17 Branch Network

18 Proxy Form

Contents

VisionTo be the Islamic Bank of Choice.

MissionProvide innovative and efficient Islamic Banking solutions to exceed customer expectations and optimize shareholder value.

Annual Repor t 201302

Defining Values

Values that define our culture, our business, our processes and who we are.

Purity

Purity encompasses essential business values for Islamic Banking such as purity of return and truthfulness of character / actions

Integrity

Integrity is the essential value of banking, particularly Islamic Banking, it reflects honesty and clarity within our communication, processes and our business dealings.

Progressive Values

Values that will take us forward and reflect an enduring commitment to growth & progress.

Passion

Passion reflects a winning attitude, an obsession with our profession, delivery of highest levels of customer services and an overwhelming strive towards excellence.

Devotion

Devotion indicates the need for hard work, consistency, perseverance & a commitment towards the organization, its customers and all its stakeholders.

03Bur j Bank Limited

What makes us Burj — IntegrityPurity, Integrity and responsible Governance are the guiding principles upon which Burj Bank has been founded. Each of our values represents an ongoing challenge to maintain them at the highest level.

We strive each day for Quaid-e-Azam Mohammad Ali Jinnah’s vision of an economic system based on true Islamic concept of equality and social justices. We continue to make our operations more reflective of Integrity every day, building our portfolio in Shariah compliant investments. Stemming from the heritage of our sponsors from Saudi Arabia and the GCC, we stand firm in our belief that only “Shariah is the path to true prosperity”.

Board of Directors

Mr. Khaled Mohammed Al Aboodi Chairman

Mr. Shehab M. Gargash Vice Chairman/Director

Mr. Azam Essof Kolia Director

Mr. Azhar Hamid Director

Mr. Fuad Azim Hashimi Director

Mr. Harold E. Hutchins Director

Mr. Najmul Hassan Director

Mr. Shafqat Ali Memon Director

Mr. Ahmed Khizer Khan President / CEO

Corporate Information


Committees of the Board

Audit Committee Mr. Fuad Azim Hashimi Chairman

Mr. Azam Essof Kolia

Mr. Harold E. Hutchins

Human Resource and Mr. Azhar Hamid Chairman

Remuneration Committee Mr. Shafqat Ali Memon

Mr. Ahmed Khizer Khan

Risk Management Committee Mr. Shehab M. Gargash Chairman

Mr. Najmul Hassan


Executive Committee Mr. Najmul Hassan Chairman

Mr. Shafqat Ali Memon


Shari’ah Advisor Prof. Mufti Munib-ur-Rehman

Company Secretary Mr. Muhammad Amin Hussain

Head of Internal Audit Mr. Naushad Kamil

Head of Shari’ah Audit Mufti Syed Zahid Siraj

Legal Advisor M/s. Mohsin Tayebaly & Co.

Advocates & Corporate Legal Consultants

Auditors M/s. A. F. Ferguson & Co.

Chartered Accountants

Share Registrar F.D. Registrar Services (SMC-Pvt) Ltd.

17th Floor, Saima Trade Tower,

I. I. Chundrigar Road, Karachi.

Registered Office / Head Office Trade Centre, I. I. Chundrigar Road, Karachi.


What makes us Burj — PurityPurity, Integrity and responsible Governance are the guiding principles upon which Burj Bank has been founded. Each of these values represents an ongoing challenge to maintain at the highest level.

We continue to make our operations more reflective of Purity every day, building our portfolio in Shariah compliant investments. Stemming from the heritage of our sponsors from Saudia Arabia and the GCC, we stand firm in our belief that only Shariah is the path to true prosperity.

Board of DirectorsMr. Khaled Mohammed Al Aboodi - ChairmanKhaled Mohammed Al Aboodi is the Chief Executive Officer of Islamic Corporation for Development of the Private Sector (ICD), Islamic Development Bank Group, Jeddah. He has held this position since 2007 and has been associated with this organization since 2001 in a senior position. ICD has seen tremendous growth throughout the Islamic world. Prior to his current assignment he worked with the Ministry of Finance and National Economy, Kingdom of Saudi Arabia. He also had a stint with the World Bank from 1997 to 2001 in Washington, DC. USA. He was Assistant and Active Executive Director of Kingdom of Saudi Arabia at the World Bank group, Washington DC. USA, respectively (Period from 1995 to 2000) . He holds a Master degree in Economics from Northeastern University, Boston, USA and Bachelors in Economics from King Saud University, Riyadh, Kingdom of Saudi Arabia. He is on various Boards of companies in different companies. He became the Chairman of Burj Bank in March 2011.

Mr. Shehab M. Gargash - Vice Chairman/DirectorShehab M. Gargash is the Director of Dubai Chamber of Commerce and Industry, and is a Director in several regional funds and companies, focused on financial services, real estate and aviation. These includes Trans Iraq Bank, Buildan Development Limited, Saraya Real Estate Fund (MENA), AREIT (Arabian Real Estate Investment Trust) and Silver Air. During 12 years in the UAE banking industry his roles have included Marketing, Distribution, Trade Finance and Investment Banking, first with Citibank (1989-1993) and later on with the Emirates Bank Group (1993-2001). In 2001 he founded Daman Investments PSC, and is currently the Managing Director of the company. The company is a privately held, non-bank financial services concern focused on developing capital market opportunities within the UAE and Middle East.

He is an avid supporter of youth empowerment and is a founding member of Young Arab Leaders’ organization and has launched Alf Yad, 1 billion venture capital fund aimed at providing equity participation to Arab entrepreneurs around the world. He is the Vice Chairman of Burj Bank Limited.

Mr. Ahmed Khizer Khan - President & CEOAhmed Khizer Khan is the President & CEO of Burj Bank Limited. Prior to joining Burj Bank, he was the Chief Operating Officer of ICD. He was the Chief Executive of Barclays Global Retail and Commercial Banking of Emerging Markets based in UAE from 2006 to 2010. He was associated with Citigroup from 1997 to 2006 in various senior level assignments including Country Business Manager, Pakistan and Managing Director Operations and Technology, Central Europe. He did his MBA from Rutgers University, Newark, New Jersey and his Bachelors in Economics from Bucknell University Lewisburg Pennsylvania, USA.

Mr. Azam Essof KoliaAzam Essof Kolia is a well reputed business executive and has an influential presence in the Asia Pacific market, especially in the import and export trade of commodity products, like edible oil, sugar, spices and metals, especially since he has been engaged in this trade for the last 30 years. Taking on influential positions in so many companies, both locally and internationally, Mr. Kolia is indeed a prominent and highly respectable figure. He is also extensively involved in various social and charitable organizations.


Mr. Azhar HamidAzhar Hamid is an international banker with a career spanning over 41 years with Grindlays Bank, ANZ Bank and latterly Standard Chartered Bank. Appointed as the first Pakistani Country Head of ANZ Grindlays Bank in Pakistan in 1994. After acquisition of the Bank in 2000 by Standard Chartered Bank, was asked to continue as the Country Head of the combined bank.

After introduction of a Riba free financial system in Pakistan in 1985, led the team that established the First Grindlays Modaraba which was and still is, the most successful and dominant modaraba company in the Country.

Senior overseas assignments with ANZ Bank include UK, Bahrain, Jordan, and Australia. He has served on the board of Grindlays Bahrain Bank in Bahrain and Khushhali Bank.

Upon retirement in 2003 he was appointed by the Government of Pakistan as director Main Board of the State Bank of Pakistan a position he relinquished when asked by the Government to establish a Banking Mohtasib (Ombudsman) function in the Country. He was thus the first Banking Mohtasib (Ombudsman) in Pakistan and completed his 3 years term in May 2008.

In July 2008 was invited by the Chief Minister Punjab to serve as director on the Board of the Bank of Punjab which position he relinquished in September 2009.

He has served on several Pakistan Government and State Bank of Pakistan committees on economic reforms and monetary policy.

Mr. Fuad Azim Hashimi Fuad Azim Hashimi is a Fellow Member of the Institute of Chartered Accountants in England and Wales. He has over 45 years of experience in public accounting and diversified business and commercial ventures in banking, sales & marketing, information technology and fund management.

He was a partner with A.F. Ferguson & Co., a member firm of Price Waterhouse & Coopers and thereafter served with Middle East Bank – Dubai, Bankers Equity Ltd., Gestetner Holdings PLC / Ricoh Company, Japan, Jaffer Group of Companies, Dawood Group and National Investment Trust Limited. From a Corporate Governance perspective, he has served as a non-executive director on the Boards of Crescent Commercial Bank Ltd., Clariant Pakistan Ltd., National Refinery Ltd., Pakistan Security Printing Corporation and Pakistan Cables Ltd., and is currently on the Board of International Industries Ltd., where he is additionally Chairman of its Audit Committee.

Mr. Hashimi heads the Pakistan Institute of Corporate Governance and has attained the Certificate of Director Education that is recognized by Securities & Exchange Commission of Pakistan for training of directors of listed companies.


Board of DirectorsMr. Harold E. HutchinsHarold Hutchins currently serves as Senior Director of Bank Alkhair. Mr. Hutchins has over 36 years of experience in the financial industry including Managing Director of M&A in New York for Chadbourne Securities and Cententia Group, and in Abu Dhabi and Dubai for Jasper Capital. He was also a Board Member and CEO of Snake Eyes Golf Clubs, a NASDAQ traded company. Additionally, Mr. Hutchins served as CFO in the building materials industry and as an Audit and Tax Partner in a regional CPA firm. Mr. Hutchins holds a BSBA degree in accounting from the University of Florida and is a former member of the American and Florida Institutes of Certified Public Accountants. In addition to CPA, Mr. Hutchins has held Series 7 and Series 63 securities licenses. He has also served on numerous Boards of charitable and civic organizations.

Mr. Najmul HassanNajmul Hassan, currently Advisor to the CEO and Head of Remedial Asset Management unit in ICD, is an accomplished Islamic Banker. Besides Burj Bank he represents ICD on the Boards of Maldives Islamic bank and Tamweel Africa.

He completed his BE in Aerospace engineering and Masters in Business Administration (MBA) in 1975 and 1983 respectively. He led the corporate, consumer banking and business development functions of Meezan Bank from 2001 to 2008. He has a proven multinational track record with extensive experience across both industry as well as financial services.

Mr. Shafqat Ali MemonShafqat Ali Memon is Senior Vice President at Bank Alkhair B.S.C Bank based in Bahrain since 2010. Bank Alkhair is a leading Islamic investment bank headquartered in the Kingdom of Bahrain with subsidiaries in Saudi Arabia, Turkey and Malaysia.

Prior to joining Bank Al-Khair, he held senior positions at Ahli United bank, Bahrain between 1999 and 2009 including Group Head of SME and Private Banking Credits, Head of Corporate banking and Head of Commercial banking.

During his career at Citibank N.A, between 1980 and 1998 he held various senior positions including the Chief Executive, MD and Board member of Citi Islamic investment Bank EC, a wholly owned subsidiary of Citicorp and the first Islamic banking subsidiary established by an international bank, Regional Head of Non-Presence countries in sub Sahara Africa, Regional CFO East and Southern Africa and Deputy CFO Saudi American Bank.

He has held Board positions in various companies in Bahrain, Qatar and Pakistan. He holds a degree in Electrical Engineering and MBA. He joined the bank board in 2013.


Ahmed Khizer Khan President & CEO

Mushtaq Riaz MirzaGroup Head - Corporate Banking

Kanwar ShahzadGroup Head - Treasury

Sohail SikandarChief Financial Officer

Ihsan Ullah IhsanChief Risk Officer

Kamran Mustafa SiddiquiGroup Head - Human Resources

Muhammad Mubbashir YasinGroup Head - Compliance & Controls

Saad Ullah KhanGroup Head - Operations & Administration

Akram KhanGroup Head - Technology

Umer FareedGroup Head - Marketing, Corporate Affairs &Alternate Delivery Channels

Ibrar Gul NiaziGroup Head - Legal

The Management Committee of Burj Bank comprises of a seasoned team of senior banking professionals.

We are proud to have them as our Management Team:

Management Committee


What makes us Burj — PassionPassion & Devotion are progressive values weaved into the culture of Burj Bank. These values reflect an enduring commitment of our people towards the organization.

As Muslims our Passion reflects in everything we do towards strengthening our commitment towards Islam.

We exude the same Passion in our strive towards excellence in Riba free Banking as we pursue the growth of the Islamic Economic Model. Stemming from the heritage of our sponsors from Saudi Arabia and the GCC, we stand firm in our belief that only “Shariah is the path to true prosperity”.

Assalam u Alaikum

2013 was a difficult year for business as the global economy posted a subpar 2.9% global growth figure. Inadequate growth continued for the advanced economies, with output rising only at an average annual rate of about 1%. The emerging markets also experienced a declining pattern in the growth trend with 4.8% GDP growth as opposed to the expectation of over 5.2% GDP growth.

Households, banks and some non-financial institutions in many economies remained burdened with high debt ratios resulting in continued deleveraging. High budget deficits and public debt burdens forced governments to continue difficult fiscal adjustment. An abundance of policy and regulatory uncertainties curtailed private investment spending. The fundamental problems of the Eurozone crisis remained unaddressed with high unemployment; high & rising levels of public debt and extremely tight credit rationing, owing to banks’ ongoing deleveraging. There is however an expectation that the advanced

economies will show brisker recovery in 2014 which will boost imports from the emerging economies & thus these markets will grow faster in 2014 – closer to 5% year on year. But the growth will remain anemic in most advanced economies apart from the US. It is prominent that the role of the emerging economies will continue to be critical to the difficult journey towards re attainment of global economic stability.

As the private sector investment arm of Islamic Development Bank (IDB), ICD (Islamic Corporation for the Development of the Private Sector) has been investing in the private sectors of these emerging markets for over a decade with a long term view towards economic development. We believe that our endeavours will not only become fuel for the economic growth of these markets, but will also contribute towards a development of Islamic Finance globally. We are constantly striving to identify opportunities in the private sector that could function as engines of growth and to provide them with a wide range of productive financial products and

Chairman’s Message


services. Pakistan has been an area of major focus for ICD & like many other countries the Pakistani economy has also been challenged in 2013 with continuous regulatory as well as political uncertainty (due to the election year). The core income of most Banks has been squeezed with frequent policy revisions and the impact of some NPLs that have struck the industry.

2013 was a challenging year for Burj Bank just like many other financial institutions due to the industry wide spread shrinkage & a regulatory CAR restrictions leading to significant reduction in banking spread. The Bank also had to face large non performing financings, primarily due to the default of one major debtor. The cumulative impact of these external circumstances has resulted in a financial loss for the Bank. Alhamdulilah, we have passed extremely difficult times and I appreciate the collective resilience displayed by the Bank’s Board of Directors, the Management and all the employees of the Bank.

Amongst the significant achievements of the Bank in 2013, the Bank witnessed considerable balance sheet growth both in terms of liabilities and assets despite immense competitive pressures. The Bank has successfully built and streamlined the technology platform through the efficient conversion to the new core banking system as well as the launch of several ADC services. Several new products and services have been launched during the year for the provision of a world class Islamic Banking experience for both Retail and Corporate customers. The Bank has systematically retained, developed and improved its human capital while acquiring good talent from the market. Understanding that it is difficult for a small bank to create a sustainable competitive advantage, the Bank has focused on creating service differentiation throughout the year taking several noteworthy steps in this regard. During the year, the Bank has also shown significant progress in terms of the compliance with SBP’s minimum capital requirement including a successful capital infusion of PKR 568 mn during the year by the existing shareholders of the Bank. In view of the minimum capital requirement of SBP of PKR 10bn, a memorandum of understanding (MOU) has been signed with the potential investor. According to the MOU, investor will acquire the major stake in the

Bank through acquiring shares from the existing major sponsor and injecting fresh equity in the Bank. Besides, one of the existing sponsors has also shown interest to inject capital in the Bank to meet the minimum capital requirement of the Bank. The “Burj” Brand has become widely recognized, not just within Pakistan. Our vision is to make Burj Bank “the Islamic Bank of Choice” and there are several reasons to believe that we have the capability to achieve this customer centric vision.

The new Government has visibly identified Islamic Finance as the growth engine for the economy and is therefore paying significant attention towards the establishment & growth of this superior financial system. Several initiatives are being taken by the Government and the regulator in this regard & we see this as an extremely positive sign for the industry. We sincerely believe that Islamic Finance will play a pivotal role in the economic growth of this country and we are confident that Burj Bank will have an important contribution towards all the initiatives being taken by the Government. As the primary investors, we have a soaring commitment towards the Bank’s growth which will in turn provide fuel for the expansion of the Islamic financial system in Pakistan. With the sincerity of our Vision, the recent growth trends in Islamic Banking and the collective potential of our people, we will soon establish Islamic Banking as the first choice for all the consumers of financial services in Pakistan.

I would like to thank the Government of Pakistan, the Finance Ministry, State Bank of Pakistan and other regulatory bodies for their special support towards the Islamic Banking Sector of Pakistan. As the Chairman of the Bank & on behalf of all the Board of Directors, I thank the management team, employees and all stakeholders of Burj Bank for all their efforts & trust.

Khaled M. Al AboodiChairman


Assalam-O-Alaykum

2013 was a tough year for Pakistan’s economy as the GDP growth rate slowed down to 3.6% for FY13 & the country faced several economic, social and political challenges including the prominent energy crisis. The growth pattern was insufficient to significantly alter the living standards or fully absorb the growing labor force. Severe problems with the electricity supply, a difficult security situation, the presence of loss-making public sector enterprises in key economic activities, a poor business climate, a difficult election period and a distorted trade regime were important factors in anemic growth. Headline inflation has fallen sharply in recent months, but underlying inflationary pressures remain. The external position weakened significantly and central bank’s foreign exchange reserves declined while the rupee also depreciated significantly against the dollar during the Year under review.

The year 2013 proved to be a challenging year for our institution and the Banking sector as a whole. The discount

rate environment, with a 250 bps drop during CY2012, had reduced spreads for the entire banking sector, while the economic situation impacted businesses negatively resulting in industry wide financing portfolio deterioration. However, we managed to sustain a healthy portfolio, despite having fully absorbed the effects of default, from the legacy clientele including one of the most prominent business groups of the country having a cumulative financial impact of PKR 819mn. On the other hand, due to regulatory enforcement of the CAR floor, we were restricted in growing our financing portfolio in the higher spread segment which was a pre-requisite for countering the discount rate dip. The election year uncertainty and the overall law and order situation also contributed to loss of revenue & a weak bottom line.

Alhamdulilah, we must appreciate the fact that we have survived and passed through difficult times & in the process we have also made several accomplishments. We have built and streamlined the technology platform & in the process countered several teething issues. The launch of 25 new

Message from the President & CEO


branches at the end of 2012 & several other strategic investments resulted in additional pressure on the expense line which also impacted the profitability of the Bank. We have significant reason to believe that these strategic investments will enhance the long term shareholder value. The bank has successfully focused on building CASA & bringing the CoF down while instituting strong control and compliance frameworks to avoid any issues. We reduced our cost of deposits by 172 basis points over a period of 12 months despite the competitive pressures. We grew our financing book by 30% year on year with additions of quality credits. In order to improve spreads, we have replaced high cost deposits and yet we managed to close our deposit book at a reasonable size of around PKR 43 bn while we also grew our CASA by over 25%. We have created service differentiation by launching several new products & continuous up gradation of our customer value proposition throughout the year. With minimal foreign direct investment coming into the economy during 2013, we have successfully attracted capital injection of PKR 568 mn from the existing foreign shareholders of the Bank. We are also committed towards permanent resolution of the capital shortfall as per the minimum capital requirement from the SBP. In this view a memorandum of understanding has been signed between the potential investor and the major sponsors of the Bank under which the shares of one of the major sponsors will be bought out by the potential investor. Additionally, the potential investor will inject significant fresh capital alongwith the existing strategic sponsor in a manner to raise the capital of the Bank to meet the MCR stipulation of the SBP.

From a macro perspective, the new government has immediately signaled restoring economic sustainability and rapid growth as high priorities for its 5-year term. The enhanced emphasis on the resolution of the energy crisis, growth in investment and trade as well as the up gradation of infrastructure is a positive sign for the economy and the business community. To address low foreign exchange reserves, fiscal and external imbalances, and low growth, the government agreed on a wide ranging economic reform program with the International Monetary Fund (IMF). A recent IMF study revealed notable improvement in the Business Confidence Index which reflects growing local

& international investor confidence towards the economy. A recent UN Study has forecasted higher GDP growth in Pakistan for 2014 although the general growth forecast for the developing Asian Economies remains subpar. A recent World Bank Report has also commended the resilience of the Pakistani economy and argued that the positive contribution of the major sectors has led to hopes of higher economic growth.

Importantly from our perspective, the Government, the Finance Ministry and the SBP have depicted a strong focus towards the Islamic Financial System which is an extremely healthy sign for the Islamic Banking Industry. The Government is formulating various programs and strategic initiatives for the development & promotion of Islamic Banking as revealed on various forums by the respected Finance Minister and SBP. With the support of our strategic shareholders, Burj Bank is keen to play an important role in the Government’s agenda of achieving healthy Islamic Finance growth throughout the country.

With the growing focus of the regulators and increasing public awareness, 2014 is expected to bring strong growth for the Islamic Banking sector. We believe that Burj Bank is well positioned to take an important share of this growing market as we endeavor to provide a World Class Islamic Banking experience to our customers while optimizing shareholder value. As an institution, we are constantly learning and adapting to change and I feel that Year 2014 will allow us to overcome obstacles and tap into sustainable quality earnings. I would like to thank our regulators, our shareholders, the Board of Directors, the Management Team, the employees and most importantly the Bank’s customers for their continued trust and support.

Sincerely

Ahmed Khizer KhanPresident & CEO


What makes us Burj — DevotionPassion & Devotion are progressive values weaved into the culture of Burj Bank. These values reflect an enduring commitment of our people towards the organization.

Devotion is the key to both our success as Muslims and as Islamic bankers, giving halal business options and solutions to our customers. It is this devotion towards our religion that helps us explore Shariah Compliant possibilities in modern day banking. Stemming from the heritage of our sponsors from Saudi Arabia and the GCC, we stand firm in our belief that only “Shariah is the path to true prosperity”.

Directors’ Reportto the Shareholders

The Board of Directors of Burj Bank Limited (“the Bank” or “Burj”) is pleased to present the Seventh Annual Report along with the Audited Financial Statements and Auditors’ Report thereon for the year ended December 31, 2013.

The EconomyPakistan’s real GDP growth during FY13 stood at 3.6%, lower than 4.4% growth witnessed in FY12. Slower growth of 3.7% in the Services Sector (58% share in the total GDP) as against 5.3% in FY12 was the prime factor resulting in missing the GDP growth target of 4.3% for FY13. Robust 5.2% growth in construction, reflecting flood rehabilitation, helped to

boost industry growth to 3.5% versus 2.7% in FY12. Despite severe power load shedding, large-scale manufacturing (LSM) also edged upward by 2.8%, following several years of near stagnation.

CPI inflation during December 13 rose to 9.2% as against 7.9% in December 12, owing to sharp rise in the food prices. Due to surge in the commodities prices as well as non-food & non energy led inflation, the SBP reversed its easing monetary policy stance from September 2013 and increased the policy rate by 50 basis points each in its September 2013 and November 2013 MPS to 10% during 2013. The policy rate was initially lowered by 50bps in June 2013 to 9.0%.


The current account balance position also improved during FY13, deficit reducing by 46% YoY to USD 2.50 billion, driven by shrinking trade and services deficit in addition to hefty growth in the remittances. Lower oil imports caused 0.5% YoY decline in imports to USD 40.2 billion during FY13 whereas exports grew by 0.3% YoY to USD 24.8 billion in the same period, on the back of stable international prices for cotton and rice coupled with devaluation of PKR resulting in increased demand for Pakistani products. This situation led to a trade deficit of USD 15.4 billion, down by 2% YoY from USD 15.7 billion in FY12. Services deficit also shrunk by 53% during FY13, primarily due to improved foreign inflows. Overseas remittances growth sustained during FY13 as well and total remitted amount stood at USD 13.9 billion up by 6% compared to USD 13.2 billion inflows in FY12. Foreign Direct Investment (“FDI”) exhibited healthy growth of 77% to USD 1,456 million as against USD 820 million in the FY12. Foreign portfolio investment also posted positive trend with new inflow of USD 120 million during FY13 compared to net outflow of USD 60 million in the prior year.

Due to continued debt payments to the IMF and other foreign loans, the foreign exchange reserves of the SBP plunged to USD 11.0 billion by the end of FY13, and further expected decline in the forex reserves compelled the regime to enter into IMF-EFF program with total loan facility of USD 6.7 billion. First tranche of the loan of USD 544.5 million was disbursed in September 13. However, with major IMF-SBA loan payments forex reserve further depleted to USD 8.3 billion. Due to falling reserves, PKR also witnessed steep depreciation of 8.4% against USD during 2013 (year-end).

Driven by gradual improvement on the economic front as well as the political stability due to smooth transition of democratic process, the country’s

bourses reacted positively and posted stellar return for the second consecutive year, with KSE-100 index gaining 49% during 2013, closing at 25,261 levels.

Islamic banking industry continued its growth momentum during the year, with the asset base of the industry growing by 24.8% up till September 13 to reach PKR 926 billion on the back of deposits growth of 23.5%. Share of both assets and deposits increased to 9.5% and 10.1% respectively in the industry. Profitability of the Islamic banking industry stood at PKR 6.8 billion by end September 2013, lower than PKR 7.7 billion profit earned in September 2012 as a result of declining policy rate in 1H-2013. The distribution base was enhanced to 1,161 branches with the addition of 187 new branches in 2013. Asset quality of the Islamic Banking Industry though deteriorated on YoY to 9.0% by the end of September 13 from 7.0% in September 2012; however, it remained dominantly lower than overall industry’s Gross Infection Ratio of 14.3%. Acknowledging the immense potential in Islamic Banking, SBP is taking various steps to promote Islamic Banking in Pakistan.

Key Financial HighlightsDespite the socio-economic adversities, Burj continued its growth momentum, and registered growth across all key Balance Sheet indicators.


Total assets of the bank increased by 13.15% to close at PKR 53.4 billion. The growth in the balance sheet has been achieved on back of deposit growth of 19% from last year.

Gross financings grew by 26.6%, from PKR 24.08 billion to PKR 30.48 billion, as the bank continued its focus on underwriting quality credits with lower risk weights. As part of bank’s business strategy, focused efforts were made to enhance the proportion of Consumer Finance in total financial book. As a result, portion of Consumer Finance has increased from 10% in 2012 to 19% in 2013. Year 2013 will be remembered as another year of success of ‘Burj Carsaaz’ as the Bank continued its standing as the market leader in car financing without any compromise on the underwriting standards and yield. During 2013, Burj Housing Finance product was also re-launched with remarkable success, targeting only the top tier customers.

The ratio of non-performing financing (NPF) to total financing has increased from 4.28% (2012) to 5.77% (2013), mainly due to classification of a legacy portfolio; however, it is contained much lower than Islamic Banking Industry’s gross infection ratio of 9%. Coverage ratio as at December 31, 2013 is 87%, higher than 69% as at December 31, 2012.

During the year, Investments decreased by 46.22% from PKR 17.2 billion in 2012 to PKR 9.2 billion in 2013. The decline in Investments is mainly due to maturity of 2 issues of GoP Sukuks. Investment portfolio includes investment in capital market to the tune of PKR 808mn (cost) comprising of Shari’ah compliant stocks. Equity desk of treasury performed exceedingly well during the year.

Deposits of the bank registered a growth of 19% despite severe competition in the market. During the year, as part of business strategy, bank bled out expensive deposits and focused on increasing CASA and low cost deposits. Due to the Bank’s focused efforts, CASA ratio has increased from 47% in 2012 to 50% in 2013. Bank’s newly launched 25 new branches and BDO sales channel have played a vital


role in rationalizing the cost of deposits while growing the overall deposit book.

Bank recorded a loss after tax of PKR 1.133 billion; mainly due to the significant provisioning against NPFs pertaining to legacy portfolio and the restriction on Capital Adequacy Ratio (CAR) due to capital constraints which had limited the business growth potential of the Bank. The operating expenses increased primarily due to full year cost impact of 50% increase in the branch network in 2012, inflationary impact and cost impact of strategic initiatives taken by the Bank such as implementation of new Core Banking system, MasterCard debit card, launch of ‘feet on street model’, priority banking etc. At the same time, bank took measures to bring down the operating costs without affecting operations. Focused efforts were made to for enhancing the efficiency of human capital, building process efficiency, re-negotiating with vendors, cutting down power costs and rationalizing other branch operating costs.

Profit/return earned increased by PKR 95mn to PKR 3.7 billion however the growth is low because of lower average Kibor as compared to last year and reversal of profit on account of classification of certain financings during the year. Profit/return expensed increased by 152mn i.e. 5.9% growth as compare to 2012 despite 16% growth in total liabilities; depicting the Bank’s effort to reduce cost of funds.

The Bank continued its focus on increasing other income which is evident from the fact that other income has increased by 35% from last year 2012. The major contributors are from newly launched businesses i.e. Banca-Takaful and Corporate Advisory as well as Trade Business. Capital Gain and Dividend Income also contributed significantly by adding PKR 360mn (2012: PKR 310mn) in other income.

Minimum Capital Requirement &Capital Adequacy RatioThe State Bank of Pakistan (SBP) vide BSD Circular No. 7 of 2009 dated April 15, 2009 has revised the Minimum Capital Requirement (MCR) for banks. As per the circular, banks are required to raise their issued, subscribed and paid up capital (net of losses) to PKR 10 billion in a phased manner by December 31, 2013. The SBP vide its letter dated June 20, 2012, had granted timeline extension to the Bank for meeting MCR amounting to Rs 6 billion (free of losses) till June 30, 2012 subject to certain conditions including the restriction to maintain Capital Adequacy Ratio (CAR) upto 30%. Upon the request of the Bank, the SBP vide letter dated November 30, 2012 granted a further timeline extension to the Bank for meeting the MCR amounting to PKR 6 billion (free of losses) till December 31, 2012. Vide its letter dated July 5, 2012 the SBP allowed a reduction in maintaining CAR upto 23%. The SBP also granted an interim relaxation to the Bank for maintaining CAR upto 22% as at December 31, 2012.

During the current year, the Bank requested the SBP for the timeline extension in complying with the minimum capital requirement of PKR 6 billion (free of losses) till September 30, 2013 and removing restriction on CAR. The SBP vide its letters dated June 17, 2013 and


August 5, 2013 had allowed the Bank to maintain minimum CAR at 19% till September 30, 2013 and had also granted the Bank a timeline extension for meeting MCR till September 30, 2013 respectively. The Bank had also been advised by the SBP to submit a concrete, time bound Board approved capital plan to meet the regulatory capital requirements (free of losses) of PKR 10 billion by December 31, 2013 within the timeframe mentioned by the SBP in its above mentioned letters. In line with efforts to meet the MCR, during the year, Bank successfully closed the rights issue of 75.707mn shares at a price of PKR 7.5 per share i.e. 25% discount to par. Later, based on Bank’s request and recent rights issue, SBP granted an extension in submission of Board approved viable capital plan till November 30, 2013.

Subsequently, Bank hired the services of a leading financial adviser with a mandate to assist the Board of Directors of the bank in the capital raising exercise. Based on the advice of the financial adviser, the Bank has submitted a time bound Board approved plan to meet the regulatory capital requirements of PKR 10 billion (free of losses) to the SBP for its approval.

Subsequent to the balance sheet date, the Bank has approached the SBP for relaxation in meeting the minimum capital requirement and CAR as at

December 31, 2013. In its letter the Bank has informed the SBP that a memorandum of understanding has been finalized between a potential investor and the major sponsors of the Bank under which the investor will inject equity in the Bank’s capital, along with one of the key sponsor shareholders of the Bank, and the shares of one of the existing sponsor shareholders of the Bank will also be bought out in a manner which will raise the capital of the Bank to the required level specified by the SBP. This process is subject to all regulatory and other approvals.

Based on the above submission, SBP vide its letter dated February 18, 2014 has allowed an extension in meeting the MCR requirement of PKR 10 billion at December 31, 2013. Moreover, the CAR requirement for the Bank has also been reduced to 18% at December 31, 2013.

The Board has also considered and recommended a rights issue of 816,752,728 shares of the Bank at a discount of PKR 2.5 per share at a subscription price of PKR 7.5 per share, for the approval of the shareholders subject to all necessary regulatory approvals, to facilitate the increase in capital to PKR 10 billion.

Business DevelopmentBurj Carsaaz (Auto Finance) is a flagship product of our bank. In a very short span of two years it has not only made strong footholds in Auto Finance Industry but also managed to maintain an excellent position among Top Market Players. To enhance the pace of growth, sales staff motivation plays a key role. To fulfill this objective sales motivational sessions and training refreshers always helps. With the continuation of Honda Alliance with Burj Carsaaz refresher training sessions were arranged for Burj Carsaaz Sales Team to further improve the new acquisition numbers and volume. In the year 2013 Burj Carsaaz captured


approximately 17% of the market share of Auto Finance Industry.

In 2013 Fleet Finance product of the Bank remained a dominant player in Fleet market and it is regarded as top performer in this segment. Many top Corporate and Multinational customers have come on board through our Fleet Finance product.

Under the umbrella of secured business, Burj Bank Consumer Assets Team also launched Burj Home Musharakah (Home Finance) in the month of January 2013. Within three months Burj Home Musharakah (BHM) became the market leader in the Mortgage Industry among the top competitors in the market. BHM has remained on top consecutively for last six months. BHM has become the customer’s preferred choice because of its competitive packaging

and unique features. BHM has captured 23% of the mortgage industry market share which makes BHM a market leading product in Islamic Banking as well as conventional banking sector of Mortgage.

To enhance the Consumer Assets Portfolio currently Burj Bank Consumer Assets Team is working on the launch of new Shari’ah Compliant products.

In 2012 a decision was taken to implement a ‘Feet on Street’ model to capture low cost or no cost deposit for the bank and increase new to bank customer acquisition. In 2013 the channel entered with the force of 300 Development Officers (BDOs) on third party contract who primarily were placed in major cities, such as Karachi, Lahore, Islamabad and Rawalpindi. Till June 2013 channel had contributed more than 35% ALHAMDULILLAH in overall growth


of CASA. One of the primary and key objective of LSF is to maximize the profitability on month on month basis hence breakeven of the channel was expected after first quarter of 2013.

On the Corporate front, in order to solicit low cost funds and to enhance fee based income Bank launched Cash Management services to their corporate clients by providing innovative financial solutions. Also, the Bank has successfully launched the premier banking proposition under the label of ‘Insignia Priority Banking’. The Word “Insignia” is defined as distinguished mark or sign, which purely reflect the priority banking services at Burj. Insignia offers the experience of state of the art banking solutions to facilitate and manage the customer’s banking needs in more simplified manner, where they can enjoy a wide range of value added services absolutely free of cost including free cheque books, free pay orders, free demand drafts, free and discounted safe deposit lockers facility and much more. In addition, Insignia offers Platinum Debit Master Card, a first of its kind in Pakistan through which you can avail exclusive discounts at your favorite restaurants, travel, shopping etc.

Brand DevelopmentThe Year 2013 has seen the Burj Brand grow stronger with consistent growth on the Brand Equity Index due

to some significant strategic marketing initiatives. The Bank was recognized by World Finance, UK as the “Best Islamic Bank in Pakistan for 2013”. The Bank created quality alliances with successful retail & food sector brands throughout the country thus creating valuable partnerships to enhance the customer value propositions.

Alternate Delivery ChannelsIn present times, the role of Alternate Delivery Channels is critical towards the delivery of World Class Islamic financial services to the customers. Burj Bank has always believed in providing superior Shariah Compliant Banking services by constantly meeting & exceeding customer expectations. In

2013, Burj ADCs achieved major milestones such as launch of Debit MasterCard with Platinum, Gold and Silver variants for account holders, re-launch of Burj Internet Banking and SMS alert services while expanding its ATM network to total of 68 ATMs nationwide. Keeping abreast with changing industry dynamics, Burj Bank is striving to enhance the ADC portfolio by introducing e-statement and Mobile Banking in the year 2014 in order to enhance the technological experience of our customers.


PeopleAcquiring quality talent, engaging, training and retaining staff remained to be the strategic thrust of Human Resource Department (HRD) at Burj during 2013. HRD strived to maintain the balance of external and internal talent, growing from within to commit career development and bringing in external talent to enhance the skill mix.

HRD made considerable investment to uplift the learning curve in the areas of Islamic Banking, Compliance & Control and Products to ensure that technically sound staff is available to service the customers and build customer’s confidence. All staff members are required to undertake mandatory trainings on topics related to Islamic Banking, anti-money laundering and compliance & controls on the e-learning system. Further, to add new vigor

to learning and employee development, in the later part of the year, the bank initiated structuring of job specific training programs for critical Jobs in the first phase. The training programs are intended to meet the employee’s learning need from the orientation stage to the advanced level of technical expertise in the respective job, coupled with the managerial and leadership development skills to instill an overall employee development culture.

To align with best practices in comparable market, HR reviewed all the key polices ensuring a balance in staff benefits vis-à-vis market offerings. Keeping this in view, key staff policies were reviewed and as a result car monetization was introduced. Further, process manual for all core HR processes was developed to ensure seamless and quality service to the staff through standardization.


Further, payroll and related modules of the new HRMS were made functional during the year making the Payroll Processing, Recording of Entries, Reconciliations, Management of staff financings, Provident Fund management etc, seamless and effectively manageable. This also improved the quality of MIS to ensure proper controls.

Staff engagement with senior management of the bank was also given key importance to inculcate a culture of “ONE BANK, ONE TEAM” through different avenues such as breakfast meetings, functional lunches, town halls & visits of senior management to the branches.

Performance Management System, introduced in 2012, was further refined to provide specific and measureable targets for business lines. This will not only make the performance evaluation transparent and merit based but also enable HR to direct the investment towards key performers, inculcating a pay for performance culture.

In line with the strategic plan of the Bank, HR will be working very closely with the line management throughout 2014 on strategic objectives of building talent pipeline, employee development, retention & engagement and ensuring pay for performance.

OperationsOperations played a centric & vital role in the implementation of new core banking application e.g., preparation of Business Requirement Document (BRD), conducting detailed User Acceptance Testing (UAT) and subsequent implementation. Detailed processes and manuals were also revised to make them compatible to the newly introduced core banking system. Re-carding of entire Burj ATM Proprietary Card portfolio was done in the record time of 15 days.

During the year bank laid down the foundation for Cash Management. Operations in liaison with stakeholders managed to develop processes and systems in line with the products to be offered under Cash Management. New products launched, i.e., Insignia Priority Banking; Utility Bill Payment System; Platinum Card, etc. were also handled smoothly. IBAN, an initiative from SBP, was successfully implemented across the board.

Cost rationalization remained one of the focused areas; several initiatives were taken, e.g., optimization of resources; reorganization within the group; substantial decrease in cash holding thus channelizing the funds into profitable avenues, etc. Controls were enhanced through centralization and automation of processes. Operations Group is currently, working on paperless environment through process automation.

Risk ManagementThe risk management framework at Burj Bank has been functioning on well-founded structure supported with defined policies and procedures which are in line with international standards and SBP requirements. The Board kept its high level oversight of the risk management activities with the assistance of its Board Risk Management Committee (“BRMC”). Besides having close liaison with the management on key issues, wherever required, the BRMC conducted its activities through periodic meetings in accordance with the provisions of its terms of reference. These activities included, interalia, detailed review of the bank’s risk asset portfolio across various business segments and risk types (financing, market, liquidity and operational) and offered guidance to the management in respect of business activities. At the management level, the following committees are involved in the risk management function:


Management Financing Committee (“MFC”)Asset Liability Committee (“ALCO”)Risk and Control Committee (“R&CC”)

While the MFC diligently discharged its responsibilities relating to financing risk activities with the support of Financing & Investment Risk Department, the ALCO managed the market and liquidity risk functions. Furthermore, ALCO also closely monitored and realigned business strategy in light of the bank’s capital plan. Primary oversight input to ALCO regarding the management of Market and Liquidity Risk was provided by the Treasury Middle Office whereas Financial Control Group facilitated in the matters relating to balance sheet composition and planning. The R&CC, supported by the Compliance & Control Group, monitored the Operational Risk and

Internal Control activities and devised appropriate strategies as warranted by the situation.

During 2013, the bank launched its second consumer financing product aimed at meeting the housing needs of eligible consumers. The product has been performing really well with more than 100 bookings during the year and virtually no delinquencies in the accounts booked. The Carsaaz product has now exceeded 4,000 accounts with extremely healthy portfolio behavior with classification of less than 0.5% with the product age of now over two years. This was made possible through the proactive approach of the management by responding to market changes by timely aligning policy parameters and beefing up the Human Resource infrastructure. It is also heartening to note that despite the credit off take challenges faced by the banking sector, Burj Bank was able to book quality financing assets with appropriate yield which would result in sustainable earning stream for the bank in the future. In this regard, we would also like to report that the bank has fully absorbed the effects of default, from the legacy clientele, by one of the most prominent business groups of the country.

The bank also strengthened its MIS reporting at all levels for effective monitoring of all asset classes which has helped taking timely action to control the situation. For 2014, the bank is working on development of more products to cater the needs of retail as well as corporate segments for which appropriate risk management capacity will be put in place before launch.

Internal Control FrameworkThe Board of Directors and Senior Management of the bank, being cognizant of the importance of internal control framework in achievement of the bank’s overall objectives, have been constantly working to


strengthen a sound system of internal controls and contributing efforts to ensure stability and soundness in the bank’s overall control environment.

The management of the Bank, in compliance of SBP guidelines on Internal Controls, undertook implementation of requirements related to Internal Control over Financial Reporting (ICFR) and has completed all stages of the roadmap of SBP guidelines; and during the year under review, the bank’s external auditors have also evaluated the bank’s efforts in the implementation process and submitted their long-form report to the State Bank of Pakistan. Having done that, the Bank is now compliant with the ICFR implementation roadmap, however, Internal Controls is a process which requires continuous focus and the management is striving to further raise the bar in this respect.

The report acknowledged the bank’s efforts and work done towards strengthening the Internal Controls over Financial Reporting. Since the bank has migrated to new core banking system which is more controlled and commensurate to the Bank’s processes; the control environment and relevant process level documents are being revisited.

Besides ICFR, the management is committed to strengthen the performance and compliance related controls; and towards this, significant value has been added to the control environment, risk assessment and control activities of the bank with the help of updating the policy & procedure framework, conducting workshops and conducting online trainings. Significant milestones achieved in this regard are detailed in the ‘Statement on Internal Controls’ attached to this Annual Report.

The Board of Directors of the Bank endorses the

management’s evaluation of overall internal controls as well as evaluation relating to ICFR.

Core Banking SystemThe biggest success during the year was the smooth migration to new core banking application, ‘iMAL’, the complete Shari’ah compliant application. Bank was showcased by iMAL as one of the most successful implementation within a record time. The implementation of iMAL has provided the bank with the platform to ensure provision of best-in-class services to its customers. iMAL Islamic core banking solution facilitates our needs in the areas of corporate and retail financing, trade finance operations, branch automation, investment banking, risk management & alternate delivery channels at Burj.

Investing in a world-class Islamic Banking platform is justified as now the bank can compete both functionally and technically with local and international


competitors in a Shari’ah compliant way and Burj Bank is capable of utilizing this solution to implement a next generation Islamic Banking infrastructure.

Apart from the complexity of implementing the functional modules, more than 75 banking products were analyzed, consolidated, configured and tested, the following implementation challenges further complicated the overall implementation:

Phased Module Roll Out (Retail and Corporate rolled out in Phase 1 and Business Intelligence and Risk Management rolled out in Phase 2)Branch Roll Out big bang approachReport DevelopmentNew Infrastructure procurement and implemen-tation (functional and technical): For the next 5 years,Data Conversion: Data Cleansing, Enrichment for the entire customer base systematically.Path Solutions teams’ availability strong onsite – offsite model

Project was initiated with a talent pool of total 28 members, out of which 18 staff members were picked from Burj Bank’s cross functional departments i.e. Finance, Risk, Operations, Compliance, Audit & IT and 10 experts from Path Solutions (Vendor) joined the team. Both teams worked together and ensured identification of gaps, consolidation of general ledger, design and parameterization, Data Migration strategy and conversion, interfacing with the bank’s 8-9 surround systems, national ATM network, SWIFT testing, Regulatory reporting requirements of the bank, training of end users testing strategy and system integration and lastly the hardware sizing estimates were taken.

It was supplemented by strong project management

and strong focus by business. A high-level supervisory committee was formed, chaired by the President & Chief Executive Officer, to supervise the project progress and help the team in case of higher level support is required. The committee met on weekly basis throughout the project.

It is worth mentioning that Path Solutions supported around 4 months of User Acceptance Testing & Training utilizing 700 Plus test scenarios to cover all the modules and all possible functional and technical scenarios.

Burj Bank IT team and Path Solutions supported 2 Dress Rehearsals activities before Go Live. The activity comprised reconciling 3 – 4 days entire transaction base with the live legacy system (SYMBOLS); eventually bank gained extreme confidence on the quality of the configured software.

Credit RatingBased on the financial statements of the Bank for the year ended December 31, 2012, the JCR-VIS Credit Rating Company Limited has determined the Bank’s medium to long-term rating as “A” and the short-term rating as ‘A-1’ with stable outlook.

Corporate GovernanceThe Bank has complied with the requirements of the Code of Corporate Governance relevant for the year ended December 31, 2013. A prescribed statement together with the Auditors Review Report thereon is annexed.

Financial Reporting1. The financial statements prepared by the

management of the Bank present its state ofaffairs fairly, the result of its operations, cashflows and changes in equity.


2. Proper books of account of the Bank have beenmaintained.

3. Appropriate accounting policies have beenconsistently applied in preparation of financialstatements.

4. Approved Accounting Standards, as applicablein Pakistan, have been followed in preparationof financial statements and any departurethere-from has been adequately disclosed andexplained.

5. No dividend / bonus shares have been declaredfor the year. The SBP has imposed a moratoriumon cash dividend payments until the Bank meetsminimum regulatory capital requirements.

6. The system of internal control is sound in designand has been effectively implemented andmonitored on the best possible efforts basis.

7. There are no doubts upon the Bank’s ability tocontinue as a going concern.

8. There has been no material departure from bestpractices of corporate governance, as detailed inthe listing regulations.

9. Key operating and financial data for the last sixyears has been given in (Table 1) attached withthe Directors’ Report.

10. There is no overdue statutory payment on account of taxes, duties, levies and charges.

Employee Benefits SchemeValue of investments of Employees’ Provident Fund for the year ended December 31, 2013 (Unaudited) is PKR 131.87million.

Change in DirectorsDuring the year, Mr. Nicolas Martin and Mr. Adel Al-Saqabi resigned from the Board. Board would like to record its appreciation for the contribution from both the gentlemen. Mr. Shafqat Ali Memon and Mr. Harold E. Hutchins have been appointed as Director

to fill in the casual vacancies and the Board is in process to fill in the remaining one casual vacancy in the Board.

Directors’ Training ProgramDuring the year, an orientation course was arranged for all the Directors to acquaint them with the Code of Corporate Governance, applicable laws, their duties and responsibilities.

Further in compliance of clause (xi) of the Code of Corporate Governance, Mr. Najmul Hassan, Director, successfully completed the certificate course of Company Direction Program conducted by the Institute of Directors, an institute based in UK.

Trading of shares of the BankNo trades in the shares of the Bank were carried out by the Directors, CEO, CFO, Company Secretary, Head of Internal Audit and their spouses and minor children during the year 2013. However, during the year, as approved by the SBP, 500 shares each were transferred to Independent Directors namely Mr. Azhar Hamid and Mr. Fuad Azim Hashimi from Mr. Shehab Gargash to comply with the qualification shares requirement.

Pattern of Shareholding The pattern of shareholding as on December 31, 2013 along with disclosures required under the Code of Corporate Governance is annexed to the Report.


Board of Directors MeetingsFour Board of Directors meetings were held during the financial year. Information about the attendance is as under:

Name of Director No. of Meetings Attended

Khaled Al Aboodi 4

Shehab M. Gargash 4

Ahmed Khizer Khan 4

Adel Al Saqabi(Resigned on August 28, 2013)

2

Azam Essof Kolia 3

Najmul Hassan 4

Nicolas E. Martin(Resigned on August 28, 2013)

2

Azhar Hamid 4

Fuad Azim Hashimi 3

Shafqat Ali Memon(appointed on April 10, 2013)

2

Harold E. Hutchins(appointed on August 28, 2013)

1

Attendance of Sub-committees Meetings

Human Resource Committee (HRC):Four HRC meetings were held during the financial year. Information about the attendance is as under:


Mr. Azhar Hamid 4

Mr. Shafqat Ali Memon 1

Mr. Nicolas Edouard Martin 2

Mr. Ahmed Khizer Khan 4

Executive Committee (Excom):Two Excom meetings were held during the financial year. Information about the attendance is as under:


Mr. Nicolas Edouard Martin 1

Mr. Najmul Hassan 2

Mr. Shafqat Ali Memon 1


Board Risk Management Committee (BRMC):Three BRMC meetings were held during the financial year. Information about the attendance is as under:


Mr. Shehab Gargash 3

Mr. Najmul Hassan 3


Board Audit Committee (BAC):Six BAC meetings were held during the financial year. Information about the attendance is as under:


Mr. Fuad Azim Hashmi 6

Mr. Azam Essof Kolia 6

Mr. Adel Al Saqabi 2

AuditorsPresent auditors, M/s. A. F Ferguson & Co., Chartered Accountants member firm of Price water house Coopers, retired and offered themselves for reappointment. On the recommendation of the Audit


Committee of your Bank, the Board has agreed to recommend the appointment of M/s. A.F. Ferguson & Co., Chartered Accountants, to function as Bank’s statutory auditors for the year ending December 31, 2014.

Future Outlook2013, has proved to be a challenging year for the whole economy, particularly for the Banking sector. We expect the situation to improve progressively in the coming year. The finance ministry and the regulator are working on various programs and initiatives for the growth of Islamic Banking as revealed on various forums by the officials. With the growing focus of the regulators and increasing public awareness, 2014 will bring strong growth for the Islamic Banking sector. We believe that Burj Bank will also be able to take an important share of this growing market with many internal & external positives accumulating in favor of the organization including the resolution of our core obstacles such as capital shortfall. If our transaction with the potential strategic investor, with regards to capital injection, concludes successfully with all regulatory approvals, the Bank will be MCR compliant and it will give a significant boost to the business and revenue growth. Despite all the challenging scenarios, the Bank will continue its strategy of stable and sustained growth through robust risk management system, effective control processes and state of the art systems. Focus will be on acquiring new customers and prioritizing service as our key differentiator. With the new branches entering into their second year of operations we will be in a position to book timely

return (ROI) on these investments. We will have our Increased focus on branch efficiency, reducing deposit cost, increasing the number of customers and focusing on improving our CASA mix. We have also planned to expand the sources of revenue by focusing on non-fund based income via cross sell of products, including banca, advisory and remittances business, while further rationalizing cost of doing business.

AcknowledgmentOn behalf of the Board of Directors and management, I wish to express our sincere gratitude to our customers, business partners and shareholders for their continued patronage and trust. I would also like to thank State Bank of Pakistan, Securities and Exchange Commission of Pakistan and other regulatory authorities for their guidance and support. The Board of Directors sincerely appreciates the significant contribution by all its staff members to the growth of this franchise under challenging business conditions.

For & on behalf Board of Directors

Chairman KarachiFebruary 26, 2014


Financial Summary2008 2009 2010 2011 2012 2013

----------------------------------- Rupees in ‘000 -----------------------------------

OPERATIONAL RESULTS

Total Income 901,647 1,188,691 1,327,721 2,564,122 4,059,502 4,311,872

Operating Expenses 434,160 686,002 996,829 1,229,402 1,615,007 2,483,137

Profit/(Loss) before Income Tax 60,111 (405,152) (824,560) (346,908) 33,346 (1,738,774)

Profit/(Loss) after Taxation 32,727 (292,627) (535,522) (288,488) 84,646 (1,133,026)

BALANCE SHEET

Shareholders’ Equity 4,074,810 4,841,780 4,325,983 5,804,578 5,937,481 5,361,208

Total Assets 9,481,137 13,008,675 17,675,686 27,656,215 47,185,452 53,389,063

Financings-net of provisions 5,639,877 4,763,622 6,788,223 12,431,137 23,370,532 28,955,126

Investment-net of provisions 2,045,146 2,861,751 5,050,878 9,982,793 17,156,398 9,226,189

Deposits and other accounts 5,063,393 6,784,750 12,636,083 20,341,241 35,922,038 42,697,675

OTHERS

Imports 2,567,557 1,461,854 2,530,861 3,288,979 5,575,492 4,509,384

Exports 1,208,643 321,312 1,020,077 930,495 3,200,839 4,936,470

RATIOS

Capital Adequacy 45.15% 50.98% 38.44% 41.81% 22.55% 20.76%

Profit before Tax ratio (PBT/Gross mark-up income) 7.03% (35.79%) (65.26%) (14.60%) 0.93% (40.33%)

Gross spread ratio (Net mark-up income/gross mark-up income) 52.83% 42.51% 42.51% 40.09% 28.01% 25.75%

Income/Expense ratio 1.15 0.78 0.60 0.93 0.91 0.63

Return on Average Equity (ROE) 0.85% (6.56%) (11.68%) (5.70%) 1.44% (20.06%)

Return on Average Assets (ROA) 0.40% (2.60%) (3.49%) (1.27%) 0.23% (2.25%)

Financings/Deposits Ratio 111.50% 75.04% 58.81% 65.06% 67.03% 71.39%

Book value per share excluding revaluation of Assets 10.21 9.58 8.51 7.80 7.91 6.49

Book value per share including revaluation of Assets 10.18 9.66 8.63 7.83 8.01 6.56

Basic Earnings/(Loss) per share 0.08 (0.60) (1.07) (0.46) 0.11 (1.49)

No. of employees (other than outsourced) 220 449 473 539 785 773


To,The Shareholders,Burj Bank Limited

The year under review is the 7th financial year of Burj Bank Limited (the Bank).

During the year 2013, the Shari’ah Department/Internal Shari’ah Supervisory Committee reviewed various products, structures, process flows/modus operandi, concepts, and transactions for opinion/Fatwa on Shari’ah compliance, referred by several departments of the Bank. In order to enhance the Islamic banking knowledge and expertise, Islamic banking trainings, in general as well as product wise, were made mandatory for all staff of the Bank with the coordination of Learning and Development unit of HR department.

During the year Shari’ah Department of the bank continued to provide Shari’ah Consultancy Services to other Institutions to cater to their Islamic Financial needs.

As part of the Shari’ah Compliance and review framework, full-fledged Shari’ah Compliance and Review units were working under my supervision. Each class of transaction with

respect to the relevant documentation and procedures adopted by Burj Bank has been examined on test check basis.

Shari’ah Advisor’s Reportfor the Financial Year-2013


Following were the major developments that took place during the year under review;

1. TRANSACTION APPROVAL SYSTEMAll financing transactions which included funded transactions namely Murabaha, Murabaha cumMudarabah, Ijarah, Istisna’ and Diminishing Musharakah products as well as non-funded productsnamely Letters of Credit, Guarantees etc. were duly examined and scrutinized by the Shari’ah Departmentin the light of Shari’ah guidelines, prior to its execution in order to ensure Shari’ah compliance and reviewbeforehand. On this basis, Shari’ah compliance was ensured and errors, if any, were rectified before actualexecution of the transactions to minimize the Shari’ah non-compliance risk.

2. ESTABLISHMENT OF CENTRALIZED PRODUCT DEVELOPMENT & RESEARCH UNIT UNDER SHARI’AHDEPARTMENTDuring the year a centralized product development & research unit has been established in Shari’ahDepartment. The role of this unit is to develop and successfully launch various innovative products andstructures and refining existing products and procedures in coordination with Shari’ah Compliance andReview unit of Shari’ah Department. Two asset side products ‘SAHL’ and ‘TASDEER’ and one liability sideproduct ‘MUSHAHARAH’ has been developed in the year 2013.

3. REVIEW AND APPROVAL OF POLICIES/MANUALS/AGREEMENTSDuring the year, Shari’ah Department has reviewed and approved around one hundred and twenty two(122) policies, manuals and agreements prepared by the management. We express our gratitude andappreciation for the keen interest taken by the President & CEO and efforts devoted by other managementpersonnel of the Bank in this regard.

4. ISSUANCE OF COMPREHENSIVE CHARITY POLICYDuring the year, Shari’ah Department prepared and issued comprehensive policy related to CharityAccount maintained by the Bank. The policy discuss matters including sources of charity fund, treatmentof charity fund, usage of charity fund, guidelines on due diligence and approval of charity request, andaccount maintenance & its related disclosures.

5. ISSUANCE OF PROFIT & LOSS DISTRIBUTION AND POOL MANAGEMENT POLICYBased on the instructions and guidelines issued by SBP vide IBD circular # 3 of 2012, the Bank issued acomprehensive policy on Profit and loss distribution and Pool Management. The policy governs the mattersrelating to Depositor’s Pool Management and Distribution of Profit & Loss by the Bank.

6. VISIT OF SHARI’AH DEPARTMENT OFFICIALS AT TREASURY’S BROKERAGE & AT CUSTOMER PREMISESIn order to ensure existence of physical commodity / inventory, involved in the banking transactions, at the premises of Treasury’s Brokers or Corporate customers, Shari’ah department officials visited the premisesand ensured compliance with Shari’ah guidelines laid down for the transactions.


7. PARTICIPATION OF BANK IN ISLAMIC BANKING PROMOTION CAMPAIGN ARRANGED BY SBPDuring the holy month of Ramadan, SBP took an important initiative for the promotion of Islamic Bankingamong masses and Alhamdulillah Burj Bank fully participated in the campaign. Shari’ah departmentencourages the Bank to take these types of initiative to promote Islamic Banking.

8. NOMINATION OF SHARI’AH DEPARTMENT PERSONNEL AT DIFFERENT BOARD AND COMMITTEESI and Deputy Shari’ah Advisor of the Bank, Mufti Syed Sabir Hussain, have been nominated at differenthigh level forums related to Islamic Banking and Finance including Government Steering Committee onIslamic Finance, Shari’ah Advisory Board of Securities & Exchange Commission of Pakistan (SECP) andShari’ah Review Committee of SBP. We are thankful to all these respective institutions for their confidencein the competence of Shari’ah team of the Bank.

9. TRAINING & DEVELOPMENT:During the year, several in-house functional-level Islamic banking orientation and training sessionswere held in coordination with HRD at Head Office-Karachi and at other stations of the Bank. Shari’ahCompliance training for Branch staff was also arranged during Shari’ah Compliance and Review visits tobranches across the country.

To enhance awareness among the staff of the Bank about Islam & Islamic finance, a comprehensive program of lectures were conducted with different departments of the Bank.

The Bank supported and participated in various Islamic banking workshops, seminars and certificate courses arranged by different institutions including National Institute of Banking & Finance (NIBAF), State Bank of Pakistan (SBP), and International Centre for Education in Islamic Finance (INCEIF). Shari’ah Department’s staff also participated in the Islamic Banking Seminars as a facilitator, which were organized by the different organizations and educational institutes.

SUMMARY OF SHARI’AH ADVISOR’S REVIEW:

LIABILITY SIDE: On the liability side, the Bank offered variety of Shari’ah compliant deposit products based on the underlying Shari’ah modes of Al-Qard for current account and Mudarabah for saving & term deposit accounts. Weightages and profit sharing ratio were reviewed on regular basis and amendments were being made with our approval. Profit declaration mechanism as developed by us was duly implemented and sign-offs were obtained from us on monthly basis.

ASSET SIDE:On the asset side, on test basis transactions of Corporate, Retail and SME were scrutinized by the Shari’ah Compliance and Review Unit of the Shari’ah Department. The Bank was able to service its customers well by


successfully fulfilling their working capital requirements as well as capital budgeting/expenditure requirements through various modes of financing based on Murabaha, Ijarah, Istisna’, Diminishing Musharakah and Mudarabah modes. However, Murabaha based financing including Islamic Export Refinance Scheme, remained significant portion of financing portfolio of the bank.

SHARI’AH COMPLIANCE & REVIEWS:To ensure that all the products and services offered by the bank strictly adhered to the conjunctions of Shari’ah guidelines; Shari’ah Department actively reviewed and monitored almost all financial transactions of the bank throughout the year.

During the year, financing approvals, restructuring of financing facilities, customer specific modus operandi/process flows of various transactions, approval of contents and wordings of letters of guarantee (LGs), opening of LCs, security documents and various agreements were reviewed to ensure Shari’ah compliance while offering such financing facilities to the customers.

Profit-sharing ratios, profit weightages, pool working, asset and deposit allocation for deposit products were monitored periodically by Shari’ah department. During the year, almost all existing branches of the bank were visited to ensure Shari’ah Compliance at all levels.

CHARITY MOVEMENT:As per Shari’ah rulings, charity in Islamic Banks has four sources and two applications:

Charity Due to Default in Payments:The charity which is collected in case of late/delay in payments from customer, according to Shari’ah it is NAZR LILLAH, it comes under the head of SADAQAT-E-WAJIBAH i.e. Obligatory to pay by the NAZIR, once it is intended by him (the customer who undertakes to pay the charity in case of late/default).

Charity Due to Income of Void Transactions:The income of a transaction which is declared as Void by the Shari’ah Advisor due to some non-Shari’ah compliance reasons is the second source of Charity.

Charity Due to Income of Non-Purified Dividend:Another source of CHARITY is the portion of a dividend which is declared ‘non-purified’ by the Shari’ah Advisor according to defined Shari’ah Screening criteria for investee companies.

Charity Due to Luqta (founded article i.e. which owner is unknown) and Other Miscellaneous Sources:Sometimes Bank receives some unknown cash retraction against which no claims are received, the cash being received from ATM machine from time to time will not be parked as Bank’s miscellaneous income, it will be treated as “LUQTA” (founded article i.e. which owner is unknown). All such amount is parked in liability account.


Application of all types of Charity is done in different manner:i. The Charity which is collected on default/delayed payments, must be distributed among those who are

specified in the Verse 60 of Surah Al-Taubah.Translation (9:60 Alms are for the poor and the needy, and those employed to administer the (funds); forthose whose hearts have been reconciled; for those in bondage and in debt; in the cause of Allah. and forthe wayfarer: ordained by Allah, and Allah is full of knowledge and wisdom.)

ii. While for other source of General charity (SADAQAT-E-NAFILA), there is no such restriction.

Shari’ah department considered both types of charity and approved the distribution according to their nature and in conformity with Shari’ah guidelines.

The charity amounts that were obtained by the Bank were kept in a specially designated charity account of the bank. An Approval Procedure for Distribution of Charity was devised and a committee was formed for effective and transparent utilization. Committee ensured distribution of the charity after due scrutiny of the deserving beneficiaries, whether individuals or charitable institutions, after obtaining the approval of the Shari’ah Advisor in compliance with the instructions of the State Bank of Pakistan.

In the year 2013, total charity of PKR 33.9mn was collected and PKR 35.4mn has been distributed to the institutions/individuals as per the charity policy approved by the Board of Directors of the Bank. (Details of the charity distribution can be referred in the notes to the financial statements.)

Waiver/Exemptions of Charity Requests:We considered several requests for the waiver of charity on grounds which were specified as unavoidable circumstances, in such instances it was duly communicated to the clients that according to Shari’ah rulings no one is allowed to waive NAZR LILLAH, once it is intended by the NAZIR. Therefore, clients were directed that since they are exempted on special grounds from depositing their charity in bank’s charity account, their liability will not extinguish unless they pay their charity in the way of ALLAH Al-Mighty on their own. However, such exemptions were allowed after ascertaining the genuineness of such requests. Nevertheless, exemptions were allowed as special cases only and must not be construed as general practice and deemed as precedence for future. Clients were also informed that the charity amounts cannot be adjusted in their ZAKAT or any other obligatory SADAQAT. The Shari’ah department also devised procedure for entertaining such requests of charity reversal/exemption/waiver.

OBSERVATIONS & RECOMMENDATIONS:Due to the restrictions in distributing specific Hiba to individual customers, Bank should devise a clear strategy on developing products or special pools to discipline distribution of profit without offering special Hiba to individual customers.


It is suggested that while hiring new staff especially senior staff, Bank should prefer staff with Islamic Banking expertise and knowledge. Staff without specific expertise should only be considered where the person has the desire to learn and promote Islamic Banking. This practice would help in nurturing the talent pool of dedicated Islamic Bankers for the Bank and the Islamic Banking Industry.

Since competent and trained human resource is the key determinant towards success of any organization, therefore, focus should be on planning effective internal trainings for Bank’s staff with the help of Shari’ah department as Shari’ah department is Alhamdulillah fully capable of delivering excellent training on Shari’ah and Islamic Banking.

CONCLUSION:Based on the reviews of almost all transactions of the Bank, the relevant documentations and procedures adopted, the allocation of funds, weightages, profit sharing ratios and all other activities & affairs, the undersigned has unequivocal grounds to believe that the business of the Bank is being carried out in accordance with rules and principles of Shari’ah, SBP regulations and guidelines related to Shari’ah compliance rules as well as with specific Fatawa issued from time to time.

The charity due to void transactions, non-purified income from dividend was duly transferred into the Charity Account of the Bank.

Lastly, I would like to conclude that, being an Islamic financial institution, it is the joint responsibility of the Board of Directors, management and Shari’ah department of the Bank to ensure the fulfillment of the pledge we have made with ALMIGHTY ALLAH Subhanahu WaTa’alla, our own conscience and other stakeholders to provide them Shari’ah compliant financial products and services. Alhamd-u-Lillah, we have fulfilled the pledge to the best of our ability and knowledge. Nevertheless, being human beings we cannot absolve ourselves from errors and omissions, therefore, we should endeavor to rectify any error or omission which comes to our knowledge.

Prof. Mufti Munib-ur-RehmanShari’ah AdvisorBurj Bank LtdFebruary 17, 2014BURJ/SHARI’AH-01/14


In a little over 2 years Burj Bank’s CSR team governed by the Charity Committee has carved itself a niche amongst those very few organization that have been able to strategically make a difference to society. At Burj we strongly believe that the need of the time is to go beyond donations and the old school concepts of philanthropy and evolve into an efficient unit that cohesively works with the community for its long term, sustainable, strategic development. This however does not mean that we at anytime have moved our focus away from the immediate needs of our fellow citizens. Besides managing day to day individual charity cases, Burj Charity Committee has developed a crisis management team that has proved to be extremely effective in times of national catastrophes.

Baluchistan Earth Quake:

The crisis management team proved its efficacy last year during the Baldiya Fire fund mobilization and again this year in late September when an earth quake hit lower Baluchistan. With the grace of All Mighty Allah, the team was able to rehabilitate over 250 households in Baluchistan right before Eid-ul-Azha in one of the most rigorous yet heartfelt CSR activities ever conducted by a corporate organization.

A day at the Citizen’s Foundation:

Education is the need of the time; with ghost schools and failed government project it was vital to extend support to an organization that truly believed in the cause of education. Burj therefore teamed up with TCF (The Citizens Foundation). Our relation with TCF was built on a small gesture of the Burj Family’s commitment. We designed our first interaction with TCF and its students around ‘Earth Day’. Our staff members visited the Qayummabad Campus to conduct a day long interactive session with students. The activity involved reading, painting and other

Corporate Social Responsibility is at the heart of our business and we believe that giving back to the community & this country is just as important as our Core Brand Values.


interactive exercises designed to educate the student about the importance of a healthy environment. This event was a means to laying the foundation stone of Burj Bank’s long term vision of promoting education in every household of Pakistan.

The day ended on a prize distribution ceremony for the star performers of the day where our President & CEO also presented a cheque of donation to the TCF management along with a commitment of long term support.

Burj CSR Cricket Tournament:

At Burj we believe in honoring every member of the

society and believe that each member has a significant role to play. To strengthen the very fabric of the nation it is imperative that we develop the neglected strata of the community. Edhi & SOS Village are two of the few organizations that have dedicated themselves towards this cause. With special wings supporting the abandoned and the less privileged like orphans, elderly and handicapped. We decided to bring these members together during the holy month of Ramadan to celebrate the festivities of the month with their new family – “The Burj Family”. We arranged a CSR Cricket Tournament at DA Zamzama Club. The teams participating in this tournament included SOS Rising Stars (from SOS Village Karachi); Edhi Reds & Edhi Blues (from Edhi Foundation) whereas three teams from Burj Bank namely Burj Management, Burj Professionals and Burj Challengers also participated in the tournament. This tournament was the first of its kind in Karachi and it was an effort from our end to provide a quality development & entertainment opportunity to the underprivileged children of the society.

The mood of the event was further lifted by live coverage by FM-107. The event was such a raging success that it has become a permanent feature in our annual CSR plan.

Edhi Old Age Home Pre-Eid Visit:

By the grace of Allah (SBWT) we live in a country where religion and society both propagate the value of family. However there are still some unfortunate members who have been abandoned by their loved ones and society at large. Edhi Old Age Home provides shelter to such members of the society. The Burj Family tried to fill the void in their lives by planning a visit at one of the old age home shelters. We arranged an iftar dinner for the respected elderly residents of the Old


Age Home along with a donation cheque presentation to the management. We also took along Eid Gifts for our guests. The guests warmed up to our volunteers and shared their touching life stories with them. We plan on making this a regular activity and hope that our efforts will help fill the void in the lives of these beautiful people.

Burj Iftar Distribution:

This unique initiative was taken 2 years ago and has been a permanent feature in Burj Bank’s Ramadan calendar. As we reiterate in our CSR philosophy that we believe in not only giving in kind but also in time and energy. Our staff members whole heartedly participate

in this critically acclaimed effort synonymous with Burj Bank alone. Every Ramadan our volunteers gather at different spots across the city right before iftar and distribute food boxes to help passer buys and commuters break their fast. Each day hundreds of Muslim brothers and sisters benefit from this noble activity. May Allah accept the purity of our intentions – Ameen!

