arif habib bank limited

CONTENTS

Corporate Information 03

Vision / Mission Statement 04

Key Operating and Financial Data 06

Directors’ Report 08

Statement of Compliance with the

Code of Corporate Governance 13

Auditors’ Review Report to the Members on

Statement of Compliance with Best

Practices of Code of Corporate Governance 15

Auditors’ Report to the Members 16

Balance Sheet 17

Profit and Loss Account 18

Statement of Comprehensive Income 19

Cash Flow Statement 20

Statement of Changes in Equity 21

Notes to the Financial Statements 22

Annexure 75

Categories of Shareholding 76

Pattern of Shareholding 78

Notice of Annual General Meeting 80

Branch Network 82

Form of Proxy

ARIF HABIB BANK LIMITED03

CORPORATE INFORMATION

BOARD OF DIRECTORSMr. Arif HabibChairmanMr. Husain LawaiPresident & CEOMr. Md. Abdul Hamid MiahDirectorMr. Asadullah KhawajaDirectorMr. Nasim BegDirectorMr. Mohammad Khan HotiDirectorMirza Mahmood AhmadDirector (Subject to clearance from SBP)

AUDIT COMMITTEEMr. Asadullah KhawajaChairmanMr. Nasim BegMemberMr. Arif HabibMember

RISK MANAGEMENT COMMITTEEMr. Arif HabibChairmanMr. Husain LawaiMemberMr. Asadullah KhawajaMