AA
KPMG Taseor Hadi & Ceo.
(crac fesoirts
HSBC Bank Middle Bast Limited ~
Pakistan Branches
(Ancorporated in Jersey, Channel Islands
swith limited liability)
Financial Statements
For the year ended
31 December 2013OMG Tater Haat Co. ‘Wephorw + 52021) 3568587
(Charro Fax 32(2t) S568 505
‘Shan Suan Tt Bolg No.2 Inonet warmtpng.com.pk
‘Beaumor Rows|
ore, 5500 Ptian
Auditors’ Report to the Directors
‘We have audited the annexed statement of financial position of HSBC Bank Middle East
‘Limited-Pakistan Branches (incorporated in Jersey, Channel Islands wi
(the Bank”) as at 31 December 2013 and the related profit and loss accoun
‘comprehensive income, cash flow statement and statement of changes in equity together with the
notes forming part thereof (hereinafter referred to asthe ‘financial statzments”) forthe year
then ended, and we state that we have obtained al the information and explanations which, tothe
best of our knowledge and belief, were necessary forthe purposes of our audit
tis the esponsibility ofthe Bank's management to establish and maintain a system of internal
‘control, and prepare and present te financial statements in conformity with approved accounting
standards and the requirements of the Banking Companies Ondinanee, 1962 (LVII of 1962), and
the Companies Ordinance, 1984 (XLVI of 1984). Our responsiblity is to express an opinion on
these 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 bass, evidence supporting amounts and disclosures in the financial
statements. An audit also includes assessing 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 bass for our opinion and after due verification,
‘whieh in the ease of loans and advances covered more than 60% of the total loans and advances
ofthe bank, we report that:
8) nour opinion, proper books of account have been kept by the Bank as required by the
‘Companies Ordinance, 1984 (XLVI of 1984);
) inour opinion:
4) the statement of financial postion and profit and loss account together withthe notes
thereon have been drawn up in conformity with the Banking Companies Ordinance,
1962 (LVI of 1962), and the Companies Ordinance, 1984 (XLVI of 1984), and ae
in agreement with the books of account and are further in accordance with
-sccounting policies consistent,
4) the expenditure incurred during the year was forthe purpose of the Bank's business;
and
iil) the business conducted, investments made and the expenditure incurred during the
{year were in accordance with the objects ofthe Bank and the transactions of the
‘Bank which have come to our notice have been within the powers ofthe Bank;9
9
Pm Tee Ha co,
in our opinion and tothe best of ou information and according tothe explanations given
tous, the statement of financial postion, profit and loss account, statement of|
‘comprehensive income, cash flow statement and statzment of changes in equity together
with the notes forming par thereof conform with spproved accounting standards as
applicable in Pakistan, and, give the information required by the Banking Companies
Ordinance, 1962 (LVIL of 1962), and the Companies Ordinance, 1984 (XLVI of 1984), in
the manner so required and give a true and fair view ofthe state ofthe Bank's affairs as at
31 December 2013 and its true balance of loss its cash flows and changes in equity forthe
year then ended: and
in our opinion Zakat deductible at source, under the Zakat and Ushe Ordinance, 1980
‘(XVIII of 1980), was deducted by the Bank and deposited in the Central Zakat Fund
established under section 7 ofthat Ordinance.
We draw attention to note 1 tothe financial statements which describes the basis of preparation
‘of accounts on a going concern basis. Our opinion isnot qualified in this respect.
ims Tab y
04 March2018 “RPG Taseer Taal Co.
Gajeeiineans
Karachi Amir Jamil AbbasiHSBC Bank Middle East Limited
Pakistan Branches
(lecorporated in Jersey, Channel istands with linited lability)
Statement of Financial Position
As at 31 December 2013
ASSETS
‘Cash and balances with treasury banks
Balances with other banks
Lendings to finan
lavestments
‘Advances
(Operating fixed assets
Deferred tax asset ~net
Other assets
LIABILITIES
Bills payable
Borrowings
Deposits and other accounts
‘Sub-ordinated loans
Liabilities against assets subject to finance lease
Dooferred ta liabilities
Other liabilities
NET ASSETS
REPRESENTED BY
Head office capital account
Reserves
Uncemited profits
Surplus / (deficit) on revaluation of assets -netof tax
CONTINGENCIES AND COMMITMENTS
Note
B
4
15
16
a
1s
19
31 December
2013,
31 December
2012
(Rupees in 000)
Tiss523 1394218
851971 711,950
3,393,648, 4,966,108
14,788,423 13,433,240
15,502,860 17,586,177
89,566 132396
326,967 214948
1.484.743 1,887,955,
48,022,701 30,328,095,
TisT1 GTR
335671 694,363
36,895,948 38,956,795
= 7487
2,167,608 2354314
40,774,798 684,107
247,903
7,630,089
372,553)
757,536
9,633
‘The annexed notes 1 to 37 form an integral art ofthese financial statements,
Jfng
David Kenney
Chief Executive Officer - Palfistan
\Slartuce
7.037,870
606,405
644.275
(289)
Sohail Munie Bans
(Chief Financia! Ofticer- PakiHSBC Bank Middle East Limited
Pakistan Branches
(incorporated i Jorsey, Channel Islands with insted Baily)
Profit and Loss Account
For the year ended 31 December 2013
Noe
Mark-up / return interest eared 2»
Mark-up /eturnFnterest expensed 2
[Net matk-up/ interest income
Provision against non-performing loans and advances os
Provision agains off-balance sheet obligations
Provision for diminution inthe value of investmenss
Bod debts writen off directly 932
[Net mark-up / interest income after provisions
NON-MARK-UP / INTEREST INCOME
Fee, comission and brokerage income
Dividend income
Income fiom dealing in foreign curencies
Gain/ (oss) onsale of securities 2
Unvealised gain (oss) on revaluation of
investments elasified as held for trading
ther income (charges) a
‘Total non-mark-up/ interest income
NON-MARK-UP INTEREST EXPENSE
Administrative expenses M
Othe provisions / writ off
Other charges as
“Total on-mak-up Interest expenses
Extraordinary / unusual items
PROFIT BEFORE TAXATION
“Texation ~ Current
+ Proc years
= Defered
26
PROFIT APTER TAXATION
The annexed nates | 1937 form an inte
part ofthese Financial statements
Leen gt
David Kenney
Chief Exoeutive Ofticer - Ps
‘3tDecember 31 December
2013 2012
(Rupees in 000)
28845521 4.335975
1484080) 2.326.385)
1,800.41 2.229.590
aD] EBay
Ca,
1,708,065,
284,901 crc
291,168, 401,937
és 609)
8576, 32196
ass 317515
1.532.535 B21 S88
2.610286) 109185)
450) aa)
BaI0,306) Ga)
oa) Te
106832
106.882
(970.939
“Has (or
Sohail Munir Bana
Chiet Finaneial OmerHSBC Bank Middle East Limited
Pakistan Branches
(Uncorporated in Jersey, Channel sands with limited iabili)
Statement of Comprehensive Income
For the year ended 31 December 2013
B1December 31 December
2013 2012
(Rupees in (000)
Profit after taxation forthe year (970,939) 96257)
Other comprehensive income
‘Actuarial gain / (oss) on defined benefit plans 6.019) 16751
Exchange adjustment on account of revaluation of capital 5219
‘Total comprehensive income forthe year GED,
‘Surplus / deficit on revaluation of ‘Available for Sale’ securities is presented under a separate head below
‘equity as ‘Surplus / deficit on revaluation of assets in accordance with the requirements specified by the
‘Companies Ordinance, 1984, and the State Bank of Pakistan vide its BSD Cireular20 dated 4 August 2000
and BSD Circular 10 dated 13 July 2004.
‘he annexed nots 1 1037 form an integral part of these Finacial statements.
lee 4
“feast msHSBC Bank Middle East Limited
Pakistan Branches
(Cncorporated in Jersey, Channel lands wit ited ably)
Statement of Changes in Equity
Fr the year ended 31 December 2013
Had office Unremittod Towa!
‘eapital profits
account
(Rupees in "000 -
Balance as at Ist January 2012 6515987 985,911 7,501,898
Total comprehensive income fr dhe yaar
Profit after tax forthe year ended 31 December 2012 Cas eA
Other comprekensive income
‘Actuarial gain on defined benefit plan - 16,751 65
Exchange adjustment on account of
revaluation oF capital, 521,883 : 521,885,
Total comprehensive income forthe year 521,885 (G73;506)
Balance’ at 31 December 2012 7037870 6,405 Teas
Total comprehensive income for the year
Profit afer tax forthe year ended 31 December 2013 5 (70939) G78)
(Other comprehensive income
‘Actuarial gain/(loss) on defined benefit plan : (s19) (50019)
Exchange adjustment on account of
revaluation of capital 592.219
‘Total eomprchensive income forthe year
(078958) (386.7
yi
nce as at 31 December 2013
7a30, 09 G75) BESS
‘The annexed notes Ito 37 form an inte) part ofthese Financial staements.
\ebins
Nh ee
David Kenney
Chiet Executive Officer -
Sohail Muir BanHSBC Bank Middle East Limited
Pakistan Branches
(Ancorporate in Jersey, Channel Ilonde ith ite ibily)
Cash Flow Statement
Fore year ended 31 Dacember 2013,
S1 December 31 Decenter
Noe 2013 2012
‘Rupees in 000)
CASH FLOW FROM OPERATING ACTIVITIES
Profi before taxation
(6arn7) sng
Adjustments:
Depreciation sod ToT
‘Amortization 4 M7
Provision aginst non-performing advances - net sist 525527
Provision aginst o-talance sheet obligations z é
Bed debts writen off diretiy .
Loss (aun) on sal of fixed assets us)
35.850
e792)
(Increase)! decrease in operating asses
Lenings to incl institutions [taser]
Advances ise2.ss3
‘thes assets (excluding advance sation) "ss4385
3,609,999 1,268,868
Increased (decrease in operating lbiies
Bills payable Twas Ca]
Borrowings from financial neittions (292082)
Deposits @0sns17] | 9.214.625}
Other ibe (excluding current taxation) “412994 395.846
T8026 7.785999)
Income a pad 1,173) (569.188)
et cath flo from operating activities THP9.055 B255,184)
(CASH FLOW FROM INVESTING ACTIVITIES
Netinsesiment in avilablesorsale securities 3s)
vestments in operating xed asses do20}
Sale peozeeds of property and equipment disposedoff Last 5.989,
Nor cash low from testing acter 382.925) Bass
‘CASH FLOW FROM FINANCING ACTIVITIES
‘Acluail exiles) eoognizedtrouh equity cD) TEST
Increase in capital due to revaluation s209 S288
Remittances fom head office a capital 2 si
‘Neteath flow from financing ccivtes seu
Increase /(erease) in eash and eash equivalents 330.28
Ccashand cath equivalents at beginning ofthe year
(Cash and cath equivalents at end ofthe year ”
The anoened notes 1 to 37 form a
(ep sty
gral part of ties fsanil statements
Lassen
Sohail Munir Bana
CChiot Financial Officer- PakistanHSBC Bank Middle East Limited
Pakistan Branches
‘incorporated in Jersey, Channel islands with limited liabtity)
Notes to the Financial Statements
For the year ended 31 December 2013
1. STATUS AND NATURE OF BUSINESS
‘The HSBC Bank Middle East Limited - Pakistan Branches (The Bank) operates as a branch of the
HSBC Bank Middle East Limited, which i a foreign banking company incorporated and head quariered
in Jersey, Channel Islands with Limite ib
‘The Bank is engaged in banking services as described in the Banking Companies Ordinance, 1962 and
operates 10 branches (2012: 10 branches) acrass Pakistan is registered affice in Pakistan is situated at
Bahia Complex I, M-T. Ken Road, Kar
HSBC Bank Middle East Limited ( HEME’), an indirect wholly-owned subsidiary of HSBC Holdings
pi. had entered into an agreement on 10 September 2012 to sel its banking business in Pakistan to
43S Bank Limited. During the year, the bank terminated the agreement, as regulatory approval was not
received. HBME is exploring alteraive option for disposal of its banking business in Pakistan,
‘Taos financial statements have been prepared on a geing concern basis a8 any potential sale of han
business in Pakistan would be as “running as a normal busines
BASIS OF PRESENTATION
In accordance with the diretives ofthe Federal Government regarding the shifling ofthe banking system
{othe fslamie modes, the State Bank of Pakistan has issued various circulars fiom time wo time
Permissible Forms of rade related mode of financing inelude purchase of goods by the Bank fs
‘customers and resale to them at appropriate mark-up in price on deferred payment basis. The purchase
and resale arising under these arrangements are not reflected in these financial statements as such but
are restricted tothe amount of facility actually wilised and the appropriate portion of mark-up thereon
2.1 Basis of measurement
“Those financial statements have been prepared under the historieal cost convention, except that available
Tor sate investment and commitments in respect of forward foreign exchange contracts, have been
‘marked to market and-are carried a fair value, stall reliement benefit which are stated at present value
and certain financial assets that are stated net of provision