Our partners:

Burj has long term alliances with NICH, The Indus Hospital, Kidney Centre, Shaukat Khanam Memorial Trust, SIUT, Jinnah Hospital and Burns Centre. Very recently we have also added Karachi Relief Trust (KRT) as our partners in disaster management. Our relationships allow us to mobilize our resources and extend adequate support in the most efficient manner.

May Allah (SBWT) guide us and give us the courage and resources to serve humanity for years to come.


Statement of Compliance with the BestPractices of Code of Corporate Governancefor the year ended December 31, 2013

This statement is being presented to comply with the Code of Corporate Governance (CCG) contained in Regulation No. G-1 of the Prudential Regulations for Corporate / Commercial Banking issued by the State Bank of Pakistan (SBP) for the purpose of establishing a framework of good governance, whereby the Bank is managed in compliance with the best practices of corporate governance.

1. The Bank has applied the principles contained in the CCG in the following manner:

The Bank encourages representation of independent non-executive directors and directors representing minority interests on its Board of directors. At present the Board includes:

Category Names of the Directors

Independent directors Mr. Azhar HamidMr. Fuad Azim Hashimi

Executive director Mr. Ahmed Khizer Khan

Non-Executive directors Mr. Khaled Mohammad Al-AboodiMr. Shehab M. GargashMr. Harold E. HutchinsMr. Shafqat Ali MemonMr. Azam Essof KoliaMr. Najmul Hassan

The independent directors meet the criteria of independence as defined in the Prudential Regulations issued by the SBP and Board complies with the requirement stipulated in the Code of Corporate Governance.

2. The directors have confirmed that none of them is serving as a director on more than seven listedcompanies (excluding the listed subsidiaries of listed holding companies where applicable).

3. All the resident directors of the Bank are registered as taxpayers and none of them has defaultedin payment of any loan to a banking company, a DFI or an NBFI or, being a member of a stockexchange, has been declared as a defaulter by that stock exchange.


4. During the year Bank appointed two directors to fill casual vacancies including one which aroselast year. The details are as follows:

Name of outgoing director Name of incomingdirector

Date of casualvacancy

Date of appointment by the Board

Date of approvalby the SBP

Mr. Basheer A. Chowdry (casual vacancy created

last year)

Mr. Shafqat Ali Memon September 26, 2012 April 10, 2013* June 24, 2013

Mr. Nicolas E. Martin Mr. Harold E. Hutchins August 28, 2013 August 28, 2013 October 24, 2013

Mr. Adel Yousef Al-Saqabi Not yet appointed** August 28, 2013 Not yet appointed Not yet appointed

* Elected by shareholders in the 7th Annual General Meeting.

** Mr. Adel Yousef Al-Saqabi was the representative of M/s Al-Safat Investments (shareholder of the Bank). Subsequent

to his resignation, M/s Al-Safat Investments nominated Mr. Dhaidan Al-Mutairi and his appointment was approved

by the Board subject to regulatory approval. While regulatory approvals and related documentation were being

processed, he left M/s Al-Safat Investments. Subsequent to the year end, Bank has received another nomination of

Mr. Adel Al-Khayat as nominee of M/s Al-Safat Investments on the Board. Currently, the Bank is in the process of

completing his appointment formalities and obtaining regulatory approvals.

5. The Bank has prepared a “Code of Conduct” and has ensured that appropriate steps have beentaken to disseminate it throughout the Bank along with its supporting policies and procedures.The code is available on the internal website of the Bank.

6. The Board has developed a vision / mission statement, overall corporate strategy and significantpolicies of the Bank. A complete record of particulars of significant policies along with the dateson which they were approved or amended has been maintained.

7. All the powers of the Board have been duly exercised and decisions on material transactions,including appointment and determination of remuneration and terms and conditions ofemployment of the Chief Executive Officer (CEO), other executive and non-executive directors,have been taken by the Board.

8. The meetings of the Board were presided over by the Chairman and, in his absence, by a directorelected by the Board for this purpose and the Board met at least once in every quarter. Writtennotices of the Board meetings, along with agenda and working papers, were circulated at leastseven days before the meetings. The minutes of the meetings were appropriately recorded andcirculated.


9. The Bank is compliant in respect of certification of at least one director during the year 2013.Mr. Najmul Hasan has completed certification from Institute of Directors (IOD) UK duringthe year. In addition, Mr. Fuad Azim Hashimi has already attended the required training. Themanagement of the Bank has also arranged the orientation course in 51st meeting of Boardof Directors held on August 28, 2013 with collaboration with Pakistan Institute of CorporateGovernance (PICG) as required under the Code to acquaint the directors of their duties andresponsibilities and enable them to manage the affairs of the Bank on behalf of the shareholders.

10. There was no new appointment of the Company Secretary, Chief Financial Officer (CFO) andHead of Internal Audit during the year ended December 31, 2013. The terms of employment ofthe Company Secretary, Chief Financial Officer (CFO) and the Head of Internal Audit, includingtheir remuneration were ratified by the board.

11. The directors’ report for this year has been prepared in compliance with the requirements of theCCG and fully describes the salient matters required to be disclosed.

12. The financial statements of the Bank were duly endorsed by CEO and CFO before approval ofthe Board.

13. The directors, CEO and executives do not hold any interest in the shares of the Bank other thanthat disclosed in the pattern of shareholding.

14. The Bank has complied with all the corporate and financial reporting requirements of the CCG.

15. The Board has formed an audit committee. One member of the Committee resigned as memberof the Board on August 28, 2013. In replacement, the Board appointed another member of theBoard on November 11, 2013. As a result the Committee had less than three members duringthe period from August 28, 2013 to November 11, 2013. All the members of the Committee arenon-executive directors including the Chairman who is an independent non-executive director.The Head of Internal Audit is the secretary to the Committee.

16. The meetings of the audit committee were held at least once every quarter prior to approval ofinterim and final results of the Bank and as required by the CCG. The terms of reference of thecommittee have been formed and advised to the committee for compliance.

17. The Board has formed a human resource and remuneration committee. It comprises of threemembers, of whom two are non-executive directors including the Chairman of the Committeewho is an independent non-executive director.


18. The Board has set up an effective internal audit function. The staff of Internal Audit Departmentis considered suitably qualified and experienced for the purpose and is conversant with thepolicies and procedures of the Bank.

19. The statutory auditors of the Bank have confirmed that they have been given a satisfactory ratingunder the quality control review program of the Institute of Chartered Accountants of Pakistan(ICAP), that they or any of the partners of the firm, their spouses and minor children do not holdshares of the Bank and that the firm and all its partners are in compliance with InternationalFederation of Accountants (IFAC) guidelines on code of ethics as adopted by the ICAP.

20. The statutory auditors or the persons associated with them have not been appointed to provideother services except in accordance with the listing regulations and the auditors have confirmedthat they have observed IFAC guidelines in this regard.

21. We confirm that all other material principles enshrined in the CCG have been complied with.

For and on behalf of the Board

AHMED KHIZER KHANPRESIDENT/CEO

KarachiDated: February 26, 2014


We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate Governance (‘Code’) prepared by the Board of Directors of Burj Bank Limited (‘the Bank’) to comply with Regulation G-1 of the Prudential Regulations for Corporate / Commercial Banking issued by the State Bank of Pakistan.

The responsibility for compliance with the Code is that of the Board of Directors of the Bank. Our responsibility is to review, to the extent where such compliance can be objectively verified, whether the Statement of Compliance reflects the status of the Bank’s compliance with the provisions of the Code and report if it does not. A review is limited primarily to inquiries of the Bank’s personnel and review of various documents prepared by the Bank to comply with the Code.

As part of our audit of the financial statements, we are required to obtain an understanding of the accounting and internal control systems sufficient to plan the audit and develop an effective audit approach. We are not required to consider whether the Board’s statement on internal control covers all risks and controls, or to form an opinion on the effectiveness of such internal controls, the Bank’s corporate governance procedures and risks.

The Code requires the Bank to place before the Board of Directors for their consideration and approval, related party transactions distinguishing between transactions carried out on terms equivalent to those that prevail in arm’s length transactions and transactions which are not executed at arm’s length price recording proper justification for using such alternate pricing mechanism. Further, all

such transactions are also required to be separately placed before the audit committee. We are only required and have ensured compliance of the above requirement to the extent of approval of related party transactions by the Board of Directors and placement of such transactions before the audit committee. We have not carried out any procedures to determine whether the related party transactions were undertaken at arm’s length prices or not.

Based on our review, nothing has come to our attention which causes us to believe that the Statement of Compliance does not appropriately reflect the Bank’s compliance, in all material respects, with the best practices contained in the Code as applicable to the Bank for the year ended December 31, 2013.

We draw attention to the following matters which are highlighted in paragraphs 4 and 15 of the annexed statement:

On two instances, casual vacancies occurring in the Board were not filled within the time frame of ninety days as stipulated in the Code;

The audit committee of the Board did not comprise of at least three members from August 28, 2013 till November 11, 2013.

Chartered AccountantsDated: March 03, 2014Karachi

Auditors’ Review Report to the Members on Statement of Compliance with the Best Practices of the Code of Corporate Governance


Statement on Internal ControlsThe Board of Directors and Senior Management of the Bank being aware of the significance of internal controls framework in achieving the bank’s overall objectives have been continuously striving to further enhance and consistently maintain a sound internal controls system and to ensure that the overall control environment remain sound through management oversight.

The management takes it as their utmost responsibility to establish and maintain adequate internal controls and risk management through effective policies and procedures.It is also ensured that adequate resources remain available all the time for implementing efficient and effective control environment.

Board of Directors of the Bank are responsible for setting the right tone from the top by establishing overall strategies, policies related to these controls and systems. The Internal Audit & Shariah Audit Department being an independent function reporting to the Audit Committee of the Board evaluates and monitors compliance with Bank’s policies, procedures, applicable laws, regulations, Shari’ah guidelines and relevant controls in accordance with the approved annual audit plan and reports significant breaches to the Board Audit Committee on regular basis. The observations and suggestions received from the external auditors are also taken seriously by the management for prompt resolution by taking measures to eradicate highlighted weaknesses.

The Compliance and Controls Group (CCG) along with other departments of the bank, has been entrusted with the responsibility to ensure that the bank as a whole adheres to the applicable laws, regulations, internal policies and procedures of the Bank. Risk of Money Laundering and Terrorist Financing is effectively controlled, besides carrying out other control activities elaborated in regulatory guidelines or directions as provided by the management from time to time.

In compliance with the guidelines on Internal Controls issued by SBP, and the roadmap given for the implementation of Internal Control over Financial Reporting (ICFR), the management of the Bank has already been compliant with the said guideline by implementing all stages of the roadmap given by SBP which was also reviewed by the

external auditors last year along with submission of the external auditors’ report to SBP as per its directives.

During the year under review, the management has not only addressed improvement ideas highlighted by auditors to further strengthen the control environment, but has also revisited the ICFR documentation to streamline them with the current practices being performed and to reflect the relevant controls being implemented by the bank after the successful implementation of its core banking system.

The Board of Directors remained the source of direction and guidance to the management and also ensured effective oversight through revamped MIS and other reporting mechanisms to the Board. Policy framework was reinforced through preparation and/or revision of applicable policies and aligning them to the operating environment during the year.

Internal controls system is continuous and an ongoing process and provides the foundation for the achievement of an entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. This statement of internal controls is based on the management’s assessment towards various aspects of the internal control environment across the bank. The system of internal controls is designed to manage and mitigate rather than eliminate the risk of failure to achieve the Bank’s business targets. It can therefore, only provide reasonable and not absolute assurance against material misstatements or loss. The system of internal controls being followed by the Bank is considered reasonably sound in design and is being effectively implemented and monitored.

The Board of Directors of the Bank endorses the above stated management’s evaluation of internal controls.

For and on behalf of the Board

Ahmed Khizer KhanPresident& CEO

Dated: February 26, 2014


Auditors’ Report to the MembersWe have audited the annexed statement of financial position of Burj Bank Limited (the bank) as at December 31, 2013 and the related profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof (here-in-after referred to as the ‘financial statements’) for the year then ended, in which are incorporated the un-audited certified returns from the branches except for eight 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.

It is the responsibility of the bank’s management to establish and maintain a system of internal control, and prepare and present the financial statements in conformity with the approved accounting standards and the requirements of the Banking Companies Ordinance, 1962 (LVII of 1962), and the Companies Ordinance, 1984 (XLVII of 1984). Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the International Standards on Auditing as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion and after due verification, which in the case of Islamic financing and related assets covered more than sixty percent of the total Islamic financing and related assets of the bank, we report that:

(a) in our opinion, proper books of accounts have been kept by the bank as required by the Companies Ordinance, 1984 (XLVII of 1984), and the returns referred to above received from the branches have been found adequate for the purposes of our audit;

(b) in our opinion:

(i) the statement of financial position and profit and loss account together with the notes thereon have been drawn up in conformity with the Banking Companies Ordinance, 1962 (LVII of 1962), and the Companies Ordinance, 1984 (XLVII of 1984), and are in agreement with the books of accounts and are further in accordance with accounting policies consistently applied;


(ii) the expenditure incurred during the year was for the purpose of the bank’s business; and

(iii) the business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the bank and the transactions of the bank which have come to our notice have been within the powers of the bank;

(c) in our opinion and to the best of our information and according to the explanations given to us the statement of financial position, profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with the approved accounting standards as applicable in Pakistan, and give the information required by the Banking Companies Ordinance, 1962 (LVII of 1962), and the Companies Ordinance, 1984 (XLVII of 1984), in the manner so required and give a true and fair view of the state of the bank’s affairs as at December 31, 2013, and its true balance of loss, its comprehensive loss, its cash flows and changes in equity for the year then ended; and

(d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980) was deducted by the bank and deposited in the Central Zakat Fund established under section 7 of that Ordinance.

Emphasis of matter paragraphWe draw attention to note 1.4 to the accompanying financial statements which describes the matter relating to shortfall in minimum capital requirement of the bank as at December 31, 2013. Our opinion is not qualified in respect of this matter.

Chartered AccountantsEngagement Partner: Salman Hussain Dated: March 03, 2014Karachi


Financial Statements


Statement of Financial Position As at December 31, 2013

Note 2013 2012--------- Rupees in ‘000 ---------

ASSETS

Cash and balances with treasury banks 6 2,751,089 2,452,464 Balances with other banks 7 1,056,489 907,255 Due from financial institutions 8 7,689,704 - Investments - net 9 9,226,189 17,156,398 Islamic financing and related assets - net 10 28,955,126 23,370,532 Operating fixed assets 11 1,057,349 1,130,246 Deferred tax assets - net 12 1,177,423 519,877 Other assets - net 13 1,475,694 1,648,680

53,389,063 47,185,452

LIABILITIES

Bills payable 14 507,471 390,795 Due to financial institutions 15 3,052,474 3,087,150 Deposits and other accounts 16 42,697,675 35,922,038 Sub-ordinated loans - - Liabilities against assets subject to finance lease - - Deferred tax liabilities - - Other liabilities 17 1,770,235 1,847,988

48,027,855 41,247,971

NET ASSETS 5,361,208 5,937,481

REPRESENTED BYShare capital 18 8,167,527 7,410,458 Reserves 2,030 2,030 Accumulated losses (2,870,526) (1,548,233)

5,299,031 5,864,255 Surplus on revaluation of assets - net of tax 19 62,177 73,226

5,361,208 5,937,481

CONTINGENCIES AND COMMITMENTS 20

The annexed notes 1 to 43 form an integral part of these financial statements.

CHAIRMANKhaled Mohammed Al-Aboodi

VICE CHAIRMANShehab M. Gargash

DIRECTORFuad Azim Hashimi

PRESIDENT / CEOAhmed Khizer Khan


Profit and Loss Account For the year ended December 31, 2013

Note 2013 2012--------- Rupees in ‘000 ---------

Profit / return earned 21 3,698,464 3,603,352 Profit / return expensed 22 (2,746,105) (2,594,187)Net spread earned 952,359 1,009,165

(Provision) / reversal of provision against non-performing Islamic financing and related assets - net 10.9 (819,174) 95,233 (Provision) / reversal of provision for diminution in the value of investments - net 9.8 (2,230) 78,626 Bad debts written off directly - -

(821,404) 173,859 Net spread after provisions 130,955 1,183,024

Other incomeFee, commission and brokerage income 219,815 104,544 Dividend income 82,955 98,185 (Loss) / income from dealing in foreign currencies (15,633) 24,450 Gain on sale of securities - net 23 277,100 212,575 Unrealised gain on revaluation of investments classified as held for trading - net 9.9 5,590 650 Other income 24 43,581 15,746 Total other income 613,408 456,150

744,363 1,639,174 Other expensesAdministrative expenses 25 (2,474,739) (1,613,203)(Provision) / reversal of provision against other assets - net 13.2 (5,163) 9,179 Other charges 26 (3,235) (1,804)Total other expenses (2,483,137) (1,605,828)Extra ordinary / unusual items - -

(Loss) / profit before taxation (1,738,774) 33,346

Taxation 27- Current year (39,086) (18,567)- Prior years (1,666) - - Deferred 646,500 69,867

605,748 51,300

(Loss) / profit after taxation (1,133,026) 84,646

------------ Rupees -------------

Basic and diluted (loss) / earnings per share 28 (1.489) 0.114







Statement of Comprehensive Income For the year ended December 31, 2013

2013 2012--------- Rupees in ‘000 ---------

(Loss) / profit after taxation (1,133,026) 84,646

Other comprehensive income - -

Total comprehensive (loss) / income for the year transferred to equity (1,133,026) 84,646

Components of comprehensive (loss) / income not reflected in equity

(Deficit) / surplus on revaluation of available for sale investments - net of tax (11,049) 46,227

Total comprehensive (loss) / income for the year (1,144,075) 130,873







Cash Flow Statement For the year ended December 31, 2013

Note 2013 2012--------- Rupees in ‘000 ---------

CASH FLOWS FROM OPERATING ACTIVITIES(Loss) / profit before taxation (1,738,774) 33,346 Less: Dividend income (82,955) (98,185)

(1,821,729) (64,839)

Adjustments for non-cash and other itemsDepreciation - Owned assets 11.2 177,942 131,445 Depreciation - Ijarah assets 486,399 389,445 Amortisation 25.3 46,534 24,219 Provision / (reversal of provision) against non-performing Islamic financing and related assets - net 10.9 819,174 (95,233)Provision / (reversal of provision) for diminution in the value of investments - net 9.8 2,230 (78,626)Provision / (reversal of provision) against other assets 13.2 5,163 (9,179)Unrealised gain on revaluation of investments classified as held for trading - net 9.9 (5,590) (650)Unrealised loss on forward foreign exchange contracts - net 17 19,656 - Employee benefit cost under IFRS 2 - Share based payments - 2,030 Gain on sale of operating fixed assets - net 24 (23,842) (2,841)Operating fixed assets written off 25 4,457 3,477 Gain on sale of non-banking assets 24 (4,036) - Gain on sale of securities - net 23 (277,100) (212,575)

1,250,987 151,512 (570,742) 86,673

(Increase) / decrease in operating assetsNet investment in held-for-trading securities (17,331) (59,565)Islamic financing and related assets (6,890,167) (11,233,607)Other assets (excluding advance taxation) (23,387) (1,129,613)

(6,930,885) (12,422,785)


Cash Flow Statement For the year ended December 31, 2013

Note 2013 2012--------- Rupees in ‘000 ---------

Increase / (decrease) in operating liabilitiesBills payable 116,676 179,863 Due to financial institutions (34,676) 2,639,850 Deposits and other accounts 6,775,637 15,580,797 Other liabilities (97,409) 995,824

6,760,228 19,396,334 (741,399) 7,060,222

Income tax paid (32,794) (35,415)Net cash (used in) / generated from operating activities (774,193) 7,024,807

CASH FLOWS FROM INVESTING ACTIVITIESNet investment in available for sale securities (8,923,576) (68,959,298)Dividend income received 85,057 98,185 Proceeds from sale of available for sale securities 17,129,481 62,213,703 Investment in operating fixed assets (352,841) (636,812)Proceeds from sale of non-banking assets 185,186 - Proceeds from sale of operating fixed assets 220,647 23,802

Net cash generated from / (used in) investing activities 8,343,954 (7,260,420)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issue of right shares 567,802 -

Net cash flow generated from financing activities 567,802 -

Increase / (decrease) in cash and cash equivalents during the year 8,137,563 (235,613)Cash and cash equivalents at the beginning of the year 3,359,719 3,595,332

Cash and cash equivalents at the end of the year 29 11,497,282 3,359,719







Statement of Changes in Equity For the year ended December 31, 2013

Share capitalStatutory reserve *

Share based payment

contribution reserve

Accumulated losses

Total

---------------------------- Rupees in ‘000 ----------------------------

Balance as at January 1, 2012 7,410,458 16,751 - (1,649,630) 5,777,579

Profit for the year - - - 84,646 84,646

Other comprehensive income for the year - - - - -

Transfer to Statutory Reserve * - 16,929 - (16,929) -

Transfer from Statutory Reserve ** - (33,680) - 33,680 -

Employee benefit cost under IFRS 2 - Share based payment (notes 5.16 and 33) - - 2,030 - 2,030

Balance as at December 31, 2012 7,410,458 - 2,030 (1,548,233) 5,864,255

Loss for the year - - - (1,133,026) (1,133,026)

Other comprehensive income for the year - - - - -

Transaction with owners recognised directly in equity

Issue of right shares 757,069 - - - 757,069

Discount on issue of right shares - - - (189,267) (189,267) 757,069 - - (189,267) 567,802

Balance as at December 31, 2013 8,167,527 - 2,030 (2,870,526) 5,299,031

* This represents reserve created under section 21(i)(a) of the Banking Companies Ordinance, 1962.

** The State Bank of Pakistan vide its Letter No. BSD/CSD/12044/12/2011 dated October 11, 2012 has allowed theBank to appropriate its reserve funds to off-set the accumulated losses of the Bank subject to its intimation to SBPwithin 21 days of its appropriation.







Notes to and Forming Part of the Financial Statements For the year ended December 31, 20131 STATUS AND NATURE OF BUSINESS

1.1 Burj Bank Limited (the Bank) was incorporated in Pakistan as an unlisted public limited company on August 29, 2005 under the Companies Ordinance, 1984 to carry out the business of an Islamic Commercial Bank in accordance with the principles of Islamic Shariah. The registered office of the Bank is situated at Trade Centre, I. I. Chundrigar Road, Karachi.

1.2 The State Bank of Pakistan (SBP) granted a “Scheduled Islamic Commercial Bank” license to the Bank on March 16, 2007 and granted approval for commencement of Islamic Banking Business on April 9, 2007. The Bank is principally engaged in commercial, consumer and investment activities. At present the Bank is operating through its seventy five branches (December 31, 2012: seventy five branches including eight sub branches).

1.3 Based on the financial statements of the Bank for the year ended December 31, 2012, the JCR - VIS Credit Rating Company Limited has determined the Bank’s medium to long-term rating as ‘A’ and the short-term rating as ‘A-1’ with stable outlook.

1.4 The State Bank of Pakistan (SBP) vide BSD Circular No. 7 of 2009 had revised the Minimum Capital Requirement (MCR) for banks. As per the Circular, banks were required to raise their issued, subscribed and paid up capital (free of losses) to Rs. 10 billion in a phased manner by December 31, 2013.

The SBP vide its Letter No. BSD/CSD/7660/12/2011 dated June 20, 2012, had granted timeline extension to the Bank for meeting MCR amounting to Rs 6 billion (free of losses) till June 30, 2012 subject to certain conditions including the restriction to maintain Capital Adequacy Ratio (CAR) upto 30%. Upon the request of the Bank, the SBP vide Letter No. BSD/CSD/14198/12/2011 dated November 30, 2012 granted a further timeline extension to the Bank for meeting the MCR amounting to Rs. 6 billion (free of losses) till December 31, 2012. Vide its letter dated July 5, 2012 the SBP allowed a reduction in maintaining CAR upto 23%. The SBP also granted an interim relaxation to the Bank for maintaining CAR upto 22% as at December 31, 2012.

During the current year, the Bank requested the SBP for the timeline extension in complying with the minimum capital requirement of Rs 6 billion (free of losses) till September 30, 2013 and removing restriction on CAR. The SBP vide its Letters No. BPRD/CS/009303/13 and BPRD/BA&CPD/621/11818/2013 dated June 17, 2013 and August 5, 2013 allowed the Bank to maintain minimum CAR at 19% till September 30, 2013 and also granted the Bank a timeline extension for meeting MCR till September 30, 2013 respectively. The Bank was also advised by the SBP to submit a concrete, time bound Board approved capital plan to meet the regulatory capital requirements (free of losses) of Rs 10 billion by December 31, 2013. The plan was submitted by the Bank to the SBP on November 25, 2013.

Subsequent to the balance sheet date, the Bank has approached the SBP for relaxation in meeting the minimum capital requirement and CAR as at December 31, 2013. In its letter the Bank has informed the SBP that a memorandum of understanding has been finalized between a potential investor and the major sponsors of the Bank under which the investor will inject equity in the Bank’s capital, alongwith one of sponsor shareholders of the Bank, and shall also buyout one of the existing sponsor of the Bank in a manner which will raise the capital of the Bank to the required level specified by the SBP. This process is subject to all regulatory and other approvals. Based on the above submission, SBP vide its letter no. BPRD/BACPD/621/2654/2014 dated February 18, 2014 allowed an extension in meeting the MCR requirement of PKR 10 billion at December 31, 2013. Moreover, the CAR requirement for the Bank has also been reduced to 18% at December 31, 2013.


2 BASIS OF PRESENTATION

The Bank provides financing mainly through Murabaha, Istisna, Diminishing Musharakah, Ijarah and other Islamic modes. The transactions of purchases, sales and leases executed under these arrangements are not reflected in these financial statements as such but are restricted to the amount of facility actually utilised and the appropriate portion of rental / profit thereon. The income on such financing is recognised in accordance with the principles of Islamic Shariah. However income, if any, received which does not comply with the principles of Islamic Shariah is recognised as charity payable if so directed by the Shariah Advisor of the Bank.

3 STATEMENT OF COMPLIANCE

3.1 These financial statements have been prepared in accordance with the approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board and Islamic Financial Accounting Standards (IFASs) issued by the Institute of Chartered Accountants of Pakistan, as are notified under the Companies Ordinance, 1984, the requirements of the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962 and the directives issued by the Securities and Exchange Commission of Pakistan (SECP) and the State Bank of Pakistan (SBP). Wherever the requirements of the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962 or the directives issued by the SECP and the SBP differ with the requirements of IFRS, the requirements of the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962, IFAS notified under the Companies Ordinance, 1984 and the directives issued by the SECP and the SBP shall prevail.

3.2 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 through 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’ through 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 financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by the SBP through various circulars.

3.3 The SBP through its BSD Circular Letter No. 7 dated April 20, 2010 has clarified that for the purpose of preparation of financial statements in accordance with International Accounting Standard-1 (Revised), ‘Presentation of Financial Statements’, two statement approach shall be adopted i.e., separate ‘Profit and Loss Account’ and ‘Statement of Comprehensive Income’ shall be presented, and ‘Balance Sheet’ shall be renamed as ‘Statement of Financial Position’. Furthermore, the Surplus / (Deficit) on revaluation of available for sale securities (AFS) only, may be included in the ‘Statement of Comprehensive Income’ but will continue to be shown separately in the ‘Statement of Financial Position’. Accordingly, the above requirements have been adopted in the preparation of these financial statements.

3.4 IFRS 8 ‘Operating Segments’ is effective for the Bank’s accounting period beginning on or after January 1, 2009. All banking companies in Pakistan are required to prepare their annual financial statements in line with the format prescribed under BSD Circular No. 4 dated February 17, 2006, ‘Revised Forms of Annual Financial Statements’, effective from the accounting year ended December 31, 2006. The management of the Bank believes that as the SBP has defined the segment categorisation in the above mentioned circular, the SBP requirements prevail over the requirements specified in IFRS 8. Accordingly, segment information disclosed in these financial statements is based on the requirements laid down by the SBP.

Notes to and Forming Part of the Financial Statements For the year ended December 31, 2013


3.5 New and amended standards and interpretations that are effective in the current year

3.5.1 IAS 1, ‘Financial statement presentation’ (effective July 1, 2012). The main change resulting from these amendments is a requirement for entities to group items presented in ‘Other Comprehensive Income’ (OCI) on the basis of whether they are potentially reclassifiable to the profit or loss subsequently (reclassification adjustments). The amendments do not address which items are presented in OCI. The amendment does not have any impact on the Banks financial statements as there are no such items presented in ‘Other Comprehensive Income’ (OCI) for the current or prior year.

3.5.2 There are certain other new and amended standards and interpretations that are mandatory for the Bank’s accounting periods beginning on or after January 1, 2013 but are considered not be to relevant or to have any significant effect on the Bank’s operations and are, therefore, not disclosed in these financial statements.

3.6 New and amended standards and interpretations, as adopted in Pakistan, that are not yet effective

3.6.1 The Securities and Exchange Commission of Pakistan (SECP) has notified, through S.R.O 584/2013, Islamic Financial Accounting Standard (IFAS) 3, ‘Profit and Loss Sharing on Deposits’ issued by the Institute of Chartered Accountants of Pakistan. IFAS 3 shall be followed by the Bank for the purpose of preparation of financial statements while accounting for transactions relating to ‘Profit and Loss Sharing on Deposits’ as defined by the said standard. This standard would result in certain new disclosures in the financial statements of the Bank.

3.6.2 There are certain other new and amended standards and interpretations that are mandatory for the Bank’s accounting periods beginning on or after January 1, 2014 but are considered not to be relevant or do not have any significant effect on the Bank’s operations and therefore not detailed in these financial statements.

3.7 Critical accounting estimates and judgments

The preparation of financial statements in conformity with the approved accounting standards as applicable in Pakistan requires the use of certain critical accounting estimates. It also requires the management to exercise its judgment in the process of applying the Bank’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in note 4.3 to these financial statements.

3.8 Early adoption of standards

The Bank has not early adopted any new or amended standard in 2013.

4 BASIS OF MEASUREMENT

4.1 Accounting convention

These financial statements have been prepared under the historical cost convention, except that certain investments, foreign currency balances and commitments in respect of foreign exchange contracts are marked to market and are carried at fair value in accordance with the requirements of SBP.



4.2 Functional and presentation currency

Items included in these financial statements are measured using the currency of the primary economic environment in which the Bank operates. These financial statements are presented in Pakistani Rupees, which is the Bank’s functional and presentation currency.

4.3 Critical accounting estimates and judgments

The preparation of financial statements in conformity with the approved accounting standards as applicable in Pakistan requires management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and income and expenses. It also requires management to exercise judgment in application of its accounting policies. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may vary from these estimates. These estimates and assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

Significant accounting estimates and areas where judgments were made by the management in the application of accounting policies are as follows:

i) Classification and provisioning against investments (notes 5.2 and 9)ii) Classification and provisioning against Islamic financing and related assets (notes 5.3 and 10)iii) Current and deferred taxation (notes 5.7, 12 and 27)iv) Determination of useful lives and depreciation / amortisation (notes 5.4 and 11)v) Charge in respect of share based compensation plan (notes 5.16 and 33)

5 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in the preparation of these financial statements are set out below. These have been consistently applied to all years presented, unless otherwise specified.

5.1 Cash and cash equivalents

Cash and cash equivalents for the purpose of cash flow statement comprise of cash and balances with treasury banks, balances with other banks in current and deposit accounts and due from financial institutions.

5.2 Investments

5.2.1 Classification

Investments of the Bank, other than investments in associates, are classified as follows:

(a) Held for trading

These are investments, which are either acquired for generating profits from short-term fluctuations in market prices or are securities included in a portfolio for which there is evidence of a recent actual pattern of short-term profit taking.



(b) Held to maturity

These are investments with fixed or determinable payments and fixed maturity and the Bank has the positive intent and ability to hold them till maturity.

(c) Available for sale

These are investments which do not fall under ‘held for trading’ or ‘held to maturity’ categories.

5.2.2 Regular way contracts

All purchases and sales of investments that require delivery within the time frame established by regulation or market convention are recognised at trade date, which is the date on which the Bank commits to purchase or sell the investments.

5.2.3 Initial recognition and measurement

Investments other than those categorised as ‘held for trading’ are initially recognised at fair value which includes transaction costs associated with the investment. Investments classified as ‘held for trading’ are initially recognised at fair value and transaction costs are expensed in the profit and loss account.

5.2.4 Subsequent measurement

Subsequent to initial recognition investments are valued as follows:

(a) Held for trading

These are measured at subsequent reporting dates at fair value. Gains and losses on remeasurement are included in the net profit and loss for the year.

(b) Held to maturity

These are measured at amortised cost using effective profit rate method, less any impairment loss recognised to reflect irrecoverable amount.

(c) Available for sale

In accordance with the requirements specified by the SBP, quoted securities are subsequently re-measured to market value. Market value for quoted sukuks is determined using the Reuters rate while listed equity securities are marked to market using the prices quoted on the stock exchange. Unquoted equity securities are valued at the lower of cost and break-up value. Break-up 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 other unquoted securities are valued at cost less impairment losses, if any.

Surplus / deficit arising on revaluation of quoted securities is included in the statement of comprehensive income but is kept in a separate account which is shown in the statement of financial position below equity.



(d) Investments in associates

Investment in associates is carried at cost less accumulated impairment losses, if any.

5.2.5 Impairment

Impairment loss in respect of investments classified as available for sale, held to maturity and investment in associates (except Sukuk certificates) 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. A significant or prolonged decline in fair value of an equity investment below its cost is also considered an objective evidence of impairment. Provision for diminution in the value of Sukuk certificates is made as per the Prudential Regulations issued by the SBP. In case of impairment of available for sale securities, the cumulative loss that has been recognised directly in surplus / (deficit) on revaluation of securities on the statement of financial position below equity is removed there from and recognised in the profit and loss account. For investments classified as held to maturity and investment in associates, the impairment loss is recognised in the profit and loss account.

5.3 Islamic financing and related assets

These are financial products originated by the Bank and principally comprise of Murabaha, Modaraba, Ijarah, Diminishing Musharaka and Istisna receivables. These are stated net of specific and general provision against non performing Islamic financing and related assets, if any.

Specific provision

The Bank maintains specific provision for doubtful debts based on the requirements specified in the Prudential Regulations issued by the SBP.

General provision

In accordance with the Prudential Regulations issued by SBP, unless specific exemption is available from SBP, the Bank maintains general provisions as follows:

Secured Unsecured

Consumer financings 1.5% 5.0%Small enterprise financings 1.0% 2.0%

If considered necessary the Bank can also maintain general provision in respect of corporate and commercial portfolio. This provision is maintained based on management’s best estimate and is approved by the Board of Directors.

The net provision made / reversed during the year is charged to profit and loss account and accumulated provision is netted off against Islamic financing and related assets. Islamic financing and related assets are written off when there are no realistic prospects of recovery.



5.3.1 Ijarah financings

Ijarah financings executed on or before December 31, 2008 have been accounted for under finance method, while all Ijarah financings executed subsequent to this date are accounted for under Islamic Financial Accounting Standard - 2 “Ijarah” (IFAS-2).

- Under finance method, the present value of minimum ijarah payments have been recognised and shown under Islamic financing and related assets. The unearned income i.e., the excess of aggregate ijarah rentals over the cost of the asset and documentation charges under ijarah facility is deferred and then amortised over the term of the ijarah, so as to produce a constant rate of return on net investment in the ijarah. Gains / losses on termination of ijarah contracts are recognised as income on receipt basis. Income on ijarah is recognised from the date of delivery of the respective assets to the mustajir (lessee).

- Under IFAS-2 method, assets underlying ijarah financings have been carried at cost less accumulated depreciation and impairment, if any, and are shown under Islamic financing and related assets. Rentals accrued from ijarah financings net of depreciation charged are taken to the profit and loss account. Depreciation on ijarah assets is charged by applying the straight line method over the ijarah period which is from the date of delivery of respective assets to mustajir upto the date of maturity / termination of ijarah agreement.

5.4 Operating fixed assets

5.4.1 Capital work in progress

Capital work in progress is stated at cost less impairment losses, if any.

5.4.2 Property and equipment

These assets are stated at cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation, except for ijarah assets, is charged to the profit and loss account by applying the straight line method over the estimated useful lives, using the rates specified in note 11.2 to the financial statements. The depreciation charge for the year is calculated after taking into account residual value, if any. Depreciation is charged from the month of acquisition and up to the month preceding the month of disposal.

The assets’ residual values, if significant, and their useful lives are reviewed and adjusted, if appropriate, at each reporting date.

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. All other repair and maintenance are charged to the profit and loss account as and when incurred.

Gains and losses on disposal of property and equipment, if any, are taken to the profit and loss account.



5.4.3 Intangible assets

Intangible assets having a finite useful life are stated at cost less accumulated amortisation and accumulated impairment losses, if any. Such intangible assets are amortised using the straight line method over their estimated useful lives. The useful lives and amortisation method are reviewed and adjusted, if appropriate at each reporting date. Intangible assets having an indefinite useful life are stated at acquisition cost less accumulated impairment losses, if any. Amortisation is charged from the month of acquisition and up to the month preceding the month of deletion.

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.

Gains and losses on deletions, if any, are taken to the profit and loss account in the period in which they arise.

5.5 Impairment

At each reporting date, the Bank reviews the carrying amounts of its assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of impairment loss. Recoverable amount is the greater of net selling price 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 asset is reduced to its recoverable amount. Impairment loss is recognised as an expense immediately in the profit and loss account.

5.6 Non-banking assets acquired in satisfaction of claims

Non-banking assets acquired in satisfaction of claims are stated at the lower of the claim amount (settlement amount) and their market value at the time of acquisition. The Bank carries out periodic valuation of these assets and any decline in their value below the recognised amount is charged to the profit and loss account. These assets are disclosed in ‘other assets’ as specified by the SBP.

5.7 Taxation

Current

The provision for current taxation is based on taxable income for the year, if any, at current rates of taxation, after taking into consideration available tax credits, rebates and tax losses as required under the seventh schedule to the Income Tax Ordinance, 2001. The charge for current tax also includes adjustments, where considered necessary relating to prior years, which arises from assessments / developments made during the year. In addition, the Bank also provides for turnover tax in accordance with the requirements of section 113 of the Income Tax Ordinance, 2001.



Deferred

Deferred tax is recognised using the balance sheet liability method on all major temporary differences between the carrying amounts of assets and liabilities used for financial reporting purposes and amounts used for taxation purposes. In addition, the Bank also records deferred tax asset on available tax losses. Deferred tax is calculated using the rates that are expected to apply to the period when the differences reverse based on tax rates that have been enacted or substantively enacted by the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised.

The carrying amount of the deferred tax asset is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the deferred tax asset to be utilised.

The Bank also recognises deferred tax asset / liability on deficit / surplus on revaluation of securities which is adjusted against the related deficit / surplus in accordance with the requirements of the International Accounting Standard 12 - Income Taxes.

5.8 Pool management

Bank receives non-remunerative deposits under the contract of “Qard”, whereas remunerative deposits are received under the contract of “Modaraba” which are used by the Bank in generating profits.

Deposits based on Qard basis are classified as current account which are non remunerative deposits.

Deposits based on Modaraba are classified as current remunerative, savings or fixed deposits, which is based upon profit sharing of Shariah complaint investments and financings, etc.

The Bank has also comingled its equity in generating profit. This introduces Bank’s profit-and-loss sharing (PLS) model, which is based on the Modaraba Musharakah concept of Islamic contracting.

Specific pools are operated for funds acquired / accepted from the State Bank of Pakistan and other banks for Islamic Export Refinance to Bank’s customers and liquidity management respectively under the Musharakah / Mudarabah modes.

The deposits and funds accepted under the above mentioned pools are provided to diversified sectors and avenues of the economy / business as mentioned in the note 38.1.1.1 and are also invested in Government of Pakistan backed Ijarah Sukuks. Musharakah investments from State Bank of Pakistan under Islamic Export Refinance are channeled towards the export sector of the economy.



5.9 Staff retirement benefits

Defined contribution plan

The Bank operates a recognised contributory provident fund scheme for all its permanent employees. Equal monthly contributions are made, both by the Bank and the employees, to the fund at the rate of 10% of basic salary. The Bank has no further payment obligation once the contributions have been paid. The contributions are recognised as employee benefit expense when they are due.

5.10 Funds due to financial institutions / deposits and their cost

a) Funds due to financial institutions / deposits are recorded at the proceeds received.

b) Profits / returns on funds due to financial institutions / deposits are recognised as an expense in theperiod in which these are incurred using effective profit rate method to the extent that these are notdirectly attributable to the acquisition of or construction of qualifying assets. Borrowing costs that aredirectly attributable to the acquisition, construction or production of a qualifying asset (one that takes asubstantial period of time to get ready for use or sale) are capitalised as part of the cost of that asset.

5.11 Provisions and contingent assets and liabilities

Provisions are recognised when the Bank has a present, legal or constructive obligation arising as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are reviewed at each reporting date and are adjusted to reflect the current best estimates.

Contingent assets are not recognised and are also not disclosed unless an inflow of economic benefits is probable. Contingent liabilities are disclosed unless the probability of an outflow of resources embodying economic benefit is remote.

5.12 Revenue recognition

- Profit from murabaha financing is accounted for on culmination of murabaha transaction. However, the profit on that portion of murabaha not due for payment is deferred by accounting for “Unearned Murabaha Income” with a corresponding credit to “Deferred Murabaha Income” which is recorded as a liability. The same is then recognised on a time proportion basis.

- Income from ijarah financings under both finance and IFAS-2 method is recognised on an accrual basis.

- Profit on diminishing musharaka, modaraba and istisna are recognised on an accrual basis.

- Fee, commission and brokerage income including commission income on letters of credit and letters of guarantees are accounted for on receipt basis.

- Profit on investments in sukuks is recognised on an accrual basis. Where debt securities (excluding held for trading securities) are purchased at a premium or discount, those premiums / discounts are amortised through the profit or loss account using the effective yield method.



- Dividend income is recognised when the Bank’s right to receive dividend is established.

- Gain or loss on sale of investments is recognised in the profit and loss account in the year in which it arises.

5.13 Acceptances

Acceptances comprise undertakings by the Bank to pay bills of exchange drawn on customers. The Bank expects most acceptances to be simultaneously settled with the reimbursement from the customers. Acceptances are accounted for as off balance sheet transactions and are disclosed as contingent liabilities and commitments.

5.14 Foreign currencies

Transactions and balance

Foreign currency transactions are recorded in Rupees at exchange rates prevailing on the date of transaction. Monetary assets, monetary liabilities and contingencies and commitments in foreign currencies, except forward contracts, at the year end are reported in Rupees at exchange rates prevalent on the reporting date.

Forward contracts relating to the foreign currency deposits are valued at forward rates applicable to the respective maturities of the relevant foreign exchange contracts. Exchange gains and losses are included in the profit and loss account.

Commitments

Commitments for outstanding forward foreign exchange contracts are disclosed 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 exchange rates ruling on the reporting date.

5.15 Offsetting

Financial assets and financial liabilities are off-set and the net amount reported in the financial statements only when there is a legally enforceable right to set-off the recognised amount and the Bank intends either to settle on a net basis, or to realise the assets and to settle the liabilities simultaneously. Income and expense items of such assets and liabilities are also off-set and the net amount is reported in the financial statements.

5.16 Share based compensation plan

The Bank has offered a share based compensation plan to its Chief Executive Officer (CEO) which is accounted for as “Equity settled share based payment plan”. This plan provides for awards of Burj Bank Limited’s stock options to the CEO of the Bank subject to achievement of certain performance conditions. Employee benefit cost under the plan is calculated with reference to the fair value of the share options measured at the grant date (information regarding determination of fair value of share options is detailed in note 33 to these financial statements). The fair value of the share options determined at the grant date is charged to the profit and loss account, on a straight line basis, over the vesting period based on the management’s best estimate of the equity instruments that will eventually vest, with a corresponding increase in equity.



5.17 Financial instruments

All financial assets and liabilities are recognised at the time when the Bank becomes a party to the contractual provisions of the instrument. Financial assets are derecognised when the Bank loses control of the contractual rights that comprise the financial assets. Financial liabilities are derecognised when they are extinguished, i.e., when the obligation specified in the contract is discharged, cancelled or expired. Any gain / loss on derecognition of the financial assets and financial liabilities is taken to the profit and loss account directly. Financial assets carried on the statement of financial position include cash and balances with treasury banks, balances with other banks, due from financial institutions, investments, Islamic financing and related assets and certain other receivables while financial liabilities include bills payable, due to financial institutions, deposits and other accounts and certain other payables. The particular recognition methods adopted for significant financial assets and financial liabilities are disclosed in the individual policy statements associated with them.

5.18 Dividend and appropriation to reserves

Dividend and appropriation to reserves, except appropriations which are required under the law, after the date of statement of financial position, are recognised as a liability in the Bank’s financial statements in the period in which these are approved.

5.19 Earnings / (loss) per share

The Bank presents basic and diluted earnings / (loss) per share (EPS) for its shareholders. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, if any.

5.20 Segment reporting

A segment is a distinguishable component of the Bank that is engaged either in providing product or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments. The Bank’s primary format of reporting is based on business segments.

5.20.1 Business segments

The business segments within the Bank have been categorised into the following classifications of business segments in accordance with the requirements specified by the SBP.

- Corporate finance

It includes investment banking, syndications, IPO related activities (excluding investments), secondary private placements, underwriting and securitisation.

- Trading and sales

It includes equity, foreign exchanges, commodities, own securities and placements.



- Retail banking

It includes retail financings, deposits and banking services offered to its retail customers and small and medium enterprises.

- Commercial banking

It includes project finance, export finance, trade finance, ijarah, guarantees and bills of exchange relating to its corporate customers.

5.20.2 Geographical segments

The operations of the Bank are currently based only in Pakistan.

Note 2013 2012--------- Rupees in ‘000 ---------

6 CASH AND BALANCES WITH TREASURY BANKS

In hand- local currency 628,803 562,749 - foreign currencies 237,980 86,607

866,783 649,356 With the State Bank of Pakistan in

- local currency current account 6.1 1,560,215 1,609,673 - foreign currency current account 25,007 16,648 - foreign currency deposit accounts cash reserve account 6.2 84,260 46,146 special cash reserve account 6.3 101,112 55,375

185,372 101,521 With National Bank of Pakistan in

- local currency current account 113,712 75,266 2,751,089 2,452,464

6.1 The local currency current account is maintained with the SBP as per the requirements of Section 36 of the State Bank of Pakistan Act, 1956. This section requires banking companies to maintain a local currency cash reserve in the current account opened with the SBP at a sum not less than such percentage of its time and demand liabilities in Pakistan as may be prescribed by the SBP.

6.2 As per BSD Circular No. 15 dated June 21, 2008, cash reserve of 5% is required to be maintained with the SBP on deposits held under the New Foreign Currency Accounts Scheme (FE-25 deposits). This account is non-remunerative in nature.

6.3 Special cash reserve of 6% is required to be maintained with the SBP on FE-25 deposits as specified in BSD Circular No. 15 dated June 21, 2008. During the year this deposit account was not remunerated (2012: Nil).



Note 2013 2012--------- Rupees in ‘000 ---------

7 BALANCES WITH OTHER BANKS

In Pakistan- current account 673 443 - deposit account 7.1 901,081 300,717

Outside Pakistan- current account 154,735 606,095

1,056,489 907,255

7.1 This represents savings accounts carrying profit rates ranging from 3.50% to 9.25% per annum (2012: 5.00% to 10.00% per annum).

Note 2013 2012--------- Rupees in ‘000 ---------

8 DUE FROM FINANCIAL INSTITUTIONS

Commodity murabaha 8.1 & 8.2 7,689,704 -

8.1 These represent placements made with financial institutions under commodity murabaha agreement and carry return at profit rates ranging from 9.00% - 10.75% (December 31, 2012: Nil). These balances have a maturity upto January 13, 2014.

2013 2012--------- Rupees in ‘000 ---------

8.2 Particulars of due from financial institutions

In local currency 7,689,704 - In foreign currency - -

7,689,704 -



9 INVESTMENTS - NET

9.1 Investments by typesNote 2013 2012

Held by Given as Total Held by Given as Totalbank collateral bank collateral

---------------------------------- Rupees in ‘000 ---------------------------------- Held for trading securitiesFully paid up ordinary shares - listed 9.9 77,546 - 77,546 59,565 - 59,565

Available for sale securities Fully paid up ordinary shares - listed 730,172 - 730,172 873,420 - 873,420 Sukuk certificates 8,216,646 - 8,216,646 15,952,203 - 15,952,203 Units of open-end mutual funds 170,000 - 170,000 220,000 - 220,000

9,116,818 - 9,116,818 17,045,623 - 17,045,623

Investments at cost 9,194,364 - 9,194,364 17,105,188 - 17,105,188

Less: Provision for diminution in the value of investments 9.8 (58,263) - (58,263) (56,033) - (56,033)

Investments (net of provisions) 9,136,101 - 9,136,101 17,049,155 - 17,049,155

Unrealised gain on revaluation of investments classified as held for trading - net 9.9 5,590 - 5,590 650 - 650

Surplus on revaluation of available for sale securities - net 19 84,498 - 84,498 106,593 - 106,593

Total investments at market value 9,226,189 - 9,226,189 17,156,398 - 17,156,398

Note 2013 2012--------- Rupees in ‘000 ---------

9.2 Investments by segments

Federal Government SecuritiesGOP Ijarah Sukuk - unlisted 9.4 7,797,319 15,296,271

Fully paid up ordinary shares / unitsListed companies / mutual funds 9.5 977,718 1,152,985

Sukuk certificatesSukuk certificates - unlisted 9.6 419,327 655,932

Investments at cost 9,194,364 17,105,188 Less: Provision for diminution in the value of investments 9.8 (58,263) (56,033)

Investments (net of provisions) 9,136,101 17,049,155

Unrealised gain on revaluation of investments classified as held for trading - net 9.9 5,590 650

Surplus on revaluation of available for sale securities - net 19 84,498 106,593

Total investments at market value 9,226,189 17,156,398



9.3 Investments include certain approved / government securities which are held by the Bank to comply with the Statutory Liquidity Reserve 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.

9.4 Particulars of Federal Government Securities - Unlisted, Secured

Face value of Rs. 100,000 each unless otherwise stated.

Particulars Collateral Profit rateProfit

payment2013 2012

Nominal value------- Rupees in ‘000 --------

GOP IJARAH SUKUK - V Government of Pakistan Sovereign

guarantee

6 months T-Bill

Semi-annually

- 1,121,137 Nil (2012: 11,120) certificatesMaturity date: November 15, 2013

GOP IJARAH SUKUK - VI Government of Pakistan Sovereign

guarantee

6 months T-Bill

Semi-annually

- 1,018,100 Nil (2012: 10,181) certificatesMaturity date: December 20, 2013

GOP IJARAH SUKUK - VII Government of Pakistan Sovereign

guarantee

6 months T-Bill

Semi-annually

2,200 2,200 22 (2012: 22) certificatesMaturity date: March 7, 2014

GOP IJARAH SUKUK - VIII Government of Pakistan Sovereign

guarantee

6 months T-Bill

Semi-annually

1,191,160 2,293,410 11,907 (2012: 22,901) certificatesMaturity date: May 16, 2014

GOP IJARAH SUKUK - IX Government of Pakistan Sovereign

guarantee

6 months T-Bill

Semi-annually

2,620,190 4,449,101 26,150 (2012: 44,390) certificatesMaturity date: December 26, 2014

GOP IJARAH SUKUK - X Government of Pakistan Sovereign

guarantee

6 months T-Bill

Semi-annually

1,495,484 1,874,835 14,860 (2012: 18,535) certificatesMaturity date: March 2, 2015

GOP IJARAH SUKUK - XI Government of Pakistan Sovereign

guarantee

6 months T-Bill

Semi-annually

1,612,272 2,512,456 16,120 (2012: 25,120) certificatesMaturity date: April 30, 2015

GOP IJARAH SUKUK - XII Government of Pakistan Sovereign

guarantee

6 months T-Bill

Semi-annually

211,044 819,627 2,095 (2012: 8,165) certificatesMaturity date: June 28, 2015

GOP IJARAH SUKUK - XIII Government of Pakistan Sovereign

guarantee

6 months T-Bill minus

0.25%

Semi-annually

664,969 1,205,405 6,630 (2012: 12,000) certificatesMaturity date: September 18, 2015

7,797,319 15,296,271



9.5 Particulars of investments in listed companies / mutual funds

2013 2012 2013 2012Number of shares / units ------- Rupees in ‘000 -----

Listed companies - Fully paid up ordinary shares of Rs.10 each

1,570,000 1,833,500 Hub Power Company Limited 100,282 78,221 1,197,500 1,050,000 D. G. Khan Cement Company Limited 92,806 55,738

150,000 526,000 Pakistan Oil Fields Limited 73,665 215,196 255,000 575,000 Lucky Cement Limited 66,153 81,534 575,000 210,000 Nishat Mills Limited 63,338 13,434 550,000 1,200,000 Fauji Fertilizer Company Limited 62,864 143,051 180,000 325,000 Pakistan State Oil Company Limited 58,194 72,444

1,300,000 1,750,000 Fauji Fertilizer Bin Qasim Limited 52,974 81,118 1,815,000 - Maple Leaf Cement Factory Limited 46,445 -

150,000 150,000 Oil and Gas Development Company Limited 39,964 28,288 1,220,000 1,100,000 Pakistan Telecommunication Company Limited 35,007 20,449

162,500 375,000 Pakistan Petroleum Limited 33,898 63,586 500,000 - Cherat Cement Company Limited 28,917 - 129,600 125,000 Attock Refinery Limited 27,306 20,738

2,000,000 - K-Electric Limited 14,189 - 100,000 - Kohat Cement Company Limited 8,081 -

35,000 420,000 Engro Foods Limited 3,635 37,248 - 900,000 Sui Northern Gas Pipeline Limited - 21,940

807,718 932,985 Mutual funds - Face value of Rs. 100 each

1,470,444 1,470,444 Askari Islamic Income Fund 150,000 150,000 193,274 193,274 Faysal Islamic Savings Growth Fund 20,000 20,000

- 498,123 MCB Islamic Income Fund - 50,000 170,000 220,000

977,718 1,152,985



9.6 Particulars of Sukuk Certificates - Unlisted, Secured

Face value of Rs. 5,000 each unless otherwise stated.

Particulars Collateral Profit rate Profit payment

2013 2012Nominal value

------- Rupees in ‘000 --------

WAPDA Second Sukuk Certificates Government of Pakistan Sovereign guarantee

6 months KIBOR minus 0.25%

Semi-annually

66,667 83,333 20,000 (2012: 20,000) certificatesFace value 3,333 (2012: 4,167)Maturity date: July 13, 2017

Sui Southern Gas Company limited Tangible Assets 3 months KIBOR plus

0.2%

Quarterly - 55,000 Nil (2012: 110,000) certificatesMaturity date: December 31, 2012

House Building Finance Corporation Tangible Assets 6 months KIBOR plus

1%

Semi-annually

5,000 15,000 10,000 (2012: 10,000) certificatesFace value 500 (2012: 1,500)Maturity date: May 7, 2014

Engro Fertilizers Limited Tangible Assets 6 months KIBOR plus

1.5%

Semi-annually

142,473 242,757 28,400 (2012: 48,400) certificatesFace value 2,934 (2012: 5,000)Maturity date: September 6, 2015

Sitara Chemical Industries Limited Tangible Assets 3 months KIBOR plus

1%

Quarterly - 8,333 Nil (2012: 20,000) certificatesMaturity date: January 2, 2013

Security Leasing Corporation Limited Tangible Assets 6% Monthly 9,852 11,070 6,000 (2012: 6,000) certificatesFace value 1,642 (2012: 1,845)Maturity date: March 18, 2014

Century Paper and Board Mills Limited Tangible Assets 6 months KIBOR plus

1.35%

Semi-annually

- 10,000 Nil (2012: 5,000) certificatesMaturity date: September 25, 2014(Pre mature settlement on March 25, 2013)

Amtex Limited Tangible Assets 3 months KIBOR plus

2%

Quarterly 37,500 37,500 10,000 (2012: 10,000) certificatesFace value 3,750 (2012: 3,750)Maturity date: October 11, 2012

Maple Leaf Cement Factory Limited - Sukuk I Tangible Assets 3 months KIBOR plus

1%

Quarterly 43,644 48,654 10,000 (2012: 10,000) certificatesFace value 4,364 (2012: 4,865)Maturity date: December 3, 2018

Maple Leaf Cement Factory Limited - Sukuk II Tangible Assets 3 months KIBOR plus

1%

Quarterly - 833 Nil (2012: 375) certificatesMaturity date: March 31, 2013

K. S. Sulemanji Esmailji and Sons (Private) Limited Tangible Assets 3 months KIBOR plus

1.4%

Quarterly 5,105 15,952 6,000 (2012: 6,000) certificatesFace value 851 (2012: 2,659)Maturity date: June 30, 2015

Eden Builders Limited Tangible Assets 3 months KIBOR plus

2.3%

Quarterly 1,500 7,500 4,800 (2012: 4,800) certificatesFace value 313 (2012: 1,563)Maturity date: March 8, 2014

Quetta Textile Mills Limited Tangible Assets 6 months KIBOR plus

1.5%

Semi-annually

107,586 120,000 30,000 (2012: 30,000) certificatesFace value 3,586 (2012: 4,000)Maturity date: September 26, 2015

419,327 655,932



9.7 Quality of available for sale securities2013 2012 2013 2012Long / medium term

credit rating ------- Rupees in ‘000 -----

Sukuk certificates (at market value)GOP Ijarah - V N/A Unrated - 1,128,176 GOP Ijarah - VI N/A Unrated - 1,027,568 GOP Ijarah - VII Unrated Unrated 2,203 2,221 GOP Ijarah - VIII Unrated Unrated 1,197,130 2,313,149 GOP Ijarah - IX Unrated Unrated 2,639,842 4,475,844 GOP Ijarah - X Unrated Unrated 1,502,495 1,873,703 GOP Ijarah - XI Unrated Unrated 1,629,571 2,534,859 GOP Ijarah - XII Unrated Unrated 211,867 824,338 GOP Ijarah - XIII Unrated Unrated 671,155 1,206,960 WAPDA second sukuk certificates Unrated Unrated 66,707 83,616 Sui Southern Gas Company Limited - (at cost) N/A AA- - 55,000 House Building Finance Corporation Limited - (at cost) A A 5,000 15,000 Sitara Chemical Industries Limited - (at cost) N/A A+ - 8,333 Engro Fertilizers Limited A- A 140,973 242,757 Security Leasing Corporation Limited - (at cost) Unrated Unrated 9,852 11,070 Century Paper and Board Mills Limited - (at cost) N/A A+ - 10,000 Amtex Limited - (at cost) Unrated Unrated 37,500 37,500 Maple Leaf Cement Factory Limited Sukuk - I - (at cost) Unrated* D 43,644 48,654 Maple Leaf Cement Factory Limited Sukuk - II - (at cost) N/A D - 833 K. S. Sulemanji Esmailji and Sons (Private) Limited - (at cost) Unrated Unrated 5,105 15,952 Eden Builders Limited - (at cost) A A 1,500 7,500 Quetta Textile Mills Limited - (at cost) Unrated* D 107,586 120,000

8,272,130 16,043,033 Ordinary shares - listed (at market value)Cherat Cement Company Limited Unrated N/A 31,645 - K-Electric Limited A- N/A 11,300 - Kohat Cement Company Limited Unrated N/A 9,777 - Maple Leaf Cement Factory Limited BB N/A 41,145 - Fauji Fertilizer Bin Qasim Limited Unrated Unrated 56,953 67,533 Lucky Cement Limited Unrated Unrated 59,974 75,770 Pakistan State Oil Company Limited AA+ AA+ 49,833 69,663 Pakistan Petroleum Limited Unrated Unrated 32,094 61,877 Fauji Fertilizer Company Limited Unrated Unrated 61,578 140,568 Pakistan Oil Fields Limited Unrated Unrated 74,656 218,770 Oil and Gas Development Company Limited AAA AAA 41,454 28,892 Pakistan Telecommunication Company Limited Unrated Unrated 29,862 17,350 D. G. Khan Cement Company Limited Unrated Unrated 85,730 40,935 Hub Power Company Limited AA+ AA+ 91,080 81,432 Nishat Mills Limited AA- AA- 63,620 13,408 Engro Foods Limited Unrated Unrated - 37,783 Sui Northern Gas Pipeline limited AA AA - 20,925 Attock Refinery Limited AA AA 20,768 16,758

761,469 891,664 Units of open-end mutual funds (at market value)Askari Islamic Income Fund AA- (f) Unrated 147,936 147,684 Faysal Islamic Savings Growth Fund AA- (f) AA- (f) 19,781 19,963 MCB Islamic Income Fund N/A AA-(f) - 49,872

167,717 217,519 9,201,316 17,152,216

Less: Provision for diminution in the value of investments (note 9.8) (58,263) (56,033)

9,143,053 17,096,183

* These companies have not obtained credit rating post restructuring.



Note 2013 2012--------- Rupees in ‘000 ---------

9.8 Particulars of provision for diminution in the value of investments

Opening balance 56,033 134,659

Charge for the year 4,925 2,768 Reversals during the year (2,695) (81,394)

2,230 (78,626)Closing balance 9.8.1 58,263 56,033

9.8.1 Particulars of provision for diminution in the value of investments by type and segment

Unlisted sukuk certificates - available for sale 58,263 56,033

9.9 Unrealised gain / (loss) on revaluation of investments classified as held for trading - net

Unrealised gain / (loss) Cost 2013 2012 2013 2012

Investee company -------------------- Rupees in ‘000 --------------------

Lucky Cement Limited 1,678 391 14,815 10,973 Maple Leaf Cement Factory Limited 610 - 8,031 - Nishat Mills Limited 1,120 - 8,423 - Pakistan State Oil Company Limited 501 58 9,465 5,748 Pakistan Petroleum Limited (47) 1 2,721 4,419 Pakistan Oil Fields Limited - (80) - 11,456 Pakistan Telecommunication Company Limited (53) (147) 4,887 1,882 D. G. Khan Cement Company Limited 1,809 506 15,123 15,868 Hub Power Company Limited (71) 2 4,322 1,513 Engro Foods Limited 21 (34) 3,634 3,469 Attock Refinery Limited 22 (47) 6,125 4,237

5,590 650 77,546 59,565



Note 2013 2012--------- Rupees in ‘000 ---------

10 ISLAMIC FINANCING AND RELATED ASSETS - NET

In Pakistan- Murabaha 10.1.2 & 10.2 11,025,646 7,194,911 - Advances against murabaha 619,323 1,376,805 - Diminishing musharakah 9,103,702 6,497,325 - Advances against diminishing musharakah 451,433 129,628 - Net investment in ijarah 10.3 2,512,376 3,041,284 - Advances against net investment in ijarah - 67,471 - Istisna 10.4 4,554,438 2,783,023 - Advances against istisna 996,338 2,015,836 - Modaraba 10.5 519,886 571,217 - Staff finance 10.6 692,133 399,813 - Advances against staff finance 5,806 -

Islamic financing and related assets - gross 10.7 30,481,081 24,077,313 Provision against non performing Islamic financing and related assets 10.9 (1,525,955) (706,781)Islamic financing and related assets - net of provision 28,955,126 23,370,532

10.1 Murabaha sale price 23,249,105 16,354,532 Murabaha purchase price 21,505,553 15,376,387

1,743,552 978,145 10.1.1 Unearned murabaha income

Opening balance 500,198 436,134 Arising during the year 1,743,552 978,145 Recognised during the year (1,917,371) (914,081)

326,379 500,198 10.1.2 Murabaha receivable

Opening balance 7,194,911 6,064,473 Sales during the year 23,249,105 16,354,532 Received during the year (19,418,370) (15,224,094)

11,025,646 7,194,911

10.2 It includes financings amounting to Rs. Nil (2012: Rs. 121.288 million) against murabaha under Islamic Export Refinance Scheme.

Note 2013 2012--------- Rupees in ‘000 ---------

10.3 Net investment in ijarah

- Ijarah under finance method 10.3.1 4,612 38,704 - Ijarah accounted for under IFAS-2 10.3.2 2,507,764 3,002,580

2,512,376 3,041,284



Brief description of the ijarah arrangements

Ijarah contracts entered into by the Bank essentially represent arrangements whereby the Bank (being the owner of assets) transfers its usufruct to its customers for an agreed period at an agreed consideration. The significant ijarah contracts entered into by the Bank are with respect to vehicles, plant and machinery and equipment and are for periods ranging from 3 to 5 years.

10.3.1 Net investment in ijarah - ijarah under finance method

2013 2012

Not later than one

year

Later than one and less

than five years

Over five years Total

Not later than one

year


than five years


----------------------------------------- Rupees in ‘000 -----------------------------------------

Ijarah rentals receivable 3,968 - - 3,968 31,676 - - 31,676 Residual value 2,142 - - 2,142 11,161 - - 11,161 Minimum ijarah payments 6,110 - - 6,110 42,837 - - 42,837 Less: Profits for future periods 1,498 - - 1,498 4,133 - - 4,133 Present value of minimumijarah payments 4,612 - - 4,612 38,704 - - 38,704

10.3.2 Net investment in ijarah - ijarah accounted for under IFAS-2 Note 2013 2012--------- Rupees in ‘000 ---------

Movement in net book value of ijarah assets

Assets under ijarahOpening balance 3,436,723 957,506 Disbursed during the year 181,621 2,823,660 Disposals during the year (320,737) (344,443)Closing balance 3,297,607 3,436,723

Accumulated depreciationOpening balance 434,143 173,728 Charged during the year 475,573 384,138 Adjustment during the year (119,873) (123,723)Closing balance 789,843 434,143

Net investment in ijarah - ijarah accounted for under IFAS-2 10.3.3 2,507,764 3,002,580

10.3.3 Net investment in ijarah - ijarah accounted for under IFAS-2

2013 2012

Not later than one

year


than five years


Not later than one

year


than five years


----------------------------------------- Rupees in ‘000 -----------------------------------------

Ijarah rentals receivable 1,322,509 2,204,710 - 3,527,219 999,797 3,134,282 - 4,134,079



10.4 It includes financings amounting to Rs. 1,671.214 million (2012: Rs. 949.425 million) against istisna under Islamic Export Refinance Scheme.

10.5 It includes financings amounting to Rs. 14.257 million (2012: Nil) against modaraba under Islamic Export Refinance Scheme.

Note 2013 2012--------- Rupees in ‘000 ---------

10.6 Staff finance

Staff ijarah under finance method 10.6.1 - 115 Staff ijarah accounted for under IFAS-2 10.6.2 47,707 49,314 Staff finance under diminishing musharakah 644,426 350,384

692,133 399,813

10.6.1 Staff finance - ijarah under finance method

2013 2012

Not later than one

year


than five years


Not later than one

year


than five years


----------------------------------------- Rupees in ‘000 -----------------------------------------

Ijarah rentals receivable - - - - 118 - - 118 Residual value - - - - - - - - Minimum ijarah payments - - - - 118 - - 118 Less: Profits for future periods - - - - 3 - - 3 Present value of minimum ijarah payments - - - - 115 - - 115

Note 2013 2012--------- Rupees in ‘000 ---------

10.6.2 Staff finance - ijarah accounted for under IFAS-2

Movement in net book value of ijarah assets

Assets under ijarahOpening balance 54,904 14,395 Disbursed during the year 30,785 48,246 Disposals during the year (25,595) (7,737)Closing balance 60,094 54,904

Accumulated depreciationOpening balance 5,590 1,794 Charged during the year 10,826 5,307 Adjustment during the year (4,029) (1,511)Closing balance 12,387 5,590

Staff finance - ijarah accounted for under IFAS-2 10.6.3 47,707 49,314



10.6.3 Staff finance - ijarah accounted for under IFAS-2

2013 2012

Not later than one

year


than five years


Not later than one

year


than five years


----------------------------------------- Rupees in ‘000 -----------------------------------------

Ijarah rentals receivable 14,366 40,424 - 54,790 12,106 45,417 - 57,523

2013 2012--------- Rupees in ‘000 ---------

10.7 Particulars of Islamic financing and related assets - gross

In local currency 30,195,186 23,977,467 In foreign currency 285,895 99,846

30,481,081 24,077,313

Short term (upto one year) 17,715,631 13,941,792 Long term (over one year) 12,765,450 10,135,521

30,481,081 24,077,313

10.8 Islamic financing and related assets include Rs. 1,758.223 million (2012: Rs. 1,029.984 million) which have been placed under non-performing status as detailed below:

2013

Category of classification

Classified Islamic financing and related assets Provision required Provision held

Domestic Overseas Total Domestic Overseas Total Domestic Overseas Total --------------------------------------------------- Rupees in ‘000 ----------------------------------------------------

Substandard 22,490 - 22,490 3,113 - 3,113 3,113 - 3,113 Doubtful 152,948 - 152,948 26,002 - 26,002 26,002 - 26,002 Loss 1,582,785 - 1,582,785 1,446,693 - 1,446,693 1,446,693 - 1,446,693

1,758,223 - 1,758,223 1,475,808 - 1,475,808 1,475,808 - 1,475,808

2012

Category of classification

Classified Islamic financing and related assets Provision required Provision held

Domestic Overseas Total Domestic Overseas Total Domestic Overseas Total --------------------------------------------------- Rupees in ‘000 ----------------------------------------------------

Substandard 8,610 - 8,610 1,041 - 1,041 1,041 - 1,041 Doubtful 345,464 - 345,464 125,163 - 125,163 125,163 - 125,163 Loss 675,910 - 675,910 552,752 - 552,752 552,752 - 552,752

1,029,984 - 1,029,984 678,956 - 678,956 678,956 - 678,956

10.8.1 As per instructions of the State Bank of Pakistan facilities amounting to Rs. 334.123 million (2012: Rs. 352.119 million) allowed to a customer have been placed under the ‘Special Mention Category’.



10.8.2 As allowed by the SBP, the Bank has availed benefit of forced sale values amounting to Rs. 294.490 million (2012: Rs. 134.920 million) in determining the provisioning against non-performing Islamic financing and related assets as at December 31, 2013. However, the additional impact on profitability arising from availing the benefit of forced sales value is not available for payment of cash or stock dividends to shareholders.