‘These finaneial statements are presented in Pakistan Rupee, which isthe Ban\'s functional and
presentation currency. The amounts are rounded off to nearest thousand Rupees,
2.2. Use of estimates and judgments
he remeron ld ences
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Ie apo sais FGA Ince est Tin onal iced
es ni ao eds egal ut a cna bee he
ee aa a he cs ie forall eae esas
ser aie Caney ee aes aac Toe tare Ariane
nes petri egies eesuemraslnnicivautqnisare eeeeonst ner
tl evi est ae lr ap ld ea nich gegina trees
She ceonalii ong et peer pt tc isan at tsps Te
tig bale tue ps
Canary31
32
Significant accounting estimates and areas wher judgments ae made bythe managentet in he
application of accounting policies ae as follows
1) Classification of investments (note 4.6)
ii) Provision against loans and advances (note 4.5)
i) Taxation (note 4.4)
iv) Staffreticement benefits (note 4.2)
¥). Share based payments (note 4.3)
vi), Operating fixed assets and depreciation (note 4.8)
STATEMENT OF COMPLIANCE
‘These financial statements have been prepared in accordance with the approved account
standards as applicable in Pakistan, Approved accounting standards comprise of such International
Financial Reporting Standards (IFRS) issued bythe International Accounting Standards Boord as are
notified under the Companies Ordinance, 1984, provisions of and directives issued under the
Companies Ordinance,1984 and the Banking Companies Ordinance, 1962, andthe directives issued
by the State Bank of Pakistan "SBP*. In case the requirements differ, the provisions of and directives
issued under the Companies Ordinance, 1984 and the Banking Companies Ordinance, 1962 and the
directives issued by the State Bank of Pakistan shall prevail
‘The State Bank of Pakistan vide BSD Circular No. 10 dated 26 August 2002 hes defered the
applicability of International Accounting Standard 39, Financial Instruments: Recognition and
“Measurement (1AS 39) and International Ascounting Standard 40, Investment Property (IAS 40) for
‘banking companies til further instretions, Further, according fo a ntiication of the Securities and
Exchange Commission of Pakistan (SECP) dated 28 April 2008, IFRS 7, Financial Instruments:
Disclosures (IFRS 7) has not been made applicable for banks. Accordingly, the requirements of these
standards and their relevant interpretations (issued bythe Standards Interpretation Commitee - SIC
andthe International Finaneal Reporting Interpretations Comite -IFRICS) have not been
‘considered inthe preparation ofthese financial statements. However, the investments have been
classified and valued in eccordance wit the requirements and categories prescribed by te SBP
through various circulars.
‘Standards, interpretations and amendments to published approved
‘accounting standards that are not yet effective
The following standards, amendments and interpretations of approved accounting standards will be
effective for accounting periods beginning on or after 01 January 2014:
= IFRIC 21- Levies ‘an Interpretation onthe accounting for levies imposed by governments?
(effective for annual periods beginning on or afer | January 2014). IFRIC 21 isan interpretation
oF AS 37 Provisions, Cootingest Liabilities and Contingent Assets. [AS 3 sts ou eters for
the recognition of a ably, one of which i the requirement forthe emit to havea present
obligation as result of past event (kaown as an obligatng even) Tho Interpretation clarifies
thatthe obligating event tat gives rise toa ibility to pay a levy is the stivity deseribed ine
relevant legislation that riggers the payment ofthe levy
+ Offsetting Financial Assets and Financial Liabilities (Amendments to 1AS 32) (effective for
annval periods beginning on or after 1 January 2014), The amendments address inconsistencies in
‘current practice when applying the offsetting riteria in LAS 32 Financial Instruments
Presentation. The ameodments clarify the meaning of ‘currently has legally enforceable right
of set-off; and that some gross settlement systems may be considered equivalent to net
settlement.