10.9 Particulars of provision against Islamic financing and related assets

2013 2012 Specific General Total Specific General Total

-------------------------------------- Rupees in ‘000 --------------------------------------

Opening balance 678,956 27,825 706,781 618,208 183,806 802,014

Charge for the year 832,308 22,322 854,630 213,740 24,019 237,759 Reversals during the year (35,456) - (35,456) (152,992) (180,000) (332,992)

796,852 22,322 819,174 60,748 (155,981) (95,233)

Closing balance 1,475,808 50,147 1,525,955 678,956 27,825 706,781

10.9.1 The Bank maintains general provision in respect of the consumer finance and small and medium enterprise finance portfolio calculated in accordance with the requirements of the respective Prudential Regulations issued by the State Bank of Pakistan (SBP). The SBP vide its Letter No. BPRD/BRD-04/BB/2013/1642 dated February 12, 2013 has allowed an exemption to the Bank from recognising general provision against Burj Carsaaz financings (Auto portfolio) subject to the following conditions:

- The Bank shall classify the Burj Carsaaz financing as “loss” on the 180th day from the date of default and shall recognise 100% provision there against.

- The amount of general reserve already accumulated and maintained shall not be reversed.

- The classified portfolio of Burj Carsaaz financings (Auto finance) shall remain upto 5% of the gross Burj Carsaaz portfolio of the Bank.

During the year, SBP has issued Prudential Regulations for Small and Medium Enterprises. These Prudential Regulations require the Bank to maintain a general provision against financings to Small Enterprises and has also revised the provisioning basis and classification criteria for making specific provision against small customers. Accordingly, the Bank has created a general provision amounting to Rs. 0.647 million. The creation of this provision has been accounted for as change in accounting estimate as defined in International Financial Reporting Standards. Had this general provision against financings to Small Enterprises not been created, the provision charge against Islamic financing and related assets would have been lower by Rs. 0.647 million and consequently loss before taxation would have been lower by the same amount.

10.9.2 Particulars of provision against Islamic financing and related assets with respect to currencies

2013 2012 Specific General Total Specific General Total

-------------------------------------- Rupees in ‘000 --------------------------------------

In local currency 1,475,808 50,147 1,525,955 678,956 27,825 706,781 In foreign currency - - - - - -

1,475,808 50,147 1,525,955 678,956 27,825 706,781



10.9.3 Although the Bank has made provision against its non-performing portfolio as per the category of classification of Islamic financing and related assets, the Bank holds enforceable collateral in the event of recovery through litigation. These securities comprise of pledge of securities and charge against various tangible assets of the financee including land, building and machinery, stock in trade etc.

10.10 Particulars of Islamic financing and related assets to directors, executives, officers, etc.

10.10.1 Due from directors, executives or officers of the Bank or any of them either severally or jointly with any other persons

2013 2012--------- Rupees in ‘000 ---------

Balance at the beginning of the year 399,813 192,693 Disbursements during the year 483,891 310,244 Repayments made during the year (185,765) (103,124)Balance at the end of the year 697,939 399,813

10.10.2 Due from companies or firms in which the directors of the Bank are interested as directors, partners or in the case of private companies as members.

2013 2012--------- Rupees in ‘000 ---------

Balance at the beginning of the year 188,712 - Disbursements during the year - 188,712 Repayments made during the year - - Balance at the end of the year 188,712 188,712

10.10.3 The Bank does not have any Islamic financing and related assets balances outstanding as at December 31, 2013 and December 31, 2012 from its subsidiary companies, controlled firms, managed modarabas and other related parties.

Note 2013 2012--------- Rupees in ‘000 ---------

11 OPERATING FIXED ASSETS

Capital work-in-progress 11.1 12,645 347,552 Property and equipment 11.2 931,092 755,126 Intangible assets 11.4 113,612 27,568

1,057,349 1,130,246

11.1 Capital work-in-progress

Civil works 823 217,321 Advance for computer hardware - 49,247 Advance for computer software 11,822 75,825 Advance for vehicles - 5,159

12,645 347,552



11.2 Property and equipment

----------------------------------------------- 2013-----------------------------------------------Cost Depreciation Book value

As at January 1,

2013

Additions / (disposals) during the

year

As at December 31, 2013

As at January 1,

2013

Charge for the year / (disposals)



Rate of depreciation

%

----------------------------------- Rupees in ‘000 -----------------------------------

Leasehold improvements 396,108 261,574 650,195 136,959 55,690 189,619 460,576 10 (7,487) (3,030)

Building 62,444 - 62,444 5,984 3,122 9,106 53,338 5

Furniture and fixtures 71,991 53,214 125,205 24,789 10,993 35,782 89,423 10

Office equipment 103,417 88,088 191,383 25,151 16,601 41,749 149,634 10 (122) (3)

Computer equipment 298,274 119,374 417,294 216,733 60,780 277,354 139,940 33.33 (354) (159)

Vehicles 288,129 32,920 57,760 55,621 30,756 19,579 38,181 20 (263,289) (66,798)

1,220,363 555,170 1,504,281 465,237 177,942 573,189 931,092 (271,252) (69,990)

----------------------------------------------- 2012-----------------------------------------------Cost Depreciation Book value

As at January 1,

2012

Additions / (disposals) during the

year


As at January 1,

2012

Charge for the year / (disposals)



Rate of depreciation

%

----------------------------------- Rupees in ‘000 -----------------------------------

Leasehold improvements 383,892 25,262 396,108 102,450 38,975 136,959 259,149 10 (13,046) (4,466)

Building 62,444 - 62,444 2,862 3,122 5,984 56,460 5

Furniture and fixtures 62,807 9,885 71,991 18,176 6,782 24,789 47,202 10 (701) (169)

Office equipment 67,497 36,095 103,417 17,688 7,504 25,151 78,266 10 (175) (41)

Computer equipment 225,005 75,203 298,274 174,265 43,788 216,733 81,541 33.33 (1,934) (1,320)

Vehicles 152,459 164,323 288,129 38,422 31,274 55,621 232,508 20 (28,653) (14,075)

954,104 310,768 1,220,363 353,863 131,445 465,237 755,126 (44,509) (20,071)



11.3 Property and equipment - Movement of net book value

Leasehold improvements

BuildingFurniture

and fixturesOffice

EquipmentComputer Equipment

Vehicles Total

-------------------------------------- (Rupees in ‘000) --------------------------------------At January 1, 2012Cost 383,892 62,444 62,807 67,497 225,005 152,459 954,104 Accumulated depreciation 102,450 2,862 18,176 17,688 174,265 38,422 353,863 Net book value 281,442 59,582 44,631 49,809 50,740 114,037 600,241

Year ended December 31, 2012Additions 25,262 - 9,885 36,095 75,203 164,323 310,768 Net book value of disposals (8,580) - (532) (134) (614) (14,578) (24,438)Depreciation charge (38,975) (3,122) (6,782) (7,504) (43,788) (31,274) (131,445)Net book value as at December 31, 2012 259,149 56,460 47,202 78,266 81,541 232,508 755,126

Year ended December 31, 2013Additions 261,574 - 53,214 88,088 119,374 32,920 555,170 Net book value of disposals (4,457) - - (119) (195) (196,491) (201,262)Depreciation charge (55,690) (3,122) (10,993) (16,601) (60,780) (30,756) (177,942)

Net book value as at December 31, 2013 460,576 53,338 89,423 149,634 139,940 38,181 931,092

11.3.1 The cost of fully depreciated assets still in use amounts to Rs. 206.886 million (2012: Rs. 150.085 million).

11.4 Intangible assets

----------------------------------------------- 2013-----------------------------------------------Cost Amortisation Book value

As at January 1,

2013

Additions during the

year


As at January 1,

2013

Charge for the year



Rate of amortisation

% -------------------------------------- Rupees in ‘000 --------------------------------------

Computer software 214,371 132,578 346,949 186,803 46,534 233,337 113,612 33.33

----------------------------------------------- 2012-----------------------------------------------Cost Amortisation Book value

As at January 1,

2012

Additions during the

year


As at January 1,

2012

Charge for the year



Rate of amortisation

% -------------------------------------- Rupees in ‘000 --------------------------------------

Computer software 196,400 17,971 214,371 164,230 22,573 186,803 27,568 33.33

11.5 Intangible assets - Movement of net book value

Year ended December 31, 2012 Year ended December 31, 2013

Net book value as at January 1,

2012

Additionsduring the

year

Amortisation charge forthe year

Net bookvalue as at

December 31,2012

Additionsduring the

year

Amortisation charge forthe year

Net bookvalue as at

December 31,2013

----------------------------------------- Rupees in ‘000 -----------------------------------------

Computer software 32,170 17,971 22,573 27,568 132,578 46,534 113,612

11.5.1 The cost of fully amortised assets still in use amounts to Rs. 182.611 million (2012: Rs. 160.606 million).



11.6 Details of disposals of operating fixed assets made during the year are as follows:

Description Cost Accumulated depreciation

Net book value

Sale proceeds Mode of disposal Particulars of purchaser

--------------- Rupees in ‘000 ----------------Items disposed to

executives or having cost in aggregate more than Rs 1,000,000 or book value more than Rs 250,000

VehiclesToyota Camry 2,844 2,032 812 1,879 Bid Syed Riaz AhmedHonda Civic 2,522 301 2,221 2,396 Monetization Scheme Khawaja Asif - (Ex Employee) ExecutiveHonda Civic 2,471 29 2,442 2,471 Monetization Scheme Kanwar Shahzad Shameem - ExecutiveHonda Civic 2,415 288 2,127 2,294 Monetization Scheme Naushad Kamil - ExecutiveHonda Civic 2,407 258 2,149 2,287 Monetization Scheme Mubbashir Yasin - ExecutiveHonda Civic 2,166 388 1,778 2,058 Monetization Scheme Shahid Ali Khan - ExecutiveHonda Civic 2,137 408 1,729 2,030 Monetization Scheme Muhammad Amin Hussain - ExecutiveHonda Civic 2,137 408 1,729 2,030 Monetization Scheme Muhammad Ibrar Gul Niazi - ExecutiveHonda Civic 2,103 452 1,651 1,788 Monetization Scheme Umer Fareed - ExecutiveHonda Civic 1,998 691 1,307 1,307 Monetization Scheme Saad Ullah Khan - ExecutiveHonda Civic 1,967 915 1,052 1,280 Bid Ittehad MotorsHonda Civic 1,967 892 1,075 1,099 Monetization Scheme Ihsan Ullah Ihsan - ExecutiveHonda Civic 1,954 886 1,068 1,092 Monetization Scheme Sohail Sikandar - ExecutiveHonda Civic 1,920 962 958 981 Monetization Scheme Seemin Shafi - (Ex Employee) ExecutiveHonda Civic 1,915 1,005 910 1,339 Bid Syed Riaz AhmedHonda Civic 1,870 1,115 755 799 Monetization Scheme Baqir Hussain - ExecutiveToyota Corolla 1,836 416 1,420 1,560 Monetization Scheme Zeeshan Mustafa - ExecutiveToyota Corolla 1,813 389 1,424 1,541 Monetization Scheme Syed Safdar Razi - ExecutiveToyota Corolla 1,807 410 1,397 1,536 Monetization Scheme Ghazanfar Siddique - ExecutiveToyota Corolla 1,755 167 1,588 1,625 Monetization Scheme Farman Ali Khan - ExecutiveToyota Corolla 1,743 187 1,556 1,632 Monetization Scheme Faisal Muhammad Amin - ExecutiveHonda City 1,738 - 1,738 1,738 Monetization Scheme Muhammad Shaukat Nawaz - ExecutiveToyota Corolla 1,723 103 1,620 1,686 Monetization Scheme Khawaja Usman Rafi - ExecutiveToyota Corolla 1,723 247 1,476 1,613 Monetization Scheme Salahuddin Sabir - ExecutiveToyota Corolla 1,718 266 1,452 1,632 Monetization Scheme Iftikhar Aijaz - ExecutiveToyota Corolla 1,718 266 1,452 1,473 Monetization Scheme Omer Inam - ExecutiveToyota Corolla 1,712 61 1,651 1,600 Insurance Claim Pak Kuwait Takaful LimitedHonda City 1,711 163 1,548 1,625 Monetization Scheme Muhammad Amir Riaz - ExecutiveHonda City 1,708 122 1,586 1,708 Monetization Scheme Agha Irfan - ExecutiveHonda City 1,708 122 1,586 1,708 Monetization Scheme Salman Yousuf - ExecutiveHonda City 1,704 183 1,521 1,619 Monetization Scheme Fawwad Mazhary - ExecutiveHonda City 1,704 163 1,541 1,619 Monetization Scheme Muhammad Rehan Nagi - ExecutiveHonda City 1,701 183 1,518 1,616 Monetization Scheme Nasar Ahmed - ExecutiveHonda City 1,690 222 1,468 1,605 Monetization Scheme Farheen Khan - ExecutiveHonda City 1,688 222 1,466 1,604 Monetization Scheme Salman Pasha - ExecutiveHonda City 1,687 101 1,586 1,687 Monetization Scheme Hammad Ullah Khan Abbasi - ExecutiveHonda City 1,683 261 1,422 1,599 Monetization Scheme Hammad Waqas - ExecutiveHonda City 1,678 240 1,438 1,594 Monetization Scheme Mehran Siddique Khan - ExecutiveHonda City 1,677 240 1,437 1,593 Monetization Scheme Sikander Nafees Siddiqui - ExecutiveToyota Corolla 1,668 298 1,370 1,566 Monetization Scheme Sheikh M. Riaz Ul Hasan - ExecutiveToyota Corolla 1,668 298 1,370 1,565 Monetization Scheme Muhammad Khalid Khan - ExecutiveToyota Corolla 1,668 298 1,370 1,566 Monetization Scheme Adeel Ahmed - ExecutiveToyota Corolla 1,658 316 1,342 1,575 Monetization Scheme Zulfiqar Ali Saeed - ExecutiveToyota Corolla 1,658 316 1,342 1,575 Monetization Scheme Mujtaba Aftab - ExecutiveToyota Corolla 1,653 256 1,397 1,564 Monetization Scheme Kamran S. Butt - Executive




Net book value


--------------- Rupees in ‘000 ----------------

Honda City 1,643 274 1,369 1,561 Monetization Scheme Nida Irfan Chaudhry - ExecutiveHonda City 1,638 293 1,345 1,556 Monetization Scheme Sohail Ashfaq Malik - ExecutiveHonda City 1,628 272 1,356 1,547 Monetization Scheme Muhammad Imran Korai - ExecutiveHonda City 1,626 272 1,354 1,545 Monetization Scheme Syed Zahid Siraj - ExecutiveHonda City 1,626 272 1,354 1,545 Monetization Scheme Syed Asad Munir - ExecutiveHonda City 1,617 270 1,347 1,536 Monetization Scheme Irtaza Hussain - ExecutiveToyota Corolla 1,614 270 1,344 1,570 Insurance Claim Pak Kuwait Takaful LimitedHonda City 1,613 269 1,344 1,533 Monetization Scheme Ather Hussain - ExecutiveHonda City 1,610 307 1,303 1,530 Monetization Scheme Raja Imran Ashfaq - ExecutiveHonda City 1,600 267 1,333 1,520 Monetization Scheme Farrukh Haji Amin - ExecutiveHonda City 1,598 267 1,331 1,518 Monetization Scheme Muhammad Anil Charakla - ExecutiveHonda City 1,590 303 1,287 1,511 Monetization Scheme Rahila Esmail - ExecutiveHonda City 1,590 303 1,287 1,511 Monetization Scheme Akram Khan - ExecutiveHonda City 1,590 285 1,305 1,511 Monetization Scheme Wajahat Ahmed - ExecutiveHonda City 1,590 285 1,305 1,511 Monetization Scheme Rizwan Hameed - ExecutiveToyota Corolla 1,578 207 1,371 1,499 Monetization Scheme S.M Asim Shamim - ExecutiveHonda City 1,565 411 1,154 1,330 Monetization Scheme Muhammad Mubashir Iqbal - ExecutiveHonda City 1,565 411 1,154 1,330 Monetization Scheme Tauseef Ul Haq - ExecutiveHonda City 1,557 149 1,408 1,479 Monetization Scheme Zaim Ansari - ExecutiveHonda City 1,529 420 1,109 1,300 Monetization Scheme Junaid Hanif - ExecutiveHonda City 1,529 420 1,109 1,300 Monetization Scheme Muhammad Haris Munawar - ExecutiveHonda City 1,529 401 1,128 1,300 Monetization Scheme Ghulam Khalid Khan - ExecutiveToyota Corolla 1,528 273 1,255 1,451 Monetization Scheme Muhammad Naveed Ansari - ExecutiveHonda City 1,525 455 1,070 1,088 Monetization Scheme Muhammad Idrees Zafar - ExecutiveToyota Corolla 1,523 309 1,214 1,446 Monetization Scheme Akhtar Ali - ExecutiveHonda City 1,523 309 1,214 1,446 Monetization Scheme Sheikh Rizwan Shafique - ExecutiveHonda City 1,518 380 1,138 1,312 Bid Umer Fareed - ExecutiveToyota Corolla 1,518 326 1,192 1,290 Monetization Scheme Nwal Gareeb - ExecutiveHonda City 1,487 248 1,239 1,413 Monetization Scheme Muhammad Ijaz Ahmed - ExecutiveHonda City 1,487 248 1,239 1,413 Monetization Scheme Muhammad Raza Ansari - ExecutiveToyota Corolla 1,484 513 971 970 Monetization Scheme Wasim Mubarak - ExecutiveToyota Corolla 1,464 559 905 905 Bank's policy Masood Sheikh - (Ex Employee) ExecutiveToyota Corolla 1,464 629 835 835 Bank's policy Nawaid Akhtar - (Ex Employee) ExecutiveToyota Corolla 1,462 610 852 1,110 Bid Mujeeb Ur RehmanToyota Corolla 1,462 680 782 799 Monetization Scheme M.Rizwan M.Qureshi - ExecutiveHonda City 1,457 243 1,214 1,384 Monetization Scheme Muhammad Shahid Javed - ExecutiveToyota Corolla 1,451 675 776 793 Monetization Scheme Umair Masoom - ExecutiveHonda City 1,451 870 581 1,006 Bid Muhammad Ali Akbar KhanToyota Corolla 1,445 569 876 1,315 Insurance Claim Pak Kuwait Takaful LimitedHonda City 1,444 723 721 738 Monetization Scheme Saima Rashid - ExecutiveToyota Corolla 1,433 701 732 749 Monetization Scheme Omer Farooq Khan - ExecutiveHonda City 1,427 664 763 780 Monetization Scheme Malik Muhammad Asif - ExecutiveToyota Corolla 1,423 866 557 608 Monetization Scheme Akif Imtiaz - ExecutiveHonda City 1,422 763 659 675 Monetization Scheme Hussnain Mirza - ExecutiveToyota Corolla 1,421 729 692 1,150 Bid Ittehad MotorsToyota Corolla 1,419 406 1,013 1,013 Monetization Scheme Ali Shahryar Rizvi - ExecutiveHonda City 1,416 439 977 994 Monetization Scheme Syed Sabir Hussain - ExecutiveHonda City 1,416 439 977 994 Monetization Scheme Syed Ali Zaidi - ExecutiveSuzuki Swift 1,416 169 1,247 1,318 Monetization Scheme Syed Raheel Haider Rizvi - ExecutiveHonda City 1,396 766 630 630 Bank's policy Qazi Shaukatullah - (Ex Employee) ExecutiveHonda City 1,395 749 646 663 Monetization Scheme Syed Muhammad Azhar - (Ex Employee)

ExecutiveHonda City 1,394 748 646 662 Monetization Scheme Naeem Akhtar - Executive




Net book value


--------------- Rupees in ‘000 ----------------

Suzuki Swift 1,386 198 1,188 1,317 Monetization Scheme Muhammad Nazir - ExecutiveHonda City 1,360 730 630 695 Bank's policy Syed Jamshed Hamid - ExecutiveHonda City 1,329 777 552 568 Monetization Scheme Abdul Wahid Dewani - ExecutiveToyota Corolla 1,316 866 450 1,050 Bid Ittehad MotorsToyota Corolla 1,301 745 556 556 Bank's policy Khawaja Usman Rafi - ExecutiveHonda City 1,288 653 635 658 Monetization Scheme Mustajab-Ur-Rab Khan - ExecutiveSuzuki Swift 1,241 192 1,049 1,179 Monetization Scheme Malik Bashir Ahmed Awan - ExecutiveHonda City 1,098 786 312 650 Bid Muhammad Haseeb - (Ex Employee)

ExecutiveSuzuki Cultus 1,070 64 1,006 1,070 Monetization Scheme Faiz Ul Hassan Ansari - ExecutiveSuzuki Cultus 1,055 63 992 1,055 Monetization Scheme Sana Ullah Jan - ExecutiveSuzuki Cultus 1,055 126 929 1,002 Monetization Scheme Haroon Siddique - ExecutiveSuzuki Cultus 1,050 100 950 998 Monetization Scheme Muhammad Awais - ExecutiveSuzuki Cultus 1,050 88 962 998 Monetization Scheme Talha Kalim - ExecutiveSuzuki Cultus 1,040 112 928 988 Monetization Scheme Khuldoon Jamil - ExecutiveSuzuki Cultus 1,040 74 966 1,040 Monetization Scheme Hasan Akhtar - ExecutiveSuzuki Cultus 1,040 74 966 1,040 Monetization Scheme Farhan Ali Khan - ExecutiveSuzuki Cultus 1,040 74 966 1,040 Monetization Scheme Syed Munawar Ali Shah Bukhari - ExecutiveSuzuki Cultus 1,040 74 966 1,040 Monetization Scheme Adeeba Khan - ExecutiveSuzuki Cultus 1,040 62 978 1,040 Monetization Scheme Syed Munir Asif Shah - ExecutiveSuzuki Cultus 1,038 111 927 986 Monetization Scheme Sheikh Muhammad Junaid - ExecutiveSuzuki Cultus 1,035 86 949 983 Monetization Scheme Sohail Javed - ExecutiveSuzuki Cultus 1,035 49 986 1,035 Monetization Scheme Muhammad Rizwan Khalid Butt - ExecutiveSuzuki Cultus 1,035 222 813 879 Monetization Scheme Rubina Farzand - ExecutiveToyota Vitz 1,021 110 911 883 Bid HumairuddinSuzuki Cultus 1,020 231 789 867 Monetization Scheme Atif Hussain Siddiqui - ExecutiveSuzuki Cultus 1,020 231 789 867 Monetization Scheme Wahab Ul Haque - ExecutiveSuzuki Cultus 1,020 134 886 969 Monetization Scheme Syed Muhammad Afzal - ExecutiveSuzuki Cultus 1,020 134 886 969 Monetization Scheme Muhammad Rehan Wahab - ExecutiveSuzuki Cultus 1,020 110 910 969 Monetization Scheme Beenish Naeem - ExecutiveSuzuki Cultus 1,020 97 923 969 Monetization Scheme Jafar Ali Khan - ExecutiveSuzuki Cultus 1,020 219 801 867 Monetization Scheme Syed Muhammad Ali Khurram - ExecutiveSuzuki Cultus 1,019 207 812 968 Monetization Scheme Muhammad Javed Lakhani - ExecutiveSuzuki Cultus 1,017 133 884 966 Monetization Scheme Sohail Bashir - ExecutiveSuzuki Cultus 1,015 133 882 964 Monetization Scheme Ejaz Raza - ExecutiveSuzuki Cultus 1,015 133 882 964 Monetization Scheme Bashir Ahmed - ExecutiveSuzuki Cultus 1,005 144 861 954 Monetization Scheme Farhan Bashir Rana - ExecutiveSuzuki Cultus 1,000 155 845 950 Monetization Scheme Hifza Zia - ExecutiveSuzuki Cultus 1,000 155 845 950 Monetization Scheme M Sarfaraz Munir - ExecutiveSuzuki Cultus 1,000 155 845 950 Monetization Scheme Shehbaz Hussain - ExecutiveSuzuki Cultus 1,000 155 845 950 Monetization Scheme Murtaza Rehman - ExecutiveSuzuki Cultus 1,000 155 845 950 Monetization Scheme Meraj Akhtar - ExecutiveSuzuki Cultus 1,000 155 845 950 Monetization Scheme Farooq Ali - ExecutiveSuzuki Cultus 1,000 155 845 950 Monetization Scheme Nouman Habib Qureshi - ExecutiveSuzuki Cultus 1,000 155 845 950 Monetization Scheme Aleem Mumtaz - ExecutiveSuzuki Cultus 1,000 155 845 950 Monetization Scheme Obaid Siddiqui - ExecutiveSuzuki Cultus 1,000 155 845 950 Monetization Scheme Sheryar Khalid - ExecutiveSuzuki Cultus 1,000 143 857 950 Monetization Scheme Imran Khan - ExecutiveSuzuki Cultus 1,000 143 857 950 Monetization Scheme Barkaat Ahmed - ExecutiveSuzuki Cultus 1,000 143 857 950 Monetization Scheme Muhammad Imtiaz - ExecutiveSuzuki Cultus 1,000 143 857 950 Monetization Scheme Umair Jamshed - ExecutiveSuzuki Cultus 995 261 734 846 Monetization Scheme Muhammad Umar Butt - ExecutiveSuzuki Cultus 995 261 734 846 Monetization Scheme Zulfiqar Ahmed Khokar - Executive




Net book value


--------------- Rupees in ‘000 ----------------

Suzuki Cultus 995 237 758 846 Monetization Scheme Farrukh Ahmed - ExecutiveSuzuki Cultus 995 178 817 945 Monetization Scheme Nadeem Zaman Khan - ExecutiveSuzuki Cultus 995 249 746 845 Monetization Scheme Shoaib Ahmed Khan - ExecutiveSuzuki Cultus 995 249 746 845 Monetization Scheme Farhan Firdous Ali Samji - ExecutiveSuzuki Cultus 995 249 746 845 Monetization Scheme Umar Arshad Chatha - ExecutiveSuzuki Cultus 995 142 853 945 Monetization Scheme Asif Ashiq Ali Dewani - ExecutiveSuzuki Cultus 975 174 801 926 Monetization Scheme Muhammad Sheraz Zahid - ExecutiveSuzuki Cultus 975 174 801 926 Monetization Scheme Khurram Aleem Shehzad - ExecutiveSuzuki Cultus 975 174 801 926 Monetization Scheme Syed Ehtisham Ali - ExecutiveSuzuki Cultus 975 174 801 926 Monetization Scheme Saira Shaukat - ExecutiveSuzuki Cultus 975 174 801 926 Monetization Scheme Zarak Khan Kasi - ExecutiveSuzuki Cultus 975 174 801 926 Monetization Scheme Saqib Waheed - ExecutiveSuzuki Cultus 972 348 624 636 Monetization Scheme Faisal Ahmed - ExecutiveSuzuki Cultus 966 288 678 678 Bank's policy Asif Iqbal - ExecutiveSuzuki Cultus 966 288 678 690 Monetization Scheme Rizwan Saeed - ExecutiveSuzuki Cultus 966 288 678 690 Monetization Scheme Saba Aziz - ExecutiveSuzuki Cultus 966 288 678 690 Monetization Scheme Abid Fattani - ExecutiveSuzuki Cultus 966 288 678 690 Monetization Scheme Muhammad Zakir Hussain - ExecutiveSuzuki Cultus 955 194 761 907 Monetization Scheme Abdul Haq Chohan - ExecutiveSuzuki Cultus 955 182 773 907 Monetization Scheme Ali Ashraf Khan - ExecutiveSuzuki Cultus 955 182 773 907 Monetization Scheme Sheikh Mateen - ExecutiveSuzuki Cultus 954 193 761 906 Monetization Scheme Asad Ahson Qazi - ExecutiveSuzuki Cultus 948 328 620 620 Bank's policy Rizwan Shafique - ExecutiveSuzuki Cultus 949 328 621 620 Monetization Scheme Asadullah Khan - ExecutiveSuzuki Cultus 949 328 621 620 Monetization Scheme Muhammad Adeel Siddiqui - ExecutiveSuzuki Cultus 949 294 655 666 Monetization Scheme Muhammad Kashif - ExecutiveSuzuki Cultus 941 269 672 672 Monetization Scheme Moazzam Ali - ExecutiveSuzuki Cultus 936 324 612 612 Bank's policy Salman Yousuf - ExecutiveSuzuki Cultus 935 323 612 612 Monetization Scheme Muhammad Imran - ExecutiveSuzuki Cultus 932 356 576 576 Bank's policy Mujtaba Aftab - ExecutiveSuzuki Cultus 903 388 515 526 Monetization Scheme Abdul Basit Siddiqui - ExecutiveSuzuki Cultus 898 386 512 523 Monetization Scheme Syed Mustafa Hassan Hamdani - ExecutiveSuzuki Cultus 892 362 530 541 Monetization Scheme Mirza Farhan Baig - ExecutiveSuzuki Cultus 891 383 508 519 Monetization Scheme Waqas Ur Rehman - ExecutiveSuzuki Cultus 891 383 508 519 Monetization Scheme Mohammad Amin - ExecutiveSuzuki Cultus 891 372 519 529 Monetization Scheme Ishtiaq Ahmed - ExecutiveSuzuki Cultus 882 410 472 482 Monetization Scheme Wakeel Rizwan - ExecutiveSuzuki Cultus 874 407 467 467 Bank's policy Muhammad Raza Ansari - ExecutiveSuzuki Cultus 873 396 477 477 Bank's policy Syed Muhammad Asim Shamim - ExecutiveSuzuki Cultus 869 425 444 454 Monetization Scheme Shoaib Ikram - ExecutiveSuzuki Cultus 858 409 449 449 Bank's policy Salman Pasha - ExecutiveSuzuki Cultus 837 559 278 278 Bank's policy Muhammad Shahid Javed - ExecutiveSuzuki Cultus 833 447 386 396 Monetization Scheme Masood Ahmed Khan - ExecutiveSuzuki Cultus 828 463 365 640 Bid Ittehad MotorsSuzuki Cultus 818 459 359 700 Bid Ittehad MotorsSuzuki Cultus 817 458 359 780 Bid Ittehad MotorsSuzuki Cultus 817 449 368 379 Monetization Scheme Farhan Siddiqui - Executive

Lease Hold PremisesRenovation Work 6,567 2,791 3,776 - Write Off N/A

268,510 68,602 199,908 218,467




Net book value


--------------- Rupees in ‘000 ----------------Other items having cost

in aggregate less than Rs. 1,000,000 or book value less than Rs. 250,000

Vehicles 1,346 987 359 1,108 Various VariousComputer Equipments 354 159 195 267 Various VariousOffice Equipments 122 3 119 805 Bid Haider Ali & CompanyLease Hold Premises 920 239 681 - Write Off N/A

2,742 1,388 1,354 2,180

December 31, 2013 271,252 69,990 201,262 220,647

December 31, 2012 44,509 20,071 24,438 23,802

Note 2013 2012--------- Rupees in ‘000 ---------

12 DEFERRED TAX ASSETS - NET

Deferred credits arising due toAccelerated tax depreciation on operating fixed assets (54,911) (44,209)Surplus on revaluation of investments - available for sale 19 (22,321) (33,367)Unrealised gain on revaluation of investments classified as held for trading - net (1,957) (228)

Deferred debits arising in respect ofAccelerated depreciation on ijarah assets 67,425 31,591 Minimum tax liability 12.1 82,837 43,751 Provision for diminution in the value of investments 20,392 19,612 Provision against other assets 3,401 1,594 Provision against non-performing Islamic financing and other assets 286,432 96,265 Available tax losses 12.1 796,125 404,868

1,177,423 519,877



12.1 The Bank has an aggregate amount of Rs. 2,274.639 million (2012: Rs. 1,156.766 million) in respect of tax losses as at December 31, 2013. In addition, the Bank also has an amount of Rs. 82.837 million (2012: Rs. 43.751 million) in respect of minimum tax which can be adjusted in future years against tax liability. The management carries out periodic assessment to assess as to whether the Bank would be able to set off the profit earned in future years against the available losses and carried forward minimum tax. Based on this assessment the management has recognised deferred tax debit balance amounting to Rs. 796.125 million (2012: Rs. 404.868 million) on losses [including on unabsorbed tax depreciation of Rs. 832.319 million (2012: Rs. 648.496 million)] and Rs. 82.837 million (2012: Rs. 43.751 million) on account of minimum tax. The amount of this benefit has been determined based on the projected financial statements for the future periods. The determination of future taxable profit is sensitive to certain key assumptions most significant of which is achieving compliance with the minimum capital requirements as disclosed in note 1.4. Other key assumptions include cost to income ratio of the Bank, deposit composition, Kibor rates, growth of deposits and financings, investment returns, product mix of Islamic financing and related assets, potential provision against assets and branch expansion plan. Any significant change in the key assumptions may have an effect on the realisibility of the deferred tax asset.

Note 2013 2012--------- Rupees in ‘000 ---------

13 OTHER ASSETS - NET

Profit / return accrued in local currency 925,767 708,038 Advances, deposits, advance rent and other prepayments 480,143 521,142 Non-banking assets acquired in satisfaction of claims 13.1 - 181,150 Receivable against sale of investments 12,057 53,065 Dividend receivable 200 2,302 Profit paid in advance against purchase of sukuks - 72,449 Advance taxation (payments less provision) 39,121 47,079 Others 28,122 68,008

1,485,410 1,653,233 Less: Provision held against other assets 13.2 (9,716) (4,553)Other assets (net of provisions) 1,475,694 1,648,680

13.1 During the year, the Bank has disposed off its non-banking assets for Rs. 185.186 million. The title of these assets are in the process of being transferred to the buyer.

2013 2012--------- Rupees in ‘000 ---------

13.2 Provision held against other assets

Opening balance 4,553 13,732

Charge for the year 5,163 4,306 Reversals during the year - (13,485)

5,163 (9,179)

Closing balance 9,716 4,553



13.3 During the year 2011, the Bank had identified that a deposit account of the Bank was used for unauthorised transfer of funds amounting to Rs. 100 million from another financial institution. Upon identification of the matter, this amount was settled by the Bank and recorded as an asset under the head “Other Assets” under Advances, deposits, advance rent and other prepayments. In this regard, the Bank was able to recover Rs. 99.753 million which was recorded as a liability (note 17), under the head “Others”, pending final resolution of the legal proceedings in this matter. However, on account of prudence, the unrecovered balance of Rs. 0.247 million as at December 31, 2013 had been fully provided by the Bank.

Note 2013 2012--------- Rupees in ‘000 ---------

14 BILLS PAYABLE

In Pakistan 507,471 390,795 Outside Pakistan - -

507,471 390,795

15 DUE TO FINANCIAL INSTITUTIONS

In Pakistan 3,046,877 2,990,000 Outside Pakistan 5,597 97,150

3,052,474 3,087,150

15.1 Particulars of due to financial institutions with respect to currencies

In local currency 3,046,877 2,990,000 In foreign currency 5,597 97,150

3,052,474 3,087,150

15.2 Details of due to financial institutions - Secured / Unsecured

SecuredMusharaka from the State Bank of Pakistan under Islamic Export Refinance Scheme 15.2.1 1,546,877 990,000

UnsecuredModaraba - 1,097,150 Musharakah 15.2.2 1,500,000 1,000,000 Overdrawn nostro account 5,597 -

3,052,474 3,087,150

15.2.1 The Musharaka is on profit and loss sharing basis maturing within four months (2012: five months) and is secured against demand promissory note executed in favor of the SBP. The SBP has the right to recover the outstanding amount from the Bank at the date of maturity of the finance by directly debiting the current account maintained by the Bank with the SBP. A limit of Rs. 1,650 million (2012: Rs. 1,000 million) has been allocated to the Bank by the SBP under Islamic Export Refinance Scheme for the year 2013.