= Amendment to 1AS 36 “Impairment of Assets” Revoverable Amount Disclosures for
Vn"Non-inancial Assets (effective for annual periods beginning on or after | January'2014), These
hnarrow-seope amendments to LAS 36 Impairment of Assets address the disclosure of information
about the recoverable amount of impaired assets if that amount is based on fair value less costs of
Alisposal
‘Amendments to AS 39 “Financial Instruments: Recognition and Measurement” Cominuing hedge
accountng after derivative novation effective for annual periods begining ono afer 1 January
2014), The amendments adda limited exception to LAS 39, to provide rele from eiscontnuing
an existing edging relationship when a novation that was not contemplated in the orginal hedging
documentation meets specifi ertria
+ Amendments to LAS 19 ‘Employee Benefits” Employee contributians ~a practica! approach
(effective for annual periods beginning on or after 1 July 2014). The practical expedient addresses
‘an issue that arose when amendments were made in 2011 fo the previous pension accounting
fequirements. The amendments introduce a relief that will reduce the complexity and burden of
accounting for certain contributions from employees or thed parties. The amendments aze relevant
‘only to defined benefit plans! that involve contributions from employees or third pares meeting
certain eitria,
+ Annual Improvements 2010-2012 and 2011-2013 eycles (most amendments will apply prospectively
for annual period beginning on or after I July 2014). The new cycle of improvements contain
amendments to the following standards:
- IFRS 2 “Share-based Payment’ IPRS 2 has beon amended to clarify the definition of ‘vesting
condition’ by separately defining ‘performance condition’ and “service condition’. The amendment
also clarifies both: how to distinguish between a market condition and a non-macker performance
condition and the basis on which a performance condition can be differentiated from a vesting
condition,
~ IERS 3 ‘Business Combinations’. These amendments clarify the classification and measurement
cof contingent consideration in a business combination. Further IFRS 3 has also been amended to
clarify thatthe standard does not aply tothe accounting forthe formation of al types of joint
arrangements ineluding joint operations in the financial statements ofthe joint arrangement
themselves
= IFRS 8 ‘Operating Segments” hasbeen amended to explicitly require he sisclosure of judements
smade by management in applying the agareption eitra In addin this amendmen clarifies that
a reconciliation ofthe total ofthe reportable segment’ astets tothe entity assis is required only if
this information is reglarly proved to the eniy’s chief operating decision maker. This change
aligns the dislosute requirements with thas fr segment liabilities.
= Amendments to IAS 16 Property, plant and equipment’ and IAS 38 “Intangible Assets. The
amengments clarify the requirements of te evaluation model in IAS 16 and 1AS 38, recognizing
thatthe restatement of accumulated depreciation (amortization) i not ssvaysproporionate tothe
change in the gross carrying amount ofthe asset
- IAS 24 ‘Related Party Disclosure’. The defitition of related pany is extended to include a
‘management entity that provides key management personnel services to the reporting entity,
either directly or through a group entity
+ TAS 40 “Investment Property’. IAS 40 has been amended to clarify that an entry should assess
whether an acquired property isan investnent property under IAS 40 and perform «separate
assessment under IFRS 3 fo determine whether the acquisition of the investment property constitutes
a business combination.
Tie above amendments do not have an impact onthe Financial statements ofthe bank
Neen4a
4a
43
4a
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
‘The accounting policies adopted inthe preparation of these financial statements are the same
as those applied in the preparation ofthe financial statements ofthe Bank forthe vosr ended
31 December 2012. The accounting policies have been applied consistently throughout the year and
for all periods presented and are enumerated as follows:
‘Cash and cash equivalents
Cash and cash equivalents for the purpose of eash flow statement includes cash and balanees with
the treasury banks and balances with other banks.
Staff
sment benefits
8) Defined contribution plan
‘The Bank operates an approved provident fund scheme forall ts regular permanent employees
administered by the Board of Trustees. Equal monthly contributions are made tothe fund beth by
the Bank and the employees at 10% of the basic salary in accordance with the terms of the
scheme.
b) Defined benefit plan
“The Bank operates a funded gratuity scheme forall its permanent employees: The scheme i
administered by the Board of Trustees. The Bank's cost is determined on the basis of actuarial
‘aluation, which is carried out periodically using the "Projected Unit Credit method"
‘Actuatfal gains and losses are recognized outside the profit and loss account in the statemient of
comprehensive income.
Share based payment
8) Cash sealed plan
‘The fair value ofthe amount payable to employees in respect of shares ofthe Holding Company
is recognised as an expense, witha corresponding increase in liabilities, over the vesting
period. The liability is remeasured at each reporting date and at settlement date. Changes in
the fai value ofthe liability is recognised as staff cost in the profit and loss account.
b) Eguiy seuled ple
The fair value ofthe amount payable to employees in respect of equi options of
Holding Company, is recognised as an expense with a corresponding increase in liabilities, over
the vesting period. The liability is recognised on the grant date with reference to the fair value
of the options. The liability in respect of those employees who become ineligible under the scheme
is reversed and is recognized as income inthe respective year
‘Taxation
Income tx expense comprises curent an defeed tx. Income taxis recognized inte profit and
loss account, excepto the extent tha it relates a items recognised diet inequity or blow equity,
in which as it i resognised inequity or blow equity. ste case may be.