15.2.2 This represents musharaka arrangements with banks at profit rates ranging from 6.00% to 9.00% per annum (2012: 9.00% to 9.50% per annum) and having maturities upto January 2014 (2012: May 2013).

Note 2013 2012--------- Rupees in ‘000 ---------

16 DEPOSITS AND OTHER ACCOUNTS

CustomersFixed deposits 17,992,593 18,192,745 Savings deposits 15,310,280 12,811,516 Current accounts - Non-remunerative 3,089,471 2,872,056 Margin deposits 23,463 23,875

36,415,807 33,900,192 Financial institutionsRemunerative deposits 6,067,452 1,890,598 Non-remunerative deposits 214,416 131,248

6,281,868 2,021,846 42,697,675 35,922,038

16.1 Particulars of deposits

In local currency 41,062,489 35,115,639 In foreign currencies 1,635,186 806,399

42,697,675 35,922,038

17 OTHER LIABILITIES

Profit / return payable in local currency 17.1 173,862 252,549 Profit / return payable in foreign currencies 356 2,378 Security deposits against ijarah 504,475 609,667 Security deposits against diminishing musharakah - 43 Deferred murabaha income - financings 410,157 552,900 Charity collection account 17.2 11,892 13,446 Accrued expenses 52,589 19,817 Withholding tax and federal excise duty payable 22,505 18,119 Unrealised loss on forward foreign exchange contracts - net 19,656 - Payable against purchase of investments 49,184 123,789 Current collection account 301,918 103,103 Insurance payable against ijarah and diminishing musharaka assets 96,573 43,080 Others 127,068 109,097

1,770,235 1,847,988

17.1 It includes Rs. 33.414 million (2012: Rs. 19.487 million) in respect of profit / return accrued on musharakah with the SBP under Islamic Export Refinance Scheme.



Note 2013 2012--------- Rupees in ‘000 ---------

17.2 Reconciliation of charity collection account

Opening balance 13,446 9,819 Additions during the year

- Received from customers against late payment 31,774 22,826 - Dividend purification amount 1,123 1,666 - Income against void transactions 668 97 - Profit on charity saving account 349 -

33,914 24,589 Charity paid during the year 17.2.1 (35,468) (20,962)Closing balance 11,892 13,446

17.2.1 Charity was paid to the following:

Karachi Relief Trust 6,250 - The Indus Hospital 3,000 1,300 Sindh Institute of Urology and Transplant 2,000 900 Al-Mustafa Welfare Society 1,900 450 Alamgir Welfare Trust International 1,500 1,000 Burns Centre 1,500 1,410 Cancer Foundation 1,500 - SOS Village 1,175 732 National Institute of Child Health 1,200 500 The Citizen Foundation 1,143 - Edhi Foundation 1,075 1,500 Saylani Welfare International Trust 1,000 2,409 Shaukat Khanum Memorial Trust 1,000 3,000 Layton Rahmatulla Benevolent Trust (LRBT) 1,000 - Patients' Aid Foundation 1,000 - Aziz Jahan Begum Trust for the Blind 800 500 Pakistan Association of the Blind (PAB) 800 - The Citizens Foundation 800 - Ajar Foundation 500 - Bin Qutab Foundation 500 - Health And Nutrition Development Society (HANDS) 500 - Hope-Health Orinted Preventive Education 500 - Namal Education Foundation 500 - New Horizons Care Center 500 - Rising Sun Education & Welfare Society 500 - Tameer-e-Millat Foundation 350 - Agha Khan University Hospital 250 - Khadim Hussain 250 - Muhammad Basit Khan 250 -



2013 2012--------- Rupees in ‘000 ---------

Ali Hasan Mangi Memorial Trust 200 - Family Educational Services Foundation 200 - Fatima Kidney Care Hospital 200 - Koohi Goth Hospital 200 - Mehroze Raza 200 - Muhammad Imran 200 - Anjum Parveen 150 - River Oaks Academy 150 - Subh-e-Nau 150 - Amir Masroor Usmani 100 - Mohammad Zahid Khan 100 - Nusrat Tufail 100 - Patients Aid Foundation 100 - Zafar Ahmed 100 - Hafiz Abdul Razzaq Nakshbandi 75 - Abdul Razzaq Naqshbandi - 200 Abu Bakar Siddiq Trust - 500 Akhuwat - 500 Alamgir - 1,000 Anjuman-e-Habibiyah Trust - 600 Ansar Burney Trust - 500 Children Health and Education Foundation - 200 Ghuas Bux - 175 Institute of Business Administration Karachi - 500 Jinnah Hospital Children's Ward - 1,300 Lahore University of Management Sciences - 500 Liaquat National Hospital / Asma Begum - 236 Nasreen Bano - 100 Rotary Club Of Karachi Cosmopolitan - 50 The Kidney Centre - 900

35,468 20,962

17.2.2 Charity was not paid to any staff of the Bank or to any individual / organisation in which a director or his spouse had any interest at any time during the year.



18 SHARE CAPITAL

18.1 Authorised capital

2013 2012 2013 2012 ---- Number of shares ---- -------- Rupees in ‘000 --------

1,200,000,000 1,200,000,000 Ordinary shares of Rs. 10/- each 12,000,000 12,000,000

18.2 Issued, subscribed and paid-up capital

2013 2012 2013 2012 ---- Number of shares ---- -------- Rupees in ‘000 --------

816,752,728 741,045,824 Ordinary shares - Fully paid in cash 8,167,527 7,410,458 816,752,728 741,045,824 8,167,527 7,410,458

18.3 The movement in the issued, subscribed and paid-up capital during the year is as follows:

2013 2012------ Number of shares ------

Opening balance 741,045,824 741,045,824 Shares issued during the year 75,706,904 - Closing balance 816,752,728 741,045,824

18.4 During the year, the shareholders of the Bank in an extraordinary general meeting held on July 8, 2013 approved the issue of 97.87 million ordinary shares of par value of Rs. 10 per share at a discounted subscription price of Rs. 7.5 per share. The issue of shares at discount was approved by the SBP vide letter no. BPRD/BA&CPD/621/10277/2013 dated July 5, 2013. Out of the total right issue, 75.707 million ordinary shares were successfully subscribed. The discount on issue of shares amounting to Rs. 189.267 million has been taken directly to equity and added to accumulated losses while the share capital has been recorded at the par value of shares. Accordingly the total paid up capital of the Bank as at December 31, 2013, has increased to Rs. 8,167.527 million.

2013 2012--------- Rupees in ‘000 ---------

19 SURPLUS ON REVALUATION OF ASSETS - NET OF TAX

Available for sale securities- Listed shares 31,297 18,244 - Sukuks 55,484 90,830 - Units of open end mutual funds (2,283) (2,481)

84,498 106,593 Related deferred tax liability (22,321) (33,367)

62,177 73,226



20 CONTINGENCIES AND COMMITMENTS

Note 2013 2012--------- Rupees in ‘000 ---------

20.1 Direct credit substitutes - 5,847

20.2 Transaction-related contingent liabilities

Guarantees favouring - beneficiary- Government 1,786,605 1,774,923 - Others 84,952 33,156

1,871,557 1,808,079

20.3 Trade-related contingent liabilities

Import letters of credit 732,332 1,118,967 Acceptances 11,082 154,627

743,414 1,273,594

20.4 Commitments in respect of forward exchange contracts

Purchase 34.2 1,046,135 -

Sale 34.2 349,170 -

20.5 Commitments for the acquisition of operating fixed assets

Civil works 1,500 71,918 Acquisition of computer hardware 207 48,725 Acquisition of computer software 44,187 81,749

45,894 202,392

20.6 Commitments to extend credit

The Bank makes commitment(s) to extend credit in the normal course of business but these being revocable commitments do not attract any significant penalty or expense if the facility is unilaterally withdrawn.

20.7 Matters relating to taxation are summarised in note 27.1 to these financial statements.



2013 2012--------- Rupees in ‘000 ---------

21 PROFIT / RETURN EARNED

On financings to customers 2,389,679 2,025,461 On investments in

- held for trading securities - 19,680 - available for sale securities 1,205,467 1,427,381

On deposits with financial institutions 10,737 23,743 On inter bank murabaha / modaraba / musharakah agreements 92,581 107,087

3,698,464 3,603,352

22 PROFIT / RETURN EXPENSED

On deposits and other accounts 2,524,817 2,461,576 On other short term fund - musharakah / modarabas 221,288 132,611

2,746,105 2,594,187

23 GAIN ON SALE OF SECURITIES - NET

Federal Government Securities - Sukuk certificates 25,430 34,960 Shares / units of open end mutual funds - listed 251,670 177,615

277,100 212,575

24 OTHER INCOME

Fees and charges recovered 14,746 12,270 Rental income 193 211 Gain on sale of operating fixed assets - net 23,842 2,841 Gain on sale of non-banking assets 4,036 - Locker rent 764 424

43,581 15,746



Note 2013 2012--------- Rupees in ‘000 ---------

25 ADMINISTRATIVE EXPENSES

Salaries, allowances, etc. 25.1 937,686 645,357 Remuneration to shariah advisor 3,739 5,344 Charge in respect of equity settled share based plan 33 - 2,030 Contribution to defined contribution plan 31 33,060 24,889 Non-executive directors' fees, allowances and other expenses 8,841 2,956 Rent, taxes, insurance, electricity, etc. 510,549 296,422 Legal and professional charges 50,691 30,259 Communications 67,325 65,894 Fees and subscription 29,862 10,787 Repairs and maintenance 125,452 103,081 Travelling and conveyance 37,443 23,807 Stationery and printing 21,835 13,984 Advertisement and publicity 41,785 47,836 Brokerage and commission 23,518 17,431 Service utilisation charges 206,300 55,854 Auditors' remuneration 25.2 4,073 3,488 Depreciation 11.2 177,942 131,445 Amortisation of intangible assets and deferred costs 25.3 46,534 24,219 Security service charges 60,408 40,538 Operating fixed assets written off 4,457 3,477 Others 83,239 64,105

2,474,739 1,613,203

25.1 This includes Rs. 3.866 million (2012: Rs. 3.228 million) in respect of Contribution to Employees’ Old Age Benefit Institution.

Note 2013 2012--------- Rupees in ‘000 ---------

25.2 Auditors’ remuneration

Audit fee 1,750 1,560 Fee for interim review 500 400 Special certifications and sundry advisory services 1,523 1,200 Out-of-pocket expenses 300 328

4,073 3,488

25.3 Amortisation

Deferred costs - 1,646 Intangible assets 11.4 46,534 22,573

46,534 24,219



2013 2012--------- Rupees in ‘000 ---------

26 OTHER CHARGES

Penalties imposed by the State Bank of Pakistan 2,931 1,109 Workers' welfare fund - 695 Others 304 -

3,235 1,804

27 TAXATION

For the year- Current (39,086) (18,567)- Deferred 646,500 69,867

607,414 51,300 Prior years (1,666) -

605,748 51,300

27.1 The income tax assessments of the Bank have been finalised upto and including tax year 2013. Matters of disagreement exist between the Bank and tax authority for the tax year 2009 wherein the tax authorities have added back certain income based on the presumption that certain financings were given to the associate entities of the Bank without earning profit / mark-up income thereon resulting in additional tax liability of Rs. 25.329 million. However, based on management’s appeal in respect of this add-back, an order was passed by Commissioner Inland Revenue (CIR)-Appeals deleting all demands previously raised by the tax authority except for the charge of Workers’ Welfare Fund (WWF) amounting to Rs. 1.6 million which is pending before the Appellate Tribunal, Inland Revenue (Tribunal). The management is confident that this matter will be decided in favour of the Bank and consequently has not made any provision in respect of this amount.

2013 2012--------- Rupees in ‘000 ---------

27.2 Relationship between tax charge and accounting profits / (losses)

(Loss) / profit before taxation (1,738,774) 33,346

Tax at the applicable rate of 35% (2012: 35%) (608,571) 11,671

Effect of: - permanent differences 1,026 (62,612) - prior year tax charge 1,666 - - others 131 (359)Tax charge for the year (605,748) (51,300)



2013 2012--------- Rupees in ‘000 ---------

28 BASIC / DILUTED (LOSS) / EARNINGS PER SHARE

(Loss) / profit after taxation for the year (1,133,026) 84,646

----- Number of shares ------

Weighted average number of ordinary shares 760,750,361 741,045,824

--------- Rupees ---------

Basic / diluted (loss) / earnings per share (1.489) 0.114

There were no convertible / dilutive potential ordinary shares outstanding as at December 31, 2013 and December 31, 2012.

Note 2013 2012--------- Rupees in ‘000 ---------

29 CASH AND CASH EQUIVALENTS

Cash and balances with treasury banks 6 2,751,089 2,452,464 Balances with other banks 7 1,056,489 907,255 Due from financial institutions 8 7,689,704 -

11,497,282 3,359,719

2013 2012Number of employees

30 STAFF STRENGTH

Permanent 757 733 Temporary / on contractual basis 16 52 Bank's own staff strength at the end of the year 773 785 Outsourced 382 744 Total staff strength 1,155 1,529

31 DEFINED CONTRIBUTION PLAN

The Bank operates a provident fund scheme administered by the Board of Trustees for all of its permanent employees. Equal monthly contributions are made both by the Bank and employees @ 10% of basic salary.

2013 2012--------- Rupees in ‘000 ---------

Contribution made by the Bank 33,060 24,889 Contribution made by the employees 33,060 24,889

66,120 49,778



32 COMPENSATION OF DIRECTORS AND EXECUTIVES

2013 2012 President / Chief

Executive Officer

Directors Executives

President / Chief

Executive Officer

Directors Executives

----------------------------- Rupees in ‘000 ---------------------------

Fees - 8,841 - - 2,956 -

Managerial remuneration 63,000 - 268,993 27,273 - 184,110 (including bonus)

Contribution to defined contribution plan 2,807 - 19,626 2,727 - 13,266

Rent and house maintenance 12,631 - 110,118 12,273 - 82,849

Utilities 2,807 - 24,471 3,328 - 18,411

Medical 2,807 - 24,471 2,727 - 18,411

Fuel and conveyance - - 49,917 32 - 38,837

Others - - 33,544 190 - 10,733

84,052 8,841 531,140 48,550 2,956 366,617

Number of persons 1 10 292 1 10 240

32.1 The President / Chief Executive Officer and certain executives have been provided with free use of Bank maintained cars. In addition, the President / Chief Executive Officer is also entitled to a share option scheme as detailed in note 33.

33 SHARE OPTION SCHEME

As per the terms of employment, Chief Executive Officer (CEO) of the Bank has been offered a share option scheme as part of his employment contract. In accordance with this scheme, CEO will have the option to subscribe up to a maximum of 3.5% of issued shares of the Bank over the period of 5 years (i.e., 0.7% of the outstanding shares at each year end) starting from January 1, 2012 upto December 31, 2016. The shares will vest annually subject to achievement of the pre-agreed targets as per the Key Performing Indicators (KPIs) for 5 years in the following pattern:

Period of vesting Number of shares options

Subscription price per share

Year ( January 1, 2012 - December 31, 2012) 5,187,400 Rs. 10.00Year ( January 1, 2013 - December 31, 2013) 5,187,400 Rs. 10.00Year ( January 1, 2014 - December 31, 2014) 5,187,400 Rs. 10.80Year ( January 1, 2015 - December 31, 2015) 5,187,400 Rs. 12.96Year ( January 1, 2016 - December 31, 2016) 5,187,400 Rs. 15.55



The share options for each period of vesting will be subject to achievement of KPIs by the CEO for the relevant period of vesting and will not be subject to roll-over if KPIs are not achieved for the relevant period of vesting provided that the Board of Directors of the Bank may allow roll-over at the enhanced price per option share applicable to the subsequent year in which the KPIs are achieved by the CEO.

All vested share options need to be subscribed / executed within a period of 5 years from the date of vesting of the relevant shares options.

The CEO will be additionally paid cash bonus at the time of the exercise of the option in respect of the option shares vested in Year 1 and Year 2 as follows payable immediately at the time of payment of the subscription price by the CEO for the option shares vested in Year 1 and Year 2;

Period of vesting Number of shares options Subscription price per share

Cash bonus per share subscribed

Year 1 5,187,400 Rs. 10.00 Rs. 2.50Year 2 5,187,400 Rs. 10.00 Rs. 1.00

Fair value of share options

The estimated fair value of share options granted for each year is calculated by applying the black scholes pricing model. The model inputs were the share price at the grant date of Rs. 1.95 calculated specifically for the share option scheme and adjusted for discounting for lack of controllability and marketability. Expected volatility of 45% has been assumed which is based on the historical share price for 5 years of banks of similar size, contractual life of 5 years, and risk free interest rate of 12.88%. It was assumed that the Chief Executive Officer would exercise the options at the end of the 5 years.

Based on the management’s current expectation of the equity instruments that will eventually vest, no expense has been charged to the profit and loss account in the current year (2012: Rs. 2.030 million).

34 FAIR VALUE OF FINANCIAL INSTRUMENTS

34.1 Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable willing parties in an arm’s length transaction.

The fair value of quoted sukuks is determined using the Reuters rate while the fair value of listed equity securities is measured using the prices quoted on the stock exchange. Unquoted equity securities are valued at lower of cost and break-up value as per the latest available audited financial statements. Other unquoted securities are valued at cost less impairment losses. The provision for impairment in the value of investments has been determined in accordance with the accounting policy as stated in note 5.2.5 to these financial statements.

Fair values of Islamic financing and related assets cannot be determined with reasonable accuracy due to absence of current and active market. The provision against Islamic financing and related assets has been calculated in accordance with the accounting policy as stated in note 5.3 to these financial statements. The repricing, maturity profile and effective rates are stated in note 38 to these financial statements.



Fair values of all other financial assets and liabilities cannot be calculated with sufficient accuracy as active market does not exist for these instruments. In the opinion of the management, fair value of these assets and liabilities are not significantly different from their carrying values since assets and liabilities are either short term in nature and, in case of Islamic financing and related assets and deposits, are frequently repriced.

2013 2012 Book value Fair value Book value Fair value

--------------------- Rupees in ‘000 ----------------------

34.2 Off-balance sheet financial instruments

Forward purchase of foreign exchange 1,071,125 1,046,135 - -

Forward agreements for borrowing - - - -

Forward sale of foreign exchange 353,985 349,170 - -

Forward agreements for lending - - - -

35 SEGMENT DETAILS WITH RESPECT TO BUSINESS ACTIVITIES

The segment analysis with respect to business activity is as follows:

2013 Corporate

financeTrading &

salesRetail

banking Commercial

bankingTotal

------------------------- Rupees in ‘000 -------------------------

Total income 49,685 1,648,058 538,164 2,075,965 4,311,872 Total expenses 28,553 1,170,634 2,856,415 1,995,044 6,050,646 Net income / (loss) 21,132 477,424 (2,318,251) 80,921 (1,738,774)Segment assets (gross) - 19,203,639 9,834,945 25,944,413 54,982,997 Segment non performing Islamic financing and related assets - - 123,132 1,635,091 1,758,223 Segment provision required and held - 58,262 115,233 1,420,439 1,593,934 Segment liabilities - 3,302,778 43,173,714 1,551,363 48,027,855 Segment return on net assets (%) - 3.01 (6.93) 0.35 (32.43)Segment cost of funds (%) - 7.15 7.15 7.15 7.15

2012Corporate

financeTrading &

salesRetail

banking Commercial

bankingTotal

------------------------- Rupees in ‘000 -------------------------

Total income 31,957 1,890,009 90,830 2,046,706 4,059,502 Total expenses 12,713 805,894 2,498,632 708,917 4,026,156 Net income / (loss) 19,244 1,084,115 (2,407,802) 1,337,789 33,346 Segment assets (gross) - 19,411,818 4,201,080 24,339,921 47,952,819 Segment non performing Islamic financing and related assets - - 83,711 946,273 1,029,984 Segment provision required and held - 56,033 77,524 633,810 767,367 Segment liabilities - 3,252,756 36,791,428 1,203,787 41,247,971 Segment return on net assets (%) - 6.73 (7.37) 5.95 0.56 Segment cost of funds (%) - 8.92 8.92 8.92 8.92



36 RELATED PARTY TRANSACTIONS

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions and include all shareholders, subsidiary company, associated companies with or without common directors, retirement benefit funds, directors and key management personnel.

The Bank has related party relationship with its shareholders, directors, associated undertakings, employee benefit plans and its key management personnel (including their associates).

A number of banking transactions are entered into with related parties in the normal course of business. These include financing and deposit transactions.

Contributions to staff retirement benefit plan are made in accordance with the terms of the contribution plan. Remuneration to the executives are determined in accordance with the terms of their appointment.

36.1 The details of transactions with related parties and balances with them are given below:

December 31, 2013 December 31, 2012 (Restated)

Associated companies

Directors ShareholdersKey

management personnel **

Others *** TotalAssociated companies



Others *** Total

-------------------------------------------------------------------------------- Rupees in ‘000 --------------------------------------------------------------------------------

Islamic financing and related assetsAs at January 1 188,712 - - 137,475 - 326,187 - - - 67,629 - 67,629 Disbursed during the year - - - 43,283 - 43,283 188,712 - - 120,806 - 309,518 Repaid during the year - - - (13,144) - (13,144) - - - (50,960) - (50,960)Adjustments * - - - 7,792 - 7,792 - - - - - - As at December 31 188,712 - - 175,406 - 364,118 188,712 - - 137,475 - 326,187

DepositsAs at January 1 814 4,200 2,387 42,588 5,931 55,920 49 9,278 14,509 17,766 4,812 46,414 Received during the year 287,133 2,580 215,201 176,117 109,633 790,664 26,854 12,502 15,615 224,302 96,951 376,224 Withdrawals during the year (272,688) (3,009) (89,000) (184,078) (106,668) (655,443) (26,089) (17,459) (27,737) (198,282) (95,832) (365,399)Adjustments * - (2,123) 1,597 374 - (152) - (121) - (1,198) - (1,319)As at December 31 15,259 1,648 130,185 35,001 8,896 190,989 814 4,200 2,387 42,588 5,931 55,920

InvestmentsAs at January 1 - - - - - - 79,167 - - - - 79,167 Settlement during the year - - - - - - (79,167) - - - - (79,167)Adjustments * - - - - - - - - - - - - As at December 31 - - - - - - - - - - - -

Due from Financial InstitutionsAs at January 1 - - - - - - - - - - - - Disbursed during the year - - 17,222,250 - - 17,222,250 - - 18,300,000 - - 18,300,000 Settlement during the year - - (14,822,250) - - (14,822,250) - - (18,300,000) - - (18,300,000)As at December 31 - - 2,400,000 - - 2,400,000 - - - - - -

OthersSecurity deposits - - 19,350 - - 19,350 - - 19,350 - - 19,350 Other receivables - - 2,014 - - 2,014 - - 665 - - 665



Year ended December 31, 2013 Year ended December 31, 2012 (Restated)

Associated companies



Others *** TotalAssociated companies



Others *** Total

-------------------------------------------------------------------------------- Rupees in ‘000 --------------------------------------------------------------------------------

Transactions during the yearRemuneration (including bonus) /

Fee to key management personnel / Directors - 8,841 - 179,666 - 188,507 - 2,956 - 125,290 - 128,246

Profit earned on financings net reversals (15,204) - - 8,970 - (6,234) 15,204 - - 4,164 - 19,368 Profit earned on due from financial institutions - - 11,739 - - 11,739 - - 14,205 - - 14,205 Profit expensed on deposits 1 85 1,177 1,995 2,093 5,351 - 191 69 1,576 608 2,444 Training Expense 215 - - - - 215 - - - - - - Consultancy Fee - - 2,566 - - 2,566 - - - - - - Rent paid - - 38,781 - - 38,781 - - 61,737 - - 61,737 Disposal of sukuks - - - - 5,048 5,048 - - - - 58,257 58,257 Proceeds from issuance of shares - - 567,802 - - 567,802 - - - - - - Contribution made to provident fund - - - - 66,120 66,120 - - - - 49,778 49,778 Proceeds on disposal of operating fixed assets - - - 19,831 - 19,831 - - - 533 - 533 Gain on disposal of operating fixed assets - - - 1,435 - 1,435 - - - - - - Provision against Islamic financing and related assets 98,845 - - - - 98,845 - - - - - - Non-banking Assets acquired - - - - - - 120,000 - - - - 120,000

*

**

***

Primarily relates to those directors, associates and key management personnel who are no longer related parties or have become related parties of the Bank as at December 31, 2013.

Key Management includes the President and Chief Executive officer and certain Head of the Departments who report directly to the President and Chief Executive officer. Previously the bank had considered all executives (as defined under BSD Circular No. 4 of 2006) as Key Management personnel. The comparative information has been restated accordingly.

This represents balances and transactions of staff retirement benefit plan.

37 CAPITAL ASSESSMENT AND ADEQUACY BASEL SPECIFIC

The Basel III Framework as introduced by the State Bank of Pakistan is applicable to Burj Bank Limited on standalone basis as the bank does not have any subsidiary or affiliate for the purposes of consolidation. In this direction, the SBP has issued disclosure requirements on February 04, 2014 which has formed the basis for preparation of these notes. The SBP has specified a transitional period till 2018 for full implementation of Basel III. The comparative information is as per Basel II requirements which were applicable last year. The Bank uses Stardardized Approach for calculating Credit and Market Risk and Basic Indicator Approach for working out Operational Risk.

37.1 Capital Management

Capital management aims to safeguard the Bank’s ability to continue as a going concern and to provide adequate returns to shareholders in the long run by pricing products and services commensurately with the level of risk. For that purpose, the Bank ensures strong capital position and efficient use of capital as determined by the underlying business strategy i.e., optimal growth on continuing basis with proper controls. The Bank maintains a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also appreciated and the Bank recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.



This process is managed by Asset Liability Committee (ALCO) of the Bank. The objective of ALCO is to derive the most appropriate strategy in terms of the mix of assets and liabilities given its expectations of the future and the potential consequences of interest rate movements, liquidity profiles and capital adequacy and their implication on risk management policies.

37.2 Goals of Managing Capital

The goals of managing capital of the Bank are as follows:

- To be a well capitalised institution, considering the requirements set out by the regulators of the banking markets where the Bank operates;

- Maintain strong ratings and to protect the Bank against unexpected events; and

- Availability of adequate capital at a reasonable cost so as to enable the Bank to operate progressively and provide reasonable value addition for the shareholders and other stakeholders of the Bank.

37.3 Statutory minimum capital requirement and management of capital

The current status of the Bank’s compliance with minimum capital requirement specified by the State Bank of Pakistan is explained in note 1.4 to the financial statements. The note also explains that the SBP has also specified higher capital adequacy ratio for the Bank in view of the shortfall in meeting minimum capital requirements.

37.4 Capital structure

Under Basel III framework as advised by the SBP, the Bank’s regulatory capital has been analysed into two tiers as follows:

- Common Equity Tier 1 (CET 1) which includes fully paid-up capital, general reserves and unappropriated profits (net of losses) etc., after deduction for certain specified items such as book value of intangibles, deficit on revaluation of available for sale investments etc.

- Additional Tier 1 (AT1) Capital which shall consist of instruments meeting the qualifying criteria less regulatory adjustments as applicable. However, the bank does not have any AT1 Capital.

- Tier 2 Capital, which includes general provision for loan losses (upto a maximum of 1.25% of total risk weighted assets for standardised approach) and reserve on revaluation of equity investments after deduction of deficit on available for sale investments (currently upto a maximum of 45%). If the amount is net deficit, then it should be deducted from Tier I.

Banking operations are categorised in either the trading book or the banking book and risk weighted assets are determined according to the specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures. The total risk weighted exposures comprise the credit risk, market risk and operational risk.



The required capital adequacy ratio is achieved by the Bank through:

(a) Adequate level of paid up capital;(b) Adequate risk profile of asset mix;(c) Ensuring better recovery management; and(d) Maintaining acceptable profit margins.

37.5 Capital adequacy ratio

The capital to risk weighted assets ratio, calculated in accordance with the SBP guidelines on capital adequacy, under Basel III and Pre-Basel III treatment is presented below:

Particulars2013 2012

Amount Pre - Basel III treatment*

Basel II treatment

-------------------- Rupees in ‘000 ----------------------

Common Equity Tier 1 capital (CET1): Instruments and reservesFully paid-up capital / capital deposited with the SBP 8,167,527 - 7,410,458 Balance in share premium account - - - Reserve for issue of bonus shares - - - General / Statutory Reserves 2,030 - 2,030 Gain / (Losses) on derivatives held as Cash Flow Hedge - - - Unappropriated profits (2,870,526) - (1,548,233)Minority Interests arising from CET1 capital instruments issued to third party by consolidated bank subsidiaries (amount allowed in CET1 capital of the consolidation group) - - - CET 1 before Regulatory Adjustments 5,299,031 - 5,864,255

Common Equity Tier 1 capital: Regulatory adjustmentsGoodwill (net of related deferred tax liability) - - - All other intangibles (net of any associated deferred tax liability) 125,434 - 103,393 Shortfall of provisions against classified assets - - - Deferred tax assets that rely on future profitability excluding those arising from temporary differences (net of related tax liability) - 878,962 - Defined-benefit pension fund net assets - - - Reciprocal cross holdings in CET1 capital instruments - - - Cash flow hedge reserve - - - Investment in own shares / CET1 instruments - - - Securitization gain on sale - - - Capital shortfall of regulated subsidiaries - - - Deficit on account of revaluation from bank's holdings of property / AFS - - - Investments in the capital instruments of banking, financial and insurance

entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold) - - -

Significant investments in the capital instruments issued by banking, financial and insurance entities that are outside the scope of regulatory consolidation (amount above 10% threshold) - - - Deferred Tax Assets arising from temporary differences (amount above 10% threshold, net of related tax liability) - - - Amount exceeding 15% threshold of which:

- significant investments in the common stocks of financial entities - - - - deferred tax assets arising from temporary differences - - -

National specific regulatory adjustments applied to CET1 capital - - - Investment in TFCs of other banks exceeding the prescribed limit - - - Any other deduction specified by SBP - - - Regulatory adjustment applied to CET1 due to insufficient AT1 and Tier 2 to cover deductions - - - Total regulatory adjustments applied to CET1 125,434 878,962 103,393





Basel II treatment

-------------------- Rupees in ‘000 ----------------------

Common Equity Tier 1 (a) 5,173,597 - 5,760,862

Additional Tier 1 (AT 1) CapitalQualifying Additional Tier-1 instruments plus any related share premium - - - of which: - classified as equity - - - - classified as liabilities - - - Additional Tier-1 capital instruments issued by consolidated subsidiaries - - - and held by third parties - of which: instrument issued by subsidiaries subject to phase out - - - AT1 before regulatory adjustments - - -

* This column highlights items that are still subject to Pre Basel III treatment during the transitional period

Additional Tier 1 Capital: regulatory adjustmentsInvestment in mutual funds exceeding the prescribed limit (SBP specific adjustment) - - - Investment in own AT1 capital instruments - - - Reciprocal cross holdings in Additional Tier 1 capital instruments - - - Investments in the capital instruments of banking, financial and insurance


Significant investments in the capital instruments issued by banking, financial and insurance entities that are outside the scope of regulatory consolidation - - -

Portion of deduction applied 50:50 to core capital and supplementary capital based on pre-Basel III treatment which, during transitional period, remain subject to deduction from tier-1 capital - - -

Regulatory adjustments applied to Additional Tier 1 due to insufficient Tier 2 to cover deductions - - - Total of Regulatory Adjustment applied to AT1 capital - - - Additional Tier 1 capital - - - Additional Tier 1 capital recognised for capital adequacy (b) - - -

Tier 1 Capital (CET1 + admissible AT1) (c=a+b) 5,173,597 - 5,760,862

Tier 2 CapitalQualifying Tier 2 capital instruments under Basel III - - - Capital instruments subject to phase out arrangement from tier 2 - - - Tier 2 capital instruments issued to third party by consolidated subsidiaries - - - of which: instruments issued by subsidiaries subject to phase out - - - General Provisions or general reserves for loan losses-up to maximumof 1.25% of Credit Risk Weighted Assets 50,147 - 27,825 Revaluation Reservesof which: - Revaluation reserves on Property - - - Unrealized Gains on AFS 27,980 34,197 47,967 Foreign Exchange Translation Reserves - - - Undisclosed / Other Reserves (if any) - - - T2 before regulatory adjustments 78,127 34,197 75,792





Basel II treatment

-------------------- Rupees in ‘000 ----------------------

Tier 2 Capital: regulatory adjustmentsPortion of deduction applied 50:50 to core capital and supplementary

capital based on pre-Basel III treatment which, during transitional period, remain subject to deduction from tier-2 capital - - -

Reciprocal cross holdings in Tier 2 instruments - - Investment in own Tier 2 capital instrument - - Investments in the capital instruments of banking, financial and insurance


Significant investments in the capital instruments issued by banking, financial and insurance entities that are outside the scope of regulatory consolidation - - -

Amount of Regulatory Adjustment applied to T2 capitalTier 2 capital (T2) - Tier 2 capital recognised for capital adequacy 78,127 - 75,792 Excess Additional Tier 1 capital recognised in Tier 2 capital - - - Total Tier 2 capital admissible for capital adequacy (d) 78,127 - 75,792

TOTAL CAPITAL (T1 + admissible T2) (e=c+d) 5,251,724 - 5,836,654

Total Risk Weighted Assets (i=f+g+h) 25,297,562 - 25,877,433

* This column highlights items that are still subject to Pre Basel III treatment during the transitional period

Particulars 2013 2012 Amount Basel II treatment

--------- Rupees in ‘000 -------------

Total Credit Risk Weighted Assets (f) 20,514,563 20,571,142 Risk weighted assets in respect of amounts subject to Pre-Basel III Treatment of which:

- recognised portion of investment in capital of banking, financial and insurance entities where holding is more than 10% of the issued common share capital of the entity - -

- deferred tax assets 1,177,423 - - defined-benefit pension fund net assets - -

Total Market Risk Weighted Assets (g) 2,508,225 3,479,541 Total Operational Risk Weighted Assets (h) 2,274,774 1,826,750

Capital Ratios and buffers (in percentage of risk weighted assets)CET1 to total RWA (a/i) 20.45% 22.26%Tier-1 capital to total RWA (c/i) 20.45% 22.26%Total capital to RWA (e/i) 20.76% 22.55%Bank specific buffer requirement (minimum CET1 requirement plus capital 0% 0% conservation buffer plus any other buffer requirement) of which:

- capital conservation buffer requirement 0% 0%- countercyclical buffer requirement 0% 0%- Domestic Systemically Important Banks (SIB) or Global SIB buffer requirement 0% 0%

CET1 available to meet buffers (as a percentage of risk weighted assets) 20.45% 22.26%

National minimum capital requirements prescribed by SBPCET1 minimum ratio 5%Tier 1 minimum ratio 6.5%Total capital minimum ratio 10%



Particulars 2013 2012 Amount Basel II treatment

--------- Rupees in ‘000 -------------

Amounts below the thresholds for deduction (before risk weighting)Non-significant investments in the capital of other financial entities - - Significant investments in the common stock of financial entities - - Deferred tax assets arising from temporary differences (net of related tax liability) 298,461 -

Applicable caps on the inclusion of provisions in Tier 2Provisions eligible for inclusion in Tier 2 in respect of exposures subject to standardized approach (prior to application of cap) 50,147 27,825 Cap on inclusion of provisions in Tier 2 under standardized approach 316,220 323,468 Provisions eligible for inclusion in Tier 2 in respect of exposures subject to internal ratings-based approach (prior to application of cap) - - Cap for inclusion of provisions in Tier 2 under internal ratings-based approach - -

37.6 Capital Adequacy

The Bank prepares annual budget and future strategic plan for the purpose of growth map and future direction. Bottom up approach is used to prepare annual budget and detailed deliberations are held while preparing future strategic plan. The growth prospects takes into consideration prevailing economic and political factors in Pakistan and abroad.