Meare45
Current
(Current tax is the expected tax payable on the taxable income earned forthe year using tax rates
‘enaced at the statement of financial position date and in accordance withthe prevailing laws for
taxation on income earned ater taking into consideration the available tx eredits, and rebates and
any adjustments to tax payable relating to previous years.
Deferred tax
Deferred taxis recognised using the balance sheet lability method on all material temporary
differences between the amounts tributed to assets and liabilities fr financial reporting purposes
and amounts used for taxation purposes. Deferred taxis recognised based on the expecied manner of
realisation or settlement ofthe carrying amount of assets and bilities using the tax ates enacted at
the statement of financial position date, expected to be applicable at the time of realisation or
settlement.
Deferred tax asset is recognised only tothe extent that tis probable tht future taxable profits
‘would be available against which the asset is utilised. Deferred tax assets are reduced tothe extent
‘that it is no longer probable that the rolated tax benefit will be realised.
Advances
‘Advances ae stated net of specific and general provision for loan losses. Specific provision is made
{for non-performing advances to reduce the carying value of such advances to their expected
realizable values. General provisions egainst consumer loans is made at 1.5% and 5% of secured and
‘unsecured performing portfolio respectively. Specific and Generel provisions are made in accordance
“with the requirements of SBP as set out in the Prudentisl Regulations. Provisions made / reversed
during the year are charged to the profit and loss account and accumulated provision is neted off
against advances.
‘Advances are writen-off when there is no realistic prospost of recovery.
Investments
The Bank cl
investment portfolio into the following categories:
Held for-trading,
“These are securities, which ar ether acquired for generating profit from short-term fluctuation in
market prices, interest rate movements, dealers margin or are securities included in a portfolio for
Which there is evidence of a recent actual pattern of short-term profit making.
Heléto-manurity
“These are securities with fixed or determinable payments and fixed maturity in respect of which the
‘Bank has the positive intent and ability to hold to maturity.
Aveilable-for-sale
“These are investments that do not fll under the classification of held-for-trading or held-o-maturity
securities.
Veen Shy.ar
4a
Al “regular way" purchases and sales of investments are recognised at trade date, Trade date isthe
date on which the Bank commits to purchase or sll the investment. Regular way purchases or sales
are those that require delivery of assets within the time frame generally established by regulation or
‘conventions in the market place.
Investments are intially recognized at fair value which, in the case of investments other than
"Hleld-for-rading, includes transection costs associated with the investment and subsequenty
cost. The surplus / (deficit) arising on mark to market of securities classified as Available-forsale
{staken toa separate account shown in the statement of Financial postion below eq. Surpls/
(deficit arising on mark to market of securities classified as Held-for-trading i taken to profit and
Toss account.
Provision for diminution inthe values of securities is made after considering impairment, if any, in
theie value.
Profit and loss onsale of investments is included in income curently.
Lendings to / borrowings from financial institutions
‘The Bank enters into transactions of repos and reverse repos at contracted rates fora specified
period of time. These are recorded 2s under:
(@) Sale under repurchase agreements
‘Sceuritis sold subject toa re-purchase agreement (repo) are retained in the financial
statements as investments and the counter party liability is included in borrowings from financial
institutions. The differential in sale and re-purchase value is accrued over the period ofthe
agreement and recorded as an expense.
(8) Purchase under resale agreements
‘Securities purchased under agreement to resell (reverse repo) are not recognised inthe financial
statements as investments and the amount extended tthe counter party i eluded in endings
to financial institutions The differential between the contracted purchase prie and resale price
amortized over the period of the agreement and recorded as income.
‘Operating fixed assets and depreciation
Owned-property and equipment
Property and equipment other than capital work-in-progress, is stated at cost less accumulated
‘depreciation and accumulated impairment losses, if any. Capital work-in-progress is stated at cost
‘Subsequent costs are included inthe assets carying amounts ora recognized as
as appropriate, only when its probable that future economic benefits associated
flow tothe Bank and the cost of the item can be measured reliably. Aller cepairs and
:maintenances are charged to profit and los account.
Depreciation is charged on straight-line method at rates specified in note 10.2 to these financial
statements so as to write-down the assets over their expected economic useful lives. The depreciation
charge forthe years calculated after taking into account residual value, if any. The residual
value, useful life and depreciation methods are reviewed and adjusted, if appropriate, at each
statement of financial position date
Wet eGDepreciation on addition is charged from the month the assets available for use and on disposal up 10
the month of disposal.
[Normal repairs and msintenance are charged to the profit and loss account forthe year as and when
incurred. Major repairs and improvements are capitalised and assets so replaced ae retired.
Gain and loss on sale of fixed assets is charged to profit and loss account for the yea
Leased
Fixed assets held under finance ease are stated atthe lower of fir value and present value of
minimum lease payments atthe inception of lease less accumulated deprecation and accumelated
impairment loses, ifany. Financial charges are recognised in the profit and loss account using
effective mark-up rate method. Depreciation is charged ina manner consistent with that for
depreciable assets which are owned by the Bank.
49° Intangible assets
Intangible assets having a Ft wsefl life ae stated at cost less accumulated amortization and
accumulated impairment losses, i any. Intangible assets with finite useful lives are amortized from
the month, when asset i available for use, using straight lie method, artes specified in note 103 to
these financial statements. The residual vale, useful ife and amortization method are reviewed and
adjusted, if appropiate at each statement of financial position dae
4.10 Borrowings / deposits
Borrowings / deposits are initially recorded atthe amount of proceeds received. Mark-up accrued on
deposits is recognised separately as part of other liabilities and is charged to profit and loss wceount
using effective mark-up / interest rte method
41 Revenue recognition
Mark-up / return on performing advances and investments is recognized on atime proportion basis
tha takes into account the effective yield of an asset, except income which warrant carry forward in
‘compliance with Prudential Regulations ofthe State Bank of Pakistan and credit policies manual of
the Bank,
When debe securities are purchased ata premium or discount, such premium / discount is amortized
through the profit and loss account over the remaining period of maturity, using the effective yield
‘method, so as to produce a constant rate of return interest or mark-up recovered on non-performing
advances is recognised on a recsipt basis in accordance withthe requirements ofthe prudential
‘regulations issued by SBP as amended form time to time.
Fee, commission on letters of credit and guarantes is also recognized on time proportion basis and /
or when the services are rendered, asthe case may be,
4.12. Foreign currency transactions
Foreign currency transactions are translated into Pakistan. Rupees at exchange rates prevailing on
date of transaction. Monetary assets and liabilities denominated in foreign curencies ae transl’
ino Pak Rupees atthe exchange rates prevailing atthe statement of financial position date.
‘Outstanding forward foreign exchange contracts are valued at forward rates applicable to their
respective maturities, Commitments for outstanding forward foreign exchange contracts are
Jose in financial statements at contracted rates with the fae value adjustment disclosed in other
assets / other liabilities, as the ease may be,
NRG 4Contingent liabilities / commitments for letter ofereit and letter of guarastee denominated in foreign
‘currencies are expressed in Rupee terms atthe rates of exchange approximating those prevailing at
the statement of financial position date,
Exchange gains and losses are included in income, except for exchange gain / loss on foreign currency
capital account, which is recognised asthe appreviation/ diminution ofthe Head Office capital
aceouat.
4.413 Provision ag
st guarantce claims and other off balance shect obligations
Provision for guarantee claims and other off balance sheet obligations are recognized when intimated
and reasonable certainty exists for the Bank to settle the obligations. Expested recoveries are
recognised by debitin the customers accouat. Charge to profit and loss account i stated netofF
expected recoveries.
414 Offsetting
Financial assets and financial liabilities are off-set and the net amount is reported in the finance
statements only when there isa legally enforceable right to set-off the resoznized amount and the
[Bank intends either to setle on a net bass, orto realize the assets and to sexe che liabilities
roultaneously. Income and expense items of suel assets and liabilities ae also off-set and the et
amount is reported in the financial statements.
415 Impairment
‘The carrying amounts of assts are reviewed at each statement of financial position date for
impairment whenever events or changes in circumstances indicate that the -arrying amount of th
assets may not be recoverable, I'such indications exist, and where the ear ing value exceeds
‘estimated recoverable amount, the assets are written down to thei recoverable amount. The
resulting impairment loss is recagnized in profit and loss account
416 Provisions
Provisions are recognized when the Bank hes a legal or constructive obligston asa result of past
‘evens, if tis probable that an outflow of resources will be requiced to sexe obligation and a reliable
estimate of amount cen be made, Provisions are reviewed at each statemen: of financial position
date and are adjusted to reflect the euerent best estimate.