As noted in note 1.4, the SBP had specified that the Bank should have a minimum CAR of 18% as at December 31, 2013 whereas CAR stood at 19.41% at the year ended December 31, 2013.

The Bank calculates capital adequacy ratio for credit risk, market risk and operational risk based upon requirements under Basel Accord as per guidelines issued by the State Bank of Pakistan from time to time in this regard.

Major credit risk in respect of on and off-balance sheet exposures are mainly claims on banks, corporates, retail customers and residential mortgages. Market risk exposures are mainly in mutual funds, equity, sukuks and foreign exchange positions. The Bank’s potential risk exposures shall remain in these exposure types.

Sensitivity and stress testing of the Bank under different risk factors namely yield rate, non-performing financings and foreign exchange rate are analysed with reference to the capital adequacy so as to determine the resilience of the Bank.

The Bank has taken into account credit risk, market risk and operational risk when planning its assets.



Book Value Risk Adjusted Book Value Risk Adjusted2013 2013 2012 2012

--------------------- Rupees in ‘000 ----------------------

37.6.1 Risk-weighted exposures

Credit RiskBalance Sheet Items

Cash and balances with treasury banks 2,751,089 22,742 2,452,464 15,053 Balances with other banks 1,056,489 211,298 907,255 181,451 Due from financial institutions 7,689,704 1,537,941 - - Investments 9,226,189 - 17,156,398 - Islamic financing and related assets 28,955,126 15,228,211 23,370,532 15,628,194 Operating fixed assets 1,057,349 931,915 1,130,246 1,026,853 Deferred tax assets 1,177,423 1,177,423 519,877 519,877 Other assets 1,475,694 801,381 1,648,680 1,648,680

53,389,063 19,910,911 47,185,452 19,020,108 Off Balance Sheet items

Direct credit substitutes - - 5,847 5,847 Transaction related contingent liabilities 1,871,557 447,678 1,808,079 591,727 Trade-related contingent liabilities 743,414 107,867 1,273,594 331,025

Commitments for acquisition of operating fixed assets 45,894 45,894 622,435 622,435 Commitments in respect of forward exchange contracts

- Purchase 1,046,135 1,600 - - - Sale 349,170 613 - -

4,056,170 603,652 3,709,955 1,551,034 Credit risk-weighted exposures 20,514,563 20,571,142

Market Risk General market risk 1,203,912 1,873,235 Specific market Risk 1,304,313 1,606,306

Market risk-weighted exposures 2,508,225 3,479,541

Operational Risk 2,274,774 1,826,750

Total Risk-Weighted Exposures 25,297,562 25,877,433



Capital requirements Risk weighted assets2013 2012 2013 2012

--------------------- Rupees in ‘000 ----------------------

37.6.2 Risk-weighted exposures

Credit Risk

Portfolios subject to on-balance sheet exposure(Simple Approach)Banks and securities firms 319,712 43,231 1,776,180 196,504 Public Sector Entities 68,061 38,500 378,114 175,000 Corporate portfolio 2,152,379 3,130,826 11,957,663 14,231,029 Retail non mortgages 508,758 373,484 2,826,434 1,697,654 Mortgages - residential 119,823 28,144 665,684 127,925 Fixed assets 167,745 362,843 931,915 1,649,288 Other assets 311,967 477,083 1,733,148 2,168,558 Past due exposures 44,177 71,540 245,425 325,184

Market Risk

Capital Requirement for portfolios subject to Standardised ApproachInterest rate risk 133,686 236,439 742,700 1,074,723 Equity position risk 304,056 514,535 1,689,200 2,338,797 Foreign exchange risk 13,739 14,525 76,325 66,021

Operational Risk Capital requirement for operational risk 409,459 401,885 2,274,774 1,826,750

TOTAL 4,553,562 5,693,035 25,297,562 25,877,433

Capital Adequacy Ratio 2013 2012

Total eligible regulatory capital held (a) 5,251,724 5,836,654

Total risk weighted assets (b) 25,297,562 25,877,433

Capital adequacy ratio (a) / (b) 20.76% 22.55%



37.7 Capital Structure Reconciliation

37.7.1 Reconciliation of each financial statement line item to item under regulatory scope of reporting

Particulars

Balance sheet as in published

financial statements

Under regulatory scope

of reporting

------(Rupees in ‘000)-------AssetsCash and balances with treasury banks 2,751,089 2,751,089 Balances with other banks 1,056,489 1,056,489 Due from financial institutions 7,689,704 7,689,704 Investments 9,226,189 9,226,189 Islamic financing and related assets 28,955,126 28,955,126 Operating fixed assets 1,057,349 1,057,349 Deferred tax assets 1,177,423 1,177,423 Other assets 1,475,694 1,475,694 Total assets 53,389,063 53,389,063

Liabilities and EquityBills payable 507,471 507,471 Due to financial institutions 3,052,474 3,052,474 Deposits and other accounts 42,697,675 42,697,675 Sub-ordinated loans - - Liabilities against assets subject to finance leases - - Deferred tax liabilities - - Other liabilities 1,770,235 1,770,235 Total liabilities 48,027,855 48,027,855

Share capital 8,167,527 8,167,527 Reserves 2,030 2,030 Unappropriated profit (2,870,526) (2,870,526)Minority Interest - - Surplus on revaluation of investments - net of tax 62,177 62,177 Total liabilities and equity 5,361,208 5,361,208

37.7.2 Reconciliation of balance sheet to eligible regulatory capital

Particulars Reference




of reporting

------(Rupees in ‘000)-------AssetsCash and balances with treasury banks 2,751,089 2,751,089 Balances with other banks 1,056,489 1,056,489 Due from financial institutions 7,689,704 7,689,704 Investments 9,226,189 9,226,189 of which:

- non-significant capital investments in capital of other financial institutions exceeding 10% threshold

a - - - significant capital investments in financial sector entities exceeding regulatory threshold b - - - mutual Funds exceeding regulatory threshold c - -



Particulars Reference




of reporting

------(Rupees in ‘000)-------- reciprocal crossholding of capital instrument d - - - others e - -

Islamic financing and related assets 28,955,126 28,955,126 - shortfall in provisions / excess of total EL amount over eligible provisions under IRB

f - - - general provisions reflected in Tier 2 capital g 50,147 50,147

Operating fixed assets 1,057,349 1,057,349 - of which: Intangibles k 125,434 125,434

Deferred tax assets 1,177,423* 1,177,423 of which:

- DTAs excluding those arising from temporary differences h - - - DTAs arising from temporary differences exceeding regulatory threshold

i - -

Other assets 1,475,694 1,475,694 of which:

- goodwill j - - - defined-benefit pension fund net assets l - -

Total assets 53,389,063 53,389,063

Liabilities and EquityBills payable 507,471 507,471 Due from financial institutions 3,052,474 3,052,474 Deposits and other accounts 42,697,675 42,697,675 Sub-ordinated loans of which: - -

- eligible for inclusion in AT1 m - - - eligible for inclusion in Tier 2 n - -

Liabilities against assets subject to finance lease - - Deferred tax liabilities of which: - -

- DTLs related to goodwill o - - - DTLs related to intangible assets p - - - DTLs related to defined pension fund net assets q - - - other deferred tax liabilities r - -

Other liabilities 1,770,235 1,770,235 Total liabilities 48,027,855 48,027,855

Share capital 8,167,527 8,167,527 - of which: amount eligible for CET1 s 8,167,527 8,167,527 - of which: amount eligible for AT1 t - -

Reserves of which: 2,030 2,030 - portion eligible for inclusion in CET1 - Statutory reserve u 2,030 2,030 - portion eligible for inclusion in CET1 - General reserve - - - portion eligible for inclusion in Tier 2 v - -

Unappropriated profit w (2,870,526) (2,870,526)Minority Interest of which: - -

- portion eligible for inclusion in CET1 x - - - portion eligible for inclusion in AT1 y - - - portion eligible for inclusion in Tier 2 z - -

Surplus on revaluation of assets of which: 62,177 62,177 - Revaluation reserves on Property - - - Unrealized Gains/Losses on AFS aa 62,177 62,177 - In case of Deficit on revaluation (deduction from CET1) ab - -

Total liabilities and Equity 53,389,063 53,389,063

* This includes deferred tax asset of Rs 878,962 thousand which relies on future profitability. This is currentlysubject to pre Basel III treatment as specified by the SBP.



37.7.3 Basel III Disclosure (with added column)

Particulars

Source based on reference number from

37.7.2

Component of regulatory

capital reported by bank

(Rupees in ‘000)Common Equity Tier 1 capital (CET1): Instruments and reserves

1 Fully Paid-up Capital(s)

8,167,527 2 Balance in share premium account3 Reserve for issue of bonus shares - 4 General / Statutory Reserves (u) 2,030 5 Gain / (Losses) on derivatives held as Cash Flow Hedge - 6 Unappropriated / unremitted profits (w) (2,870,526)7 Minority Interests arising from CET1 capital instruments issued to third

party by consolidated bank subsidiaries (amount allowed in CET1 capital of the consolidation group) (x) -

8 CET 1 before Regulatory Adjustments 5,299,031

Common Equity Tier 1 capital: Regulatory adjustments9 Goodwill (net of related deferred tax liability) ( j) - (s) -

10 All other intangibles (net of any associated deferred tax liability) (k) - (p) 125,434 11 Shortfall of provisions against classified assets (f) - 12 Deferred tax assets that rely on future profitability excluding those arising

from temporary differences (net of related tax liability) (h) - (r) * x% - 13 Defined-benefit pension fund net assets (l) - (q) * x% - 14 Reciprocal cross holdings in CET1 capital instruments (d) - 15 Cash flow hedge reserve - 16 Investment in own shares / CET1 instruments - 17 Securitization gain on sale - 18 Capital shortfall of regulated subsidiaries - 19 Deficit on account of revaluation from bank's holdings of property / AFS (ab) - 20 Investments in the capital instruments of banking, financial and insurance

entities that are outside the scope of regulatory consolidation, where the bank does not own more than 10% of the issued share capital (amount above 10% threshold)

(a) - (ac) - (ae) -

21 Significant investments in the capital instruments issued by banking,financial and insurance entities that are outside the scope of regulatory

consolidation (amount above 10% threshold) (b) - (ad) - (af) -

22 Deferred Tax Assets arising from temporary differences (amount above10% threshold, net of related tax liability) (i) -

23 Amount exceeding 15% threshold of which: - - significant investments in the common stocks of financial entities - - deferred tax assets arising from temporary differences -

24 National specific regulatory adjustments applied to CET1 capital - 25 Investment in TFCs of other banks exceeding the prescribed limit - 26 Any other deduction specified by SBP - 27 Regulatory adjustment applied to CET1 due to insufficient AT1 and

Tier 2 to cover deductions - 28 Total regulatory adjustments applied to CET1 125,434

Common Equity Tier 1 5,173,597

Additional Tier 1 (AT 1) Capital29 Qualifying Additional Tier-1 instruments plus any related share premium -

of which:30 - Classified as equity (t) - 31 - Classified as liabilities (m) - 32 Additional Tier-1 capital instruments issued by consolidated subsidiaries

and held by third parties (y) - 33 - of which: instrument issued by subsidiaries subject to phase out - 34 AT1 before regulatory adjustments -



Particulars

Source based on reference number from

37.7.2

Component of regulatory

capital reported by bank

(Rupees in ‘000)Additional Tier 1 Capital: regulatory adjustments

35 Investment in mutual funds exceeding the prescribed limit (SBP specificadjustment) -

36 Investment in own AT1 capital instruments - 37 Reciprocal cross holdings in Additional Tier 1 capital instruments - 38 Investments in the capital instruments of banking, financial and insurance


(ac) -

39 Significant investments in the capital instruments issued by banking,financial and insurance entities that are outside the scope of regulatory consolidation

(ad) -

40 Portion of deduction applied 50:50 to core capital and supplementarycapital based on pre-Basel III treatment which, during transitional period, remain subject to deduction from tier-1 capital

-

41 Regulatory adjustments applied to Additional Tier 1 due to insufficientTier 2 to cover deductions -

42 Total of Regulatory Adjustment applied to AT1 capital - 43 Additional Tier 1 capital - 44 Additional Tier 1 capital recognised for capital adequacy -

Tier 1 Capital (CET1 + admissible AT1) 5,173,597

Tier 2 Capital45 Qualifying Tier 2 capital instruments under Basel III (n) - 46 Capital instruments subject to phase out arrangement from Tier 2 - 47 Tier 2 capital instruments issued to third party by consolidated subsidiaries (z) -

- of which: instruments issued by subsidiaries subject to phase out - 48 General Provisions or general reserves for loan losses-up to maximum

of 1.25% of Credit Risk Weighted Assets (g) 50,147 49 Revaluation Reserves eligible for Tier 2 of which: 27,980 50 - portion pertaining to Property -51 - portion pertaining to AFS securities 45% of (aa) 27,980 52 Foreign Exchange Translation Reserves (v) - 53 Undisclosed / Other Reserves (if any) - 54 T2 before regulatory adjustments 78,127

Tier 2 Capital: regulatory adjustments55 Portion of deduction applied 50:50 to core capital and supplementary

capital based on pre-Basel III treatment which, during transitional period, remain subject to deduction from tier-2 capital

-

56 Reciprocal cross holdings in Tier 2 instruments - 57 Investment in own Tier 2 capital instrument - 58 Investments in the capital instruments of banking, financial and insurance


(ae) -

59 Significant investments in the capital instruments issued by banking,financial and insurance entities that are outside the scope of regulatory consolidation (af) -

60 Amount of Regulatory Adjustment applied to T2 capital - 61 Tier 2 capital (T2) 78,127 62 Tier 2 capital recognised for capital adequacy 78,127 63 Excess Additional Tier 1 capital recognised in Tier 2 capital - 64 Total Tier 2 capital admissible for capital adequacy 78,127

TOTAL CAPITAL (T1 + admissible T2) 5,251,724



Main Features Common Shares1 Issuer Burj Bank Limited2 Unique identifier (eg KSE Symbol or Bloomberg identifier etc.) N/A3 Governing law(s) of the instrument Islamic Republic of Pakistan

Regulatory treatment4 Transitional Basel III rules Common Equity Tier 15 Post-transitional Basel III rules Common Equity Tier 16 Eligible at solo/ group/ group&solo Solo7 Instrument type Ordinary shares

8Amount recognised in regulatory capital (Currency in PKR thousands, as of reporting date)

8,167,527

9 Par value of instrument 1010 Accounting classification Shareholders' equity11 Original date of issuance 200612 Perpetual or dated Perpetual13 Original maturity date N/A14 Issuer call subject to prior supervisory approval N/A15 Optional call date, contingent call dates and redemption amount N/A16 Subsequent call dates, if applicable N/A

Coupons / dividends17 Fixed or floating dividend/ coupon N/A18 coupon rate and any related index/ benchmark N/A

19 Existence of a dividend stopper

Compliance with MCR requirement (as mentioned in note 1.4 of the financial

statements)20 Fully discretionary, partially discretionary or mandatory Fully discretionary21 Existence of step up or other incentive to redeem N/A22 Noncumulative or cumulative N/A23 Convertible or non-convertible N/A24 If convertible, conversion trigger (s) N/A25 If convertible, fully or partially N/A26 If convertible, conversion rate N/A27 If convertible, mandatory or optional conversion N/A28 If convertible, specify instrument type convertible into N/A29 If convertible, specify issuer of instrument it converts into N/A30 Write-down feature N/A31 If write-down, write-down trigger(s) N/A32 If write-down, full or partial N/A33 If write-down, permanent or temporary N/A34 If temporary write-down, description of write-up mechanism N/A

35Position in subordination hierarchy in liquidation (specify instrument type

immediately senior to instrument)N/A

36 Non-compliant transitioned features N/A37 If yes, specify non-compliant features N/A



38 RISK MANAGEMENT

The Bank has set-up a separate Risk Management Group for risk management functions in the Bank. The Bank’s risk management function is developed based on the SBP guidelines and International regulatory frameworks. Independent of the business functions, the group has various departments to encompass risks on enterprise wide basis. To ensure Board’s oversight on the risk management functions, the Board of Directors has established a Risk Management Committee consisting of Board members with mandate as follows:

- To review risk management policies of the Bank as and when required and recommend additions, deletions and modifications to the Board of Directors for approval.

- To review overall risk exposure of the Bank and develop and advise an overall risk strategy to be followed by relevant management committees for approving exposures.

- To ensure that a proper system is installed which provides all the required information pertaining to efficient and timely identification, control and reporting of risk including development of an effective MIS for risk management.

- To ensure that the resources allocated for risk management are adequate given the size, nature and volume of the business.

- To monitor the Bank’s progress towards Basel requirements and to take and approve all such actions as may be required for successful implementation of Basel Accord and its different approaches.

- To review major risk exposures of the Bank and advise the management of any change in appetite thereof and to communicate the planned / executed corrective actions to the Board of Directors.

- To formulate an overall view of the adequacy of the Bank’s Capital and its optimum allocation to various business activities with a risk weighted perspective.

- As and when required, to review appropriateness and effectiveness of rating models adopted by the Bank for different business classes and align them in accordance with the business needs of the Bank.

The fundamental risks associated with the financial institution business are financings, market, liquidity and operational risk.

Scope and nature of risk reporting tools

The comprehensive risk management framework enables the Bank to identify, assess, manage and monitor risks using a range of quantitative and qualitative tools. Some of these tools are common to a number of risk categories, while others are tailored to particular features of specific risk categories and enable generation of information such as:



- Internal risk rating system for Corporate, SME and Consumer financings, risk concentration and distribution.

- Collateral coverage ratios, limit utilisations and past due alerts.

- Stress testing to estimate variation in the value of portfolio in view of changes in the equity prices, foreign exchange rates, profit rates and various other factors.

Risk Management Process

Through the risk management framework, transactions and outstanding risk exposures are quantified and compared against authorised limits, whereas non quantifiable risks are monitored against policy guidelines and key risk and control indicators. Any discrepancies, excess or deviations, are escalated to the management for appropriate and timely action.

Furthermore, the Management Finance Committee and ALCO also have regular oversight of the risk management activities of the Bank. In addition, all the business proposals, both financing and investments, are independently evaluated by a separate division before review and then approved by the relevant approving authorities.

38.1 Credit risk

Credit risk represents the potential that a Bank’s customer or counterparty will be unable to meet its obligations in accordance with agreed terms.

Credit risk management and structure

The Bank’s approach to credit risk management is based on the foundation of preserving the independence and integrity of the credit risk assessment, management and reporting process combined with clear policies, limits and approval structures independent of business functions.

To identify and manage the credit risk, the Bank has developed and implemented a comprehensive credit risk assessment process which is supported by obligor risk rating system developed in conformity with the Basel II and SBP guidelines. The whole process facilitates in evaluation of the creditworthiness of customers before consideration for any financing facilities. Further, the Bank has implemented risk concentration and risk distribution policy guidelines which control the exposure to a single customer, group by the risk rating and overall in any business sector. In consumer financing the Bank has implemented product-wise score card models which assist the Bank in selection of customers and management of underlying risk. The credit risk is evaluated and managed on a transaction, customer as well as on portfolio basis.

“Watchlist” procedures are also in place which identify financings with early warning indicators in respect of clients which may become non-performing. The Risk Management Group also monitors the non-performing financing portfolio of the Bank and reports the significant matters to Board Risk Management Committee.



The Bank operates within;

- Exposure ceilings imposed by the State Bank of Pakistan- Exposure ceilings imposed by the Board of Directors- Various sectoral ceilings- Rating driven ceilings for single customers as well customers falling within same group.

Financing administration department is working towards ensuring that all the approval terms are adhered to and spirit of the transaction is implemented and followed. In addition, the Bank has been actively following up for recovery and regularization of non performing portfolio.

Management of corporate and consumer financing risk

All the corporate and consumer financing proposals are first evaluated by the business group and thereafter independent evaluation / due diligence analyses are carried out by a separate division subsequent to which they are further reviewed, evaluated and decided by the Management Finance Committee. The performance of customers is regularly monitored and the risk ratings are changed wherever required. Further, to ensure segregation of duties and independence of risk review functions, the concept of front office, middle office and back office is implemented in the Bank. In addition, Risk Management Group separately reviews, controls and monitors the financing and investment portfolios on an overall basis.

38.1.1 Segmental information

38.1.1.1 Segments by class of business

2013 Islamic financing and related

assets (Gross) Deposits

Contingencies and commitments

Rupees in '000 Percent Rupees in '000 Percent Rupees in '000 Percent

Agri business (Food products and beverages) 5,158,565 16.92 467,304 1.09 - - Automobile and transportation equipment 264,003 0.87 7,186 0.02 - - Cement 56,250 0.18 65 - - - Chemical and pharmaceuticals 3,416,803 11.21 2,317,012 5.43 525,549 20.10 Construction 67,436 0.22 175,635 0.41 1,584,175 60.58 Electronics and electrical appliances 914,213 3.00 11,351 0.03 106,799 4.08 Exports / Imports 215,703 0.71 76,124 0.18 16,389 0.63 Financial institutions (NBFI, DFI, Banks) 6,215 0.02 5,239,685 12.27 - - Fuel, oil and gas exploration 103,195 0.34 1,225,068 2.87 33,723 1.29 Insurance - - 1,042,183 2.44 10,107 0.39 Non-Government Organizations (NGOs) - - 4,098,742 9.60 - - Plastic products 81,368 0.27 3,042 0.01 603 0.02 Production and transmission of energy 2,600,718 8.53 42,383 0.10 7,650 0.29 Services 2,394,412 7.86 101,764 0.24 90,772 3.47 Shoe & leather garments 5,916 0.02 3,169 0.01 - - Sugar 2,515,134 8.25 154,608 0.36 - - Textile 2,632,915 8.64 1,726,671 4.04 24,842 0.95 Wholesale and retail trade 8,533 0.03 78,223 0.18 34,252 1.31 Individuals 5,357,966 17.58 18,618,269 43.60 - - Others 4,681,736 15.35 7,309,191 17.12 180,110 6.89

30,481,081 100.00 42,697,675 100.00 2,614,971 100.00







Agri business (Food products and beverages) 2,724,015 11.31 115,130 0.32 6,150 0.20 Automobile and transportation equipment 267,243 1.11 5,051 0.01 - - Cement 93,750 0.39 500,120 1.39 - - Chemical and pharmaceuticals 3,033,744 12.60 2,849,958 7.93 130,355 4.22 Construction 132,597 0.55 211,740 0.59 1,238,874 40.13 Electronics and electrical appliances 896,426 3.72 258,223 0.72 366,894 11.88 Exports / Imports 182,617 0.76 83,623 0.23 - - Financial institutions (NBFI, DFI, Banks) 9,013 0.04 1,297,272 3.61 - - Fuel, oil and gas exploration 114,677 0.48 42,949 0.12 - - Insurance - - 724,576 2.02 - - Non-Government Organizations (NGOs) - - 2,015,082 5.61 - - Plastic products 57,232 0.24 1,618 - 14,444 0.47 Production and transmission of energy 1,814,613 7.54 1,653 - 797,542 25.83 Services 2,822,802 11.72 3,460,567 9.63 67,157 2.18 Shoe & leather garments 20,255 0.08 6,471 0.02 - - Sugar 2,094,598 8.70 14,735 0.04 - - Textile 2,955,867 12.28 1,911,139 5.32 69,482 2.25 Wholesale and retail trade 50,667 0.21 189,211 0.53 265,533 8.60 Individuals 2,797,680 11.62 14,729,105 41.00 243 0.01 Others 4,009,517 16.65 7,503,815 20.89 130,846 4.23

24,077,313 100.00 35,922,038 100.00 3,087,520 100.00

38.1.1.2 Segment by sector





Public / Government 7,512,182 24.65 1,239,416 2.90 1,786,605 68.32 Private 22,968,899 75.35 41,458,259 97.10 828,366 31.68

30,481,081 100.00 42,697,675 100.00 2,614,971 100.00





Public / Government 4,079,716 16.94 4,044,031 11.26 1,774,923 57.49 Private 19,997,597 83.06 31,878,007 88.74 1,312,597 42.51

24,077,313 100.00 35,922,038 100.00 3,087,520 100.00



38.1.1.3 Details of non-performing Islamic financing and related assets and specific provisions by class of business segment

2013 2012Classified Islamic

financing and related assets

Specific provision held

Classified Islamic



--------------------------- Rupees in ‘000 ---------------------------

Agri business (Food products and beverages) 195,000 195,000 207,904 86,635 Automobile and transportation equipment 264,003 239,235 267,243 227,361 Fuel, oil and gas exploration 103,195 101,695 114,677 109,350 Textile 726,810 643,691 149,153 81,786 Individuals 119,837 64,811 83,711 49,699 Services 105,239 76,916 105,239 87,625 Others 244,139 154,460 102,057 36,500

1,758,223 1,475,808 1,029,984 678,956

38.1.1.4 Details of non-performing Islamic financing and related assets and specific provisions by sector

2013 2012Classified Islamic



Classified Islamic



--------------------------- Rupees in ‘000 ---------------------------

Public / Government - - - - Private 1,758,223 1,475,808 1,029,984 678,956

1,758,223 1,475,808 1,029,984 678,956

38.1.1.5 Geographical segment analysis

2013

Loss beforetaxation

Total assetsemployed

Net assetsemployed

Contingenciesand

commitments--------------------------- Rupees in ‘000 ---------------------------

Pakistan (1,738,774) 53,389,063 5,361,208 2,614,971

2012

Profit beforetaxation

Total assetsemployed

Net assetsemployed

Contingenciesand

commitments--------------------------- Rupees in ‘000 ---------------------------

Pakistan 33,346 47,185,452 5,937,481 3,087,520



38.1.2 Credit risk - General disclosures

The Bank has adopted Standardised Approach for calculation of capital charge against credit risk. However, the Bank has already implemented the criteria of advanced approaches by establishment and implementation of obligor risk rating system for corporate and consumer financing in the Bank along with policy guidelines on the risk concentration and distribution.

38.1.2.1 Credit risk: Disclosures for portfolio subject to Standardised Approach

Under standardised approach the capital requirement is based on the credit rating assigned to the counterparties by the External Credit Assessment Institutions (ECAIs) duly recognised by the SBP for capital adequacy purposes. In this connection, Bank utilises the credit ratings assigned by ECAIs and has recognised agencies such as PACRA (Pakistan Credit Rating Agency), JCR-VIS and Moodys.

Types of exposures and ECAI’s used:

Exposures PACRA JCR-VIS Moodys

Corporate a a N/ABanks a a aPublic Sector Entities (PSEs) a N/A N/A

Use of ECAI Ratings

The Bank prefers solicited ratings over unsolicited ratings at all times, owing to the greater degree of accuracy (in general) associated with solicited ratings. Unsolicited ratings may only be used in cases where a solicited rating is not available.

Mapping to SBP Rating Grades

The alignment of the Alphanumerical scale of each agency used with risk buckets is as per instructions laid down by the SBP.

38.1.2.2 Credit exposures subject to Standardised approach

For exposure amounts after risk mitigation subject to the standardised approach, the amount of the Bank’s outstanding (rated & unrated) in each risk bucket as well as those that are deducted are as follows:

2013 2012

Exposures Rating

categoryAmount

outstanding

Deduction credit risk mitigation

Net amountAmount

outstanding

Deduction credit risk mitigation

Net amount

------------------------------ Rupees in ‘000 ------------------------------Corporate 1 2,074,460 - 2,074,460 1,968,323 - 1,968,323

2 4,379,596 - 4,379,596 2,590,862 923 2,589,939 3,4 66,862 - 66,862 38,162 10,063 28,099

Unrated 11,266,858 1,202,127 10,064,731 14,612,184 441,278 14,170,906 Banks 1 8,719,488 - 8,719,488 403 - 403

2 91,047 - 91,047 454,144 - 454,144 Unrated 59,306 - 59,306 151,715 - 151,715

Public Sector Entities 1 625,000 - 625,000 875,000 - 875,000 2 506,228 - 506,228 - - -

Unrated 7,298,207 7,298,207 - 3,204,716 3,204,716 -



38.1.2.3 Credit risk: Disclosures with respect to Credit risk mitigation for Standardised approach

The Bank has adopted the Simple Approach of Credit Risk Mitigation (CRM) for the Banking Book. In instances where the Bank’s exposure on an obligor is secured by collateral that conforms to the eligibility criteria under the Simple Approach of CRM, then the Bank reduces its exposure under that particular transaction by taking into account the risk mitigating effect of the collateral for the calculation of capital requirement i.e., risk weight of the collateral instrument securing the exposure is substituted for the risk weight of the counter party.

The Bank accepts cash, lien on deposits, shares of certain listed companies and government securities under the simple approach of Credit Risk Mitigation. The Bank has in place detailed guidelines with respect to valuation and management of various collateral types. In order to obtain the credit risk mitigation benefit, the Bank uses realisable value of eligible collaterals to the extent of outstanding exposure.

Counterparty ratings are obtained through the two local SBP authorised External Credit Rating Agencies; JCR-VIS and PACRA and other international sources such as Moodys, Standard and Poors etc. Credit risk assessment and the continuous monitoring of counterparty and portfolio credit exposures is carried out by the Risk Management function.

38.1.3 Credit Concentration risk

Credit concentration risk arises mainly due to concentration of exposures under various categories viz., industry, geography, and single / group borrower exposures. Within credit portfolio, as a prudential measure aimed at better risk management and avoidance of concentration of risks, the SBP has prescribed regulatory limits on banks’ maximum exposure to single borrowers and group borrowers. Within the SBP limits, the Bank has further defined limits to avoid excessive concentration of portfolio based on different parameters.

38.2 Market risk

Market risk is the risk of losses arising from fluctuation in the market value of trading and non-trading instruments under investments portfolio. The four standard market risk factors are profit rates, foreign exchange rates, equity prices and commodity prices.

The Bank is using standardised approach to calculate capital charge for market risk as per the current regulatory framework. Both general and specific risks are recognised. General market risk is related to profit rates and equity price risk, whereas specific risk has issuer related factors.

Market risk management

The Bank is using Stress Testing techniques as risk management tool to estimate variation in the value of the portfolio in view of changes in the equity prices, foreign exchange rates, profit rates and various other factors. Further, the Bank as a policy does not engage into any speculation business.

In addition to the market risk policies, which cover both trading and banking books, as well as stress testing, bank applies Value at Risk (VaR) technique as risk management tool which quantifies the maximum loss that might arise due to change in risk factors, if exposure remains unchanged for a given period of time.



Equity position in the banking and trading book

The Bank classifies and values its investment portfolio in accordance with the directives of the SBP.

Trading book

This includes held for trading and available for sale securities. They are marked to market periodically. Valuation differences are charged to profit and loss account in case of held for trading securities and to equity in case of available for sale securities.

Banking book

The Bank at present does not maintain held-to-maturity portfolio.

38.2.1 Foreign exchange risk

The foreign exchange risk is the risk that the value of a financial instrument will fluctuate due to the changes in foreign exchange rates.

The objectives of the foreign exchange risk management function is to minimise the adverse impact of foreign denominated assets and liabilities mismatch and maximise the earnings while observing the limits set by the Bank.

The Bank does not take any currency exposure except to the extent of statutory net open position prescribed by the SBP. Foreign exchange open and mismatch positions are controlled through internal limits and are marked to market on a daily basis to contain the foreign exchange exposures.

The analysis below represents the concentration of the Bank’s foreign currency risk for on and off balance sheet financial instruments:

2013

Assets LiabilitiesOff-balance sheet items

Net foreign currency exposure

--------------------------- Rupees in ‘000 ---------------------------

Pakistan Rupee 52,478,840 46,385,540 (696,965) 5,396,335 United States Dollar 725,216 1,397,131 601,187 (70,728)Great Britain Pound 128,039 177,072 69,666 20,633 Euro 45,636 62,487 26,112 9,261 Japanese Yen - 5,597 - (5,597)U.A.E Dirham 1,266 - - 1,266 Saudi Riyal 3,825 - - 3,825 Swiss Franc 538 - - 538 Canadian Dollar 1,048 - - 1,048 Australian Dollar 4,382 - - 4,382 Singapore Dollar 237 25 - 212 Malaysian Ringgit 3 3 - - Swedish Krona 33 - - 33 Total foreign currency exposure 910,223 1,642,315 696,965 (35,127)

Total currency exposure 53,389,063 48,027,855 - 5,361,208



2012

Assets LiabilitiesOff-balance sheet items

Net foreign currency exposure

--------------------------- Rupees in ‘000 ---------------------------

Pakistan Rupee 46,207,647 40,336,187 - 5,871,460 United States Dollar 855,155 812,870 - 42,285 Great Britain Pound 71,768 59,987 - 11,781 Euro 40,635 38,927 - 1,708 Japanese Yen 421 - - 421 U.A.E Dirham 114 - - 114 Saudi Riyal 3,817 - - 3,817 Swiss Franc 3,185 - - 3,185 Canadian Dollar 1,296 - - 1,296 Australian Dollar 236 - - 236 Swedish Krona 1,178 - - 1,178 Total foreign currency exposure 977,805 911,784 - 66,021

Total currency exposure 47,185,452 41,247,971 - 5,937,481

38.2.2 Yield / profit rate risk

Yield risk is the risk of decline in earnings due to adverse movement of the yield curve. Profit rate risk is the risk that the value of the financial instrument will fluctuate due to changes in market profit rates. The Bank is exposed to profit rate risk as a result of mismatches or gaps in the amounts of assets and liabilities and off-balance sheet instruments that mature or re-price in a given period. The Bank monitors this risk and manages it by re-pricing of assets and liabilities with the objective of limiting the potential adverse effects on the profitability of the Bank.

38.2.2.1 Mismatch of profit rate sensitive assets and liabilities

The position for on and off balance sheet instruments is based on the earlier of contractual repricing or maturity date. The position for off balance sheet instruments is based on settlement dates.