4.17 Segment reporting
‘A segment isa distinguishable component ofthe Bank that is engaged eer in providing products
for services (business segment) or in providing produets or services within = particular economic
‘environment (geographical segment), whichis subject to risks and rewards that are different from
those of other seginents. The Bank's primary format of reporting is based cn business se
8) Business segments
Traeting andl soles
It includes fixed income, foreign exchanges, fancing, own positions:
borrowings.
Ges i
es, lendings and4.18
49
420
Retail Banking
Ieincludes retail Ten
8, deposits and banking services.
Commercial Banking
‘Commercial banking includes project finance, export finance, trade finance, short term and long
term lending, bills discounting, letter of credit, eceptances, guarantees and deposits.
b) Geographical segment
Alloperations of the Bank are based in Pakistan, therefore, geographical segment is not
relevant,
Assets acquired in satisfaction of claims
“The Bank occasionally acquires assets in setlement of certain advances, These are stated at the
lower of carrying value ofthe related advances and the current fair value of such assets.
Financial instruments
All financial assets and liabilities are recognised at the time when the Bank becomes a party tothe
contractual provision ofthe instrument, Financial assets are derecognised when the Bank loses
Control ofthe contractual rights that comprise the financial asets. Financial liabilities are
\erecognised when they ae extinguished is. when the obligation specified in the contract is
discharged, cancelled or expited. Any gan of loss on derecognition of the financial asses and
financial liabilities i taken to income directly. Financial assets carried as statement of Financial
position include cash and bank balances, ending to financial institution, investments, advances snd
certain receivables, Financial liabilities include borrowings, deposits, bls payable and other payables.
‘The particular recognition methods adopted for significant financial assets and finencal liabilities are
disclosed inthe individual policy statements associated with them.
Derivative finar
instruments
Derivative financial instruments are recognised at thelr fair value onthe date on which # derivative
‘contract is entered into and subsequently these instruments are marked to market and changes in fair
‘value are taken (the profit end loss account Fae values are obtained from quotes market prices in
active markets.
Share based payment transactions
“The grant date fair value of equity setled share based payment awards (i. stock options) granted to
employees is recognized as an employee expense, with a corresponding increase in equity, over the
period in which the employees unconditionally become entitled wo the awards. The amount recognized
as an expense is adjusted to reflect the numberof share awards for which the related service and
‘non market performance vesting conditions are expected to be met such that the amount ultimately
recognized as an expense is based on the numberof share awards that do meet the related service
nd non market performance condition a the vesting date
A= 5543, CASH AND BALANCES WITH 31 December 31 December
‘TREASURY BANKS 2013 2012
‘(Rupees in '000)
ln hand
Local eurency 167814 192,57
Foreign currency 266,005 318913
With the State Bank of Pakistan in
Local curency current account Su 4,500,719 1,703,687
Foreign currency deposit account 52 1,448,010 1,638,823,
Foreign currency current account 53 ‘S72 186 557,518
Foreign currency capital account a 7,630,089 2,937,870
11584523, 11394218
5.1 The local curency current account was maintained with the State Bank of Pakistan (SBP) as per the
requirements of Section 22 ofthe Banking Companies Ordinance, 1962.
5.2. This represents the specifi eash reserve maintained against foreign exchange deposits mobilized
under FE 25 eieular issued by SBP and was remunerated atthe rate declared by SBP on monthly
basis
53. Represents foreign currency cash reserve comprising of an mount equivalent to at last S percent
‘of the Bank's foreign eurency deposits.
31 December 31 December
6, BALANCES WITH OTHER BANKS 2013
‘Rupees in 000)
In Pakistan
Incurrent accounts 38,441 $304
Ouiside Pakistan
{In current accounts 61 813,530 706,646
In deposit accounts
sr a
6.1 This includes balances held with HSBC branches/subsidiaries outside Pakistan of Rs, 812.135 milion
(2012: Rs. 705.450 million).
LENDINGS TO FINANCIAL INSTITUTIONS
Call money lendings a 900,000 140,000
Repurchase agreement lendings (Reverse Repo) 7.28 7.2.1 _ 293.648. 4,526,709
3393, 688 966,708
7.1. These represent unseeured call money lending to financial institution carrying mark-up at rate of
9.8 % - 10.1% per annum (2012: 9.4% per annum). These are due to mature within one month
7.2 These represent repurchase agreement lendings to financial institutions carrying mark-up at rates
of 10 perent per annum (2012: 7 percent 109 per annum),
Lepage