2013

Effective yield / profit rate

Total

Exposed to yield / profit risk Non-profit bearing financial

instrumentsUpto 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

% ------------------------------------------------------------------------- Rupees in ‘000 -------------------------------------------------------------------------

On-balance sheet financial instruments

Financial assetsCash and balances with treasury banks - 2,751,089 - - - - - - - - - 2,751,089 Balances with other banks 3.50%-9.25% 1,056,489 901,081 - - - - - - - - 155,408 Due from financial institutions 9.00%-10.75% 7,689,704 7,689,704 - - - - - - - - - Investments - net 8.83%-13.89% 9,226,189 66,707 2,468,750 5,678,410 - - - - - - 1,012,322 Islamic financing and related assets - net 5.00%-17.34% 28,955,126 17,948,953 2,883,012 2,933,584 2,860,384 983 5,564 21,217 15,780 265,021 2,020,628 Other assets - 1,180,251 - - - - - - - - - 1,180,251

50,858,848 26,606,445 5,351,762 8,611,994 2,860,384 983 5,564 21,217 15,780 265,021 7,119,698 Financial liabilitiesBills payable - 507,471 - - - - - - - - - 507,471 Due to financial institutions 6.00%-9.0% 3,052,474 1,598,935 1,087,142 360,800 - - - - - - 5,597 Deposits and other accounts 0.001%-10.6% 42,697,675 39,608,204 - - - - - - - - 3,089,471 Other liabilities - 1,337,572 - - - - - - - - - 1,337,572

47,595,192 41,207,139 1,087,142 360,800 - - - - - - 4,940,111 On-balance sheet gap 3,263,656 (14,600,694) 4,264,620 8,251,194 2,860,384 983 5,564 21,217 15,780 265,021 2,179,587

Off-balance sheet financial instrumentsForward exchange contracts - purchase 1,046,135 676,446 369,689 - - - - - - - - Forward exchange contracts - sale 349,170 138,520 - 210,650 - - - - - - - Off-balance sheet gap 696,965 537,926 369,689 (210,650) - - - - - - -

Total yield / profit risk sensitivity gap (14,062,768) 4,634,309 8,040,544 2,860,384 983 5,564 21,217 15,780 265,021 2,179,587

Cumulative yield / profit risk sensitivity gap (14,062,768) (9,428,459) (1,387,915) 1,472,469 1,473,452 1,479,016 1,500,233 1,516,013 1,781,034 3,960,621

2012

Effective yield / profit rate

Total

Exposed to yield / profit risk Non-profit bearing financial

instrumentsUpto 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

% ------------------------------------------------------------------------- Rupees in ‘000 -------------------------------------------------------------------------

On-balance sheet financial instruments

Financial assetsCash and balances with treasury banks - 2,452,464 - - - - - - - - - 2,452,464 Balances with other banks 5.00%-10.00% 907,255 300,717 - - - - - - - - 606,538 Investments - net 9.23%-12.03% 17,156,398 152,486 3,530,582 12,303,933 - - - - - - 1,169,397 Islamic financing and related assets - net 5.00%-19.17% 23,370,532 10,236,617 2,876,592 2,035,136 2,977,305 227,139 1,815 17,016 42,131 349,801 4,606,980 Other assets - 876,987 - - - - - - - - - 876,987

44,763,636 10,689,820 6,407,174 14,339,069 2,977,305 227,139 1,815 17,016 42,131 349,801 9,712,366 Financial liabilitiesBills payable - 390,795 - - - - - - - - - 390,795 Due to financial institutions 2.20%-9.5% 3,087,150 1,500,000 487,150 1,100,000 - - - - - - - Deposits and other accounts 0.001%-12.5% 35,922,038 32,918,734 - - - - - - - - 3,003,304 Other liabilities - 1,274,933 - - - - - - - - - 1,274,933

40,674,916 34,418,734 487,150 1,100,000 - - - - - - 4,669,032 On-balance sheet gap 4,088,720 (23,728,914) 5,920,024 13,239,069 2,977,305 227,139 1,815 17,016 42,131 349,801 5,043,334

Off-balance sheet financial instrumentsForward exchange contracts - purchase - - - - - - - - - - - Forward exchange contracts - sale - - - - - - - - - - - Off-balance sheet gap - - - - - - - - - - -

Total yield / profit risk sensitivity gap (23,728,914) 5,920,024 13,239,069 2,977,305 227,139 1,815 17,016 42,131 349,801 5,043,334

Cumulative yield / profit risk sensitivity gap (23,728,914) (17,808,890) (4,569,821) (1,592,516) (1,365,377) (1,363,562) (1,346,546) (1,304,415) (954,614) 4,088,720



Note 2013 2012--------- Rupees in ‘000 ---------

38.2.2.2 Reconciliation of assets and liabilities exposed to yield / profit rate risk with total assets and liabilities

Total financial assets as per note 38.2.2.1 50,858,848 44,763,636 Add: Non financial assets

Operating fixed assets 11 1,057,349 1,130,246 Deferred tax asset 12 1,177,423 519,877 Other assets 295,443 771,693

Total assets as per Statement of Financial Position 53,389,063 47,185,452

Total financial liabilities as per note 38.2.2.1 47,595,192 40,674,916 Add: Non financial other liabilities 432,663 573,055 Total liabilities as per Statement of Financial Position 48,027,855 41,247,971

38.2.3 Equity position risk

Equity position risk is the risk arising from taking long positions, in the trading book, in the equities and all instruments that exhibit market behavior similar to equities.

The Bank’s equity portfolio comprises of ‘held for trading’ and ‘available for sale’ portfolio of shares. The objective of equity portfolio classified as ‘held for trading’ portfolio is to take advantages of short-term capital gains, while the ‘available for sale’ portfolio is maintained with a medium term view of capital gains and dividend income. Special emphasis is given to the details of risks / mitigants, limits / controls for equity trading portfolios of equity portfolio unit. All the investments are within the limit prescribed in the SBP regulations and are fully Shariah compliant.

38.3 Liquidity risk

Liquidity risk is the risk that the Bank either does not have sufficient financial resources available to meet its obligations and commitments as they fall due or can fulfill them only at excessive cost that may affect the Bank’s income and equity.

The Bank seeks to ensure that it has access to funds at reasonable cost even under adverse conditions. This is done by managing its liquidity risk across all classes of assets and liabilities in accordance with regulatory guidelines and to take advantage of any financing and investment opportunities as they arise.



38.3.1 Maturities of assets and liabilities

38.3.1.1 Maturities of assets and liabilities based on expected maturities

2013

Total Upto 1 monthOver 1 to 3

monthsOver 3 to 6

monthsOver 6 months

to 1 yearOver 1 to 2

yearsOver 2 to 3

yearsOver 3 to 5

yearsOver 5 to 10

yearsAbove 10 years

- - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - -- - - - - - - - - - - - Rupees in ‘000- - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - -- - - - - - - - - - - - AssetsCash and balances with treasury banks 2,751,089 2,751,089 - - - - - - - - Balances with other banks 1,056,489 1,056,489 - - - - - - - - Due from financial institutions 7,689,704 7,689,704 - - - - - - - - Investments - net 9,226,189 83,137 3,703 2,136,420 2,639,842 4,156,061 - 99,440 107,586 Islamic financing and related assets - net 28,955,126 3,715,311 7,601,726 4,498,844 1,265,224 1,085,060 2,918,130 5,404,440 1,192,080 1,274,311 Operating fixed assets 1,057,349 20,269 39,411 58,921 115,743 213,490 141,953 186,038 259,407 22,117 Deferred tax assets 1,177,423 - - - 298,461 878,962 - - - - Other assets 1,475,694 223,499 364,490 533,249 313,203 27,813 6,565 4,064 1,358 1,453

53,389,063 15,539,498 8,009,330 7,227,434 4,632,473 6,361,386 3,066,648 5,693,982 1,560,431 1,297,881 LiabilitiesBills payable 507,471 507,471 - - - - - - - - Due to financial institutions 3,052,474 1,604,532 1,087,142 360,800 - - - - - - Deposits and other accounts 42,697,675 21,358,970 7,552,746 3,883,406 3,364,326 124,070 217,889 195,870 5,889,350 111,048 Other liabilities 1,770,235 669,047 203,756 233,855 212,766 157,701 98,952 192,409 1,749 -

48,027,855 24,140,020 8,843,644 4,478,061 3,577,092 281,771 316,841 388,279 5,891,099 111,048

Net assets 5,361,208 (8,600,522) (834,314) 2,749,373 1,055,381 6,079,615 2,749,807 5,305,703 (4,330,668) 1,186,833

Share capital 8,167,527 Reserves 2,030 Accumulated losses (2,870,526)Surplus on revaluation of assets - net of tax 62,177

5,361,208

2012


monthsOver 3 to 6

monthsOver 6 months


yearsOver 2 to 3

yearsOver 3 to 5

yearsOver 5 to 10

yearsAbove 10 years

- - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - -- - - - - - - - - - - - Rupees in ‘000- - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - -- - - - - - - - - - - - AssetsCash and balances with treasury banks 2,452,464 2,452,464 - - - - - - - - Balances with other banks 907,255 907,255 - - - - - - - - Investments - net 17,156,398 1,246,912 23,140 14,469 1,175,424 7,896,564 6,759,814 26,535 13,540 - Islamic financing and related assets - net 23,370,532 2,607,015 5,246,515 5,548,423 130,313 479,450 1,488,747 5,232,009 2,215,978 422,082 Operating fixed assets 1,130,246 76,330 150,154 201,447 73,875 139,312 119,357 109,065 186,591 74,115 Deferred tax assets 519,877 - - - 71,258 448,619 - - - - Other assets 1,648,680 206,862 331,918 535,709 565,707 3,423 3,423 1,638 - -

47,185,452 7,496,838 5,751,727 6,300,048 2,016,577 8,967,368 8,371,341 5,369,247 2,416,109 496,197 LiabilitiesBills payable 390,795 390,795 - - - - - - - - Due to financial institutions 3,087,150 1,500,000 487,150 1,100,000 - - - - - - Deposits and other accounts 35,922,038 18,941,265 5,229,863 2,915,872 5,362,266 256,632 147,341 1,151,703 1,917,064 32 Other liabilities 1,847,988 442,654 225,730 310,317 272,898 104,759 178,937 305,183 7,510 -

41,247,971 21,274,714 5,942,743 4,326,189 5,635,164 361,391 326,278 1,456,886 1,924,574 32

Net assets 5,937,481 (13,777,876) (191,016) 1,973,859 (3,618,587) 8,605,977 8,045,063 3,912,361 491,535 496,165


5,937,481



The Bank has conducted a behavioral study based on volatility method on over 5 years data to arrive at the historical behavior of non-maturity deposits (non-contractual deposits). The maturities so calculated through volatility method has depicted that over 85% of deposit of the bank fall within one year, while the rest are beyond one year maturity.

38.3.1.2 Maturities of assets and liabilities based on contractual maturities

2013


monthsOver 3 to 6

monthsOver 6 months


yearsOver 2 to 3

yearsOver 3 to 5

yearsOver 5 to 10

yearsAbove 10 years

- - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - -- - - - - - - - - - - - Rupees in ‘000- - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - -- - - - - - - - - - - - AssetsCash and balances with treasury banks 2,751,089 2,751,089 - - - - - - - - Balances with other banks 1,056,489 1,056,489 - - - - - - - - Due from financial institutions 7,689,704 7,689,704 - - - - - - - - Investments - net 9,226,189 83,137 3,703 2,136,420 2,639,842 4,156,061 - 99,440 107,586 - Islamic financing and related assets - net 28,955,126 3,715,311 7,601,726 4,498,844 1,265,224 1,085,060 2,918,130 5,404,440 1,192,080 1,274,311 Operating fixed assets 1,057,349 20,269 39,411 58,921 115,743 213,490 141,953 186,038 259,407 22,117 Deferred tax assets 1,177,423 - - - 298,461 878,962 - - - - Other assets 1,475,694 223,499 364,490 533,249 313,203 27,813 6,565 4,064 1,358 1,453

53,389,063 15,539,498 8,009,330 7,227,434 4,632,473 6,361,386 3,066,648 5,693,982 1,560,431 1,297,881 LiabilitiesBills payable 507,471 507,471 - - - - - - - - Due to financial institutions 3,052,474 1,604,532 1,087,142 360,800 - - - - - - Deposits and other accounts 42,697,675 28,721,788 6,419,528 3,879,014 3,258,622 124,064 98,789 195,870 - - Other liabilities 1,770,235 669,047 203,756 233,855 212,766 157,701 98,952 192,409 1,749 -

48,027,855 31,502,838 7,710,426 4,473,669 3,471,388 281,765 197,741 388,279 1,749 -

Net assets 5,361,208 (15,963,340) 298,904 2,753,765 1,161,085 6,079,621 2,868,907 5,305,703 1,558,682 1,297,881


5,361,208

2012


monthsOver 3 to 6

monthsOver 6 months


yearsOver 2 to 3

yearsOver 3 to 5

yearsOver 5 to 10

yearsAbove 10 years

- - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - -- - - - - - - - - - - - Rupees in ‘000- - - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - -- - - - - - - - - - - - AssetsCash and balances with treasury banks 2,452,464 2,452,464 - - - - - - - - Balances with other banks 907,255 907,255 - - - - - - - - Investments - net 17,156,398 1,246,912 23,140 14,469 1,175,424 7,896,564 6,759,814 26,535 13,540 - Islamic financing and related assets - net 23,370,532 2,607,015 5,246,515 5,548,423 130,313 479,450 1,488,747 5,232,009 2,215,978 422,082 Operating fixed assets 1,130,246 76,330 150,154 201,447 73,875 139,312 119,357 109,065 186,591 74,115 Deferred tax assets 519,877 - - - 71,258 448,619 - - - - Other assets 1,648,680 206,862 331,918 535,709 565,707 3,423 3,423 1,638 - -

47,185,452 7,496,838 5,751,727 6,300,048 2,016,577 8,967,368 8,371,341 5,369,247 2,416,109 496,197 LiabilitiesBills payable 390,795 390,795 - - - - - - - - Due to financial institutions 3,087,150 1,500,000 487,150 1,100,000 - - - - - - Deposits and other accounts 35,922,038 22,695,585 5,190,918 2,379,261 5,224,593 97,532 147,341 186,808 - - Other liabilities 1,847,988 442,654 225,730 310,317 272,898 104,759 178,937 305,183 7,510 -

41,247,971 25,029,034 5,903,798 3,789,578 5,497,491 202,291 326,278 491,991 7,510 -

Net assets 5,937,481 (17,532,196) (152,071) 2,510,470 (3,480,914) 8,765,077 8,045,063 4,877,256 2,408,599 496,197


5,937,481



Current and savings deposits have been classified under maturity upto one month as these do not have any contractual maturity.

38.4 Operational risk

Operational risk is the risk of direct or indirect loss due to an event or action resulting from the failure of processes, systems, personnel and other risks having an operational impact such as unauthorised activities, fraud and business malpractices.

Operational risk management and structure

The Bank is using Basic Indicator Approach for operational risk. The Bank has a separate operational risk management function which is involved in developing an overall operational risk management framework with the objective of gradually moving towards advanced approach.

The Bank is also supervised by the Shariah Supervisory Committee, headed by the Shariah Advisor, which sets out guidelines, policies and procedures for the Bank to ensure that all its activities and products are Shariah compliant.

A business continuity plan and a disaster recovery plan have also been formulated to ensure uninterrupted flow of operations of the Bank.

39 TRUST ACTIVITIES

The Bank commonly act as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions including on behalf of certain related parties. These are not assets of the Bank and, therefore, are not included in the Statement of Financial Position. The following is the list of assets held under trust:

Category Type No. of IPS account ----Rupees in ‘000----Face Value

2013 2012 2013 2012

Insurance Companies Government Ijarah Sukuks 1 1 165,000 45,000 Asset Management Companies Government Ijarah Sukuks 3 4 508,750 556,050 Employee Funds / NGO's Government Ijarah Sukuks 1 - 10,000 - Individuals Government Ijarah Sukuks 1 1 11,000 11,000 Related parties Government Ijarah Sukuks 1 1 73,600 74,500

7 7 768,350 686,550



40 PROFIT / (LOSS) DISTRIBUTION TO DEPOSITOR'S POOL

40.1 The Bank is maintaining the following two pools for profit declaration and distribution:

1) General Pool2) IERS Musharaka Pool

Features, risks & rewards of each pool are given below:

1) General Pool

The Bank manages one general pool for its depositors. Under the PLS mechanism, the Bank generates revenues from the pool funds which are shared with the depositors according to the pre-agreed profit sharing ratios and assigned weightages.

a) Priority of utilisation of funds in the general pool shall be:

- Depositor funds- Equity funds

b) Weightages for distribution of profit in general pool

Assignment of weightage for profit distribution to different type of profit bearing sources of funds is as follows:

- While considering weightages emphasis shall be given to the quantum, type and the period of risk assessed by following factors:

i) Contracted period, nature and type of deposit / fundii) Payment cycle of profit on such deposit / fund, i.e., monthly, quarterly or at maturityiii) Magnitude of risk

- Weightages for general pool shall be determined and declared on a monthly basis prior to commencement of next month’s business in order to provide an opportunity to the customers / fund providers to exercise their option of either to keep or withdraw their deposits / funds.

- Any change in profit sharing weightage of any category of deposit / fund providers shall be applicable from the next month.

c) Parameters associated with risk and rewards

Following are the consideration attached with risk and reward of general pool:

- Period, return, safety, security and liquidity of investment

- Financing proposals under process at various stages and likely to be extended in the near future



- Expected withdrawals of deposits according to the maturities affecting the deposit base

- Expected amount of procurement of deposit during coming days as a result of concerted marketing efforts of the Bank

- Maturities of funds obtained from Principal Office, Islamic Banking Institutions and Shariah compliant organisations as regulated in Pakistan

- Element of risk attached to various types of investments

- SBP rules and Shariah clearance

2) IERS Musharaka Pool

The Bank manages IERS Musharaka Pool for borrowings from SBP under IERS. Under the PLS mechanism, the Bank generates revenues from the pool funds which are shared with the SBP according to the pre-agreed profit sharing ratios and assigned weightages.

40.2 Basis of profit allocation

During the year, profit was distributed between Mudarib and Rabbul Maal with below profit sharing ratio based upon Gross Income approach (gross income less direct expenses).

Profit sharing ratio between Rabbul Maal (Depositor) and Mudarib (Bank)

Rabbul Maal (Depositor) Mudarib (Bank)2013 2012 2013 2012

January 55% 40% 45% 60%February 63% 40% 37% 60%March 70% 40% 30% 60%April 70% 35% 30% 65%May 75% 35% 25% 65%June 70% 35% 30% 65%July 65% 45% 35% 55%August 65% 45% 35% 55%September 60% 45% 40% 55%October 75% 45% 25% 55%November 75% 45% 25% 55%December 70% 50% 30% 50%



Charging expenses

The direct expenses are being charged to respective pool, while indirect expenses are being borne by the Bank as Mudarib. The direct expenses to be charged to the pool may include depreciation of ijarah assets, impairment / losses due to physical damages to specific assets in pools etc. However, this is not an exhaustive list; the Bank’s pool management framework and the respective pool creation memo may identify and specify these and any other similar expenses to be charged to the pool.

2013

General remunerative depositor’s pools

Profit sharing

ratio as at December 31, 2013

Mudarib Fee

Mudarib Fee - Percentage

of distributable

income

Amount of Mudarib fee transferred

to the depositors through

Hiba

Percentage of Mudarib

fee transferred


Hiba

Profit rate and weightage

announcement period

Profit rate return earned

Profit rate return

distributed

(Rupees in ‘000)

(Rupees in ‘000)

Common Modaraba Pool 70 : 30 973,824 25.16% 434,475 44.62% Monthly 8.81% 7.27%

2012

General remunerative depositor’s pools

Profit sharing

ratio as at December 31, 2012

Mudarib Fee

Mudarib Fee - Percentage

of distributable

income

Amount of Mudarib fee transferred


Hiba

Percentage of Mudarib

fee transferred


Hiba


announcement period

Profit rate return earned

Profit rate return

distributed

(Rupees in ‘000)

(Rupees in ‘000)

Common Modaraba Pool 50 : 50 2,524,140 58.35% 700,631 27.76% Monthly 10.41% 8.99%

2013

Specific pools

Profit sharing ratio as at

December 31, 2013

Share of profit to SBP Hiba


announcement period

Profit rate return

distributed to SBP

(Rupees in ‘000)Musharaka Pool under SBP’s Islamic Export Refinance Scheme 65.90 : 34.10 106,953 1,079 Monthly 8.40%

2012

Specific pools

Profit sharing ratio as at

December 31, 2012

Share of profit to SBP Hiba


announcement period

Profit rate return

distributed to SBP

(Rupees in ‘000)Musharaka Pool under SBP’s Islamic Export Refinance Scheme 65.62 : 34.38 70,937 - Monthly 9.60%



41 DATE OF AUTHORISATION FOR ISSUE

These financial statements were authorised for issue on February 26, 2014 by the Board of Directors of the Bank.

42 CORRESPONDING FIGURES

Comparative information has been re-classified, re-arranged or additionally incorporated in these financial statements, wherever necessary to facilitate comparison and to confirm with changes in presentation in the current year. There were no significant reclassifications / restatements to these financial statements during the year.

43 GENERAL

Figures have been rounded off to the nearest thousand Rupees unless otherwise stated.







Pattern of Shareholdings as on December 31, 2013

Number of Shareholders

Shareholdings Total Number of Shares HeldFrom To

13 501 - 1,000 9,932 1 5,001 - 10,000 5,034 1 10,001 - 15,000 10,021 1 195,001 - 200,000 200,000 1 305,001 - 310,000 305,657 1 385,001 - 390,000 390,000 1 620,001 - 625,000 622,636 1 730,001 - 735,000 730,600 1 930,001 - 935,000 931,237 2 995,001 - 1,000,000 2,000,000 1 1,195,001 - 1,200,000 1,200,000 1 1,220,001 - 1,225,000 1,222,600 2 1,330,001 - 1,335,000 2,666,666 2 1,335,001 - 1,340,000 2,680,000 1 2,495,001 - 2,500,000 2,500,000 1 2,510,001 - 2,515,000 2,512,299 1 4,995,001 - 5,000,000 4,996,000 1 9,995,001 - 10,000,000 10,000,000 1 10,155,001 - 10,160,000 10,160,000 1 11,495,001 - 11,500,000 11,500,000 1 14,830,001 - 14,835,000 14,833,333 1 20,200,001 - 20,205,000 20,200,920 1 20,290,001 - 20,295,000 20,291,284 1 20,480,001 - 20,485,000 20,483,094 1 29,685,001 - 29,690,000 29,685,986 1 30,180,001 - 30,185,000 30,183,717 1 39,995,001 - 40,000,000 40,000,000 1 276,840,001 - 276,845,000 276,841,120 1 309,590,001 - 309,595,000 309,590,592

44 816,752,728

Categories of Shareholders as on December 31, 2013

Shareholder’sCategory

Number ofShareholders

Number of Shares Held

Percentage

Financial Institutions 6 632,156,065 77.40 Individuals 30 113,267,330 13.87 Investment Companies 2 41,000,000 5.02 Joint Stock Companies 4 18,836,000 2.31 Leasing Companies 1 1,333,333 0.16 Modarabas 1 10,160,000 1.24

44 816,752,728 100.00


Detail of Shareholders as on December 31, 2013

Name Of ShareholdersNo. of

Shareholders Holding % age

Associated CompaniesBank Al-Khair B.S.C (Closed) 1 309,590,592 37.91Islamic Corporation For The Development Of The Private Sector 1 276,841,120 33.90Alsafat Investment Company 1 40,000,000 4.90Gargash Enterprises L.L.C 1 10,000,000 1.22

DirectorsAzam Essof Kolia 1 30,183,717 3.70Shehab M. Gargash 1 20,483,094 2.51Azhar Hamid 1 566 0.00Fuad Azim Hashimi 1 566 0.00

Public Sector Companies, Corporations, Banks, DevelopmentFinancial Institutions, Non Banking Finance Institutions, Mutual Funds& Other Organizations

Pair Investment Company Limited 1 29,685,986 3.63Allied Bank Limited 1 14,833,333 1.82B.R.R Guardian Modaraba 1 10,160,000 1.24Amanah Investments Limited 1 4,996,000 0.61Al-Hoqani Securities & Investment Corporation (Private) Limited 1 2,500,000 0.31Dossa Cotton & General Trading (Private) Limited 1 1,340,000 0.16CDC - Trustee KASB Asset Allocation Fund 1 1,333,333 0.16Orix Investments Bank Pakistan Limited 1 1,200,000 0.15Descon Holding (Private) Limited 1 1,000,000 0.12Dawood Capital Management Limited 1 5,034 0.00

Others (Shareholders with less than 10% Shareholding) 26 62,599,387 7.66

Total 44 816,752,728 100


Branch Network as on December 31, 2013

Sr. # Name of Branch City Addresses

1 Main Branch Karachi Trade Center, Ground Floor, I.I Chundrigar Road, Karachi.

2 Clifton Branch KarachiS-07, Ground Floor, Yousuf Grand Plaza, Block-8, KDA Scheme 5, Kehkeshan, Clifton, Karachi

3 Shahrah-e-Faisal Branch Karachi Al-Tijara Center, Main Shahrah-e-Faisal, Block-6, PECHS, Karachi4 Gulshan Branch Karachi Ground Floor, Dawood Avenue, Plot No.ZC-5, Block-7, Gulshan-e- Iqbal, Karachi5 Jodia Bazar Branch Karachi Nasir Baig Street (Old Daryalal Street), Jodia Bazar, Karachi6 Kharadar Branch Karachi Ground Floor, Qasr-e-Yaseen, Bunder Quarters, Kharadar, Karachi7 Sir Syed Road Branch Karachi Shop No.G-07, Madina Arcade, Plot No.154-S, Block-2, Sir Syed Road, P.E.C.H.S, Karachi

8 Dhorajee Branch KarachiGround Floor, Chhotani Arcade, C. P & Berar Co-operative Housing Societies Ltd. , Block-7/8, Plot No.35/130, Survey Sheet No.35-P/1, Karachi

9 Tipu Sultan Road Branch KarachiPlot No 116-117-Z, Block No.7/8, Shabbirabad Commercial Area, Dawoodi Bohra Co-Operative Housing Society Ltd, Tipu Sultan Road Karachi.

10 Zaibunnissa Street Branch Karachi Shop No.4, Survey-6, SB-07, Zaibunnisa Street, Saddar, Karachi.

11 Gulistan-e-Jouhar Branch KarachiShop No.10, Sub Plot-118/2/B & C/B-X, Block-18, KDA Scheme-36, Gulistan-e-Jauhar, Karachi

12 SSUET Branch Karachi Sir Syed University of Engineering & Technology Main University Road, Karachi.13 Zamzama Branch Karachi Plot No.11-C, Zamzama Boulevard, Phase-V, DHA, Karachi14 Khayaban-e-Shahbaz Branch Karachi Plot # 15-C, Shahbaz Commercial Phase-VI, D.H.A., Karachi15 Hussainabad Branch Karachi Hussainabad, F.B Area, Block-3, KDA Scheme No-16, Karachi16 DHA Phase-II Branch Karachi Plot No.108-C, Commercial Area-B, Phase-II, DHA, Karachi17 DHA Ittehad Branch Karachi 96–C, Main Khayaban-e-Ittehad, Defense Housing Authority, Phase-II, Extension, Karachi18 Hydri Market Branch Karachi SE-6, Block-G, North Nazimabad, KDA Scheme-2, Karachi19 M.A.Jinnah Road Branch Karachi Shop No.15, Ground Floor, Jehangir Mansion, M.A.Jinnah Road, Karachi.20 BFT Branch Karachi Shop No.3, Business & Trade Tower, I.I Chundrigar Road, Karachi21 Korangi Industrial Area Branch Karachi Plot No.ST-4/2, Sector No.23, Korangi Industrial Area, Karachi

22 Shaheed-e-Millat Road Branch KarachiPlot No.16/156, Block-3, Bahadur Yar Jung Cooperative Housing Society, Main Shaheed-e-Millat Road, Karachi

23 Gulshan Block-C Branch Karachi Plot No.SB-7/1, Block-C, Scheme No.24, Gulshan, Karachi24 North Nazimabad Branch Karachi D-3, Block-D, North Nazimabad, Karachi

25 Port Qasim Authority Branch KarachiG-4 Port Qasim, Trade Center, Plot No.1/20 Port Operations Zone, Qasim Port Authority, Karachi

26 F.B.Area Block-10 Branch Karachi Property No.C-17, Block-10, Scheme-16, F.B.Area, Karachi.27 Bukhari Com. Area Branch Karachi Property No.58-C, Lane – 13, Bukhari Commercial Area, D.H.A., Phase-VI, Karachi28 Hussain Chowk Gulberg Branch Lahore 57-B-III Near Hussain Chowk, Gulberg-III, Lahore29 DHA Branch Lahore T-56, CAA, Phase-2, DHA, Lahore30 Allama Iqbal Town Branch Lahore 5-Hunza, (A) Block, Main boulevard, Allama Iqbal Town, Lahore31 Johar Town Branch Lahore 68 R-I, M.A. Johar Town, Lahore

32 Manga Mandi Branch LahoreKhasra # 1073/2, Khewet # 950, Khatoni # 1845, Madina Market, Kalam Chowk, Manga Manadi, Lahore

33 Kahna Branch LahoreKhasra # 1643, Khewet # 698, Khatoni # 1228 & 1229, Mouza Guju, Mata Ferozpur Road, Khana.

34 Shah Alam Branch Lahore Plot No.6, Block-B, Main Road, Shah Alam Gate, Lahore35 Tufail Road Branch Lahore 12-Tufail Road Cantt. Lahore36 Model Town Branch Lahore Showroom # 11, Bank Square Market, Block-C, Model Town, Lahore37 DHA Block-H Branch Lahore Plot No.137, Block-H, Phase-1, D.H.A, Lahore Cantt., Lahore


38 Shadman Jail Road Branch Lahore 14 Shadman, Jail Road, Near Soneri bank, Lahore39 DHA Block-Z Branch Lahore Plot no.316 Block-Z- Commercial Market, D.H.A, Lahore40 The Mall Branch Lahore 112 The Mall, Rafi Mansion, Opp. Alfalah Building, Lahore41 Main Boulevard Branch Lahore House No.61-A, Main Boulevard, New Mc-Donalds, Gulberg, Lahore42 F-8 Markaz Branch Islamabad Plot # 3-A, F-8 Markaz, Islamabad.43 Blue Area Branch Islamabad Saleem Plaza, 19 Jinnah Road, Blue Area, Islamabad44 F-7 Markaz Branch Islamabad 13 – N, F–7 Markaz, Islamabad45 F-10 Markaz Branch Islamabad Plot No.1-V, Margalla Plaza, Main Double Road, F-10 Markaz, Islamabad.46 Tarnol Branch Islamabad Ground Floor, Pak Doha Trade Center, Khasra # 1107/771 G.T Road, Tarnol.47 Rawat Branch Islamabad Ground Floor, Mughal Plaza, G.T Road, Rawat, Islamabad.48 Bank Road Branch Rawalpindi Plot No.1, Survey No.364, Bank Road, Rawalpindi49 Satellite Town Branch Rawalpindi 29-B-1, Satelite Town, Murree Road. Chandni Chowk, Rawalpindi50 Hassan Arcade Branch Faisalabad Hassan Arcade, Chen One Road, Faisalabad51 Rail Bazar Branch Faisalabad Plot No.2, Rail Bazar, Near Clock Tower, Faisalabad

52 Old Bahawalpur Road Branch MultanPlot No. 126, Old Bahawalpur Road, Union Council # 42, Shadman Colony, Sher Shah Town, Multan

53 Vehari Road Branch Multan Plot # 616, Near Islam Nagar, Vehari Road, Multan54 University Road Branch Peshawar University Road. Near Gul Haji Plaza, Peshawar.55 Saddar Road Branch, Peshawar Peshawar 6-Saddar Road Peshawar, Near Deans Bakery. Peshawar56 Latifabad Branch Hyderabad Plot # 325-D, Block-C, Latifabad Unit # 7 Hyderabad57 Cantonment Area Branch Hyderabad Plot No.123/2, Cantonment Survey No.41/123/2 Cantonment Area, Hyderabad

58 Joharabad Branch KhushabKhewat No. 720, Khatooni No. 1544, Khasra No. 15, Qasim Plaza, Block No. 23, Ghalla Mandi, Jauharabad, Khushab

59 13 Wala More Branch Khushab13 Wala More, Chuck-13, 6 Kilometer, Muzaffar Gadh Road, Jauharabad, District-Khushab.

60 Iqbalabad Branch Rahim Yar Khan 5-6 Moza Dera Shams, Iqbalabad, Rahim Yar Khan61 Sabu Rahu Branch Sabu Rahu Survey # 64/2, Main National Highway, Sabu Rahu, Tehsil Sakrand62 Model Colony Branch Jhelum Shop No.G-43, Model Colony, Shander Chowk, Jhelum63 Gujjar Khan Branch Gujjar Khan Property No.B-III, House No.204-A, Ward No.1, Main G.T Road. Tehsil Gujjar Khan64 Mirpur AJK Branch Mirpur AJK Plot No.7, Sector B-III, Main Allama Iqbal Road, Mirpur. Azam Kashmir65 Mansehra Road Branch Abbotabad Eman Plaza, Mansehra Road, Near Sathi Masjid, Abbottabad66 M.A Jinnah Road Branch Tando Adam M .A Jinnah Road, Tando Adam, District Sanghar

67 Sargodha Branch SargodhaKhasra No.75/5/6, Khewet No.545. 45-Alif Shumail, Khilji Building, Railway Road, Sargodha

68 Model Town Branch Gujranwala Plot No.85-19/20/B, Model Town, G.T.Road, Gujranwala69 S.I.E. Branch Sialkot Plot # BIII-8S-202/, Mianapora, Ogoki Road, Chowk Shahabpura, Sialkot70 March Bazar Branch Sukkur Plot No.B-897/1, March Bazar, Sukkur.

71 Gujrat Branch GujratProperty # 402/405 and 433/458, Mohalla Kalar Khasa, Opposite Pak Fan Factory, Main GT Road , Tehsil & District Gujrat

72 Ghakkhar Branch GhakkharProperty No.BV-732A, Khawet No.2193, Khatooni No.2964, Khasra No.3182/12, Qitat-3, Ghakkhar, Tehsil Wazirabad.

73 Odero Lal Branch Odero LalSurvey No 481/2,483/1-4 & 487/2, Opposite Rural Health Center, Odero Lal Station, Tehsil & District Matyari, Sindh

74 M.A.Jinnah Road Branch Quetta Khasra # 28, Khatooni # 343/404, M.A Jinnah Road, Quetta75 Hub Branch Hub, Lasbela Ground Floor, LCCI Office Building, DC-26, H.I.T.E, Hub, Lasbela.


Head Office:

BURJ BANK LIMITEDTrade Centre, I.I. Chundrigar Road,Karachi-Pakistan.Tel: +92 21 32637174 - 75Burj Phone Banking: +92 (0) 800 00343www.burjbankltd.com

What makes us Burj - State Bank of Pakistan · What makes us Burj — Purity Purity, Integrity and...

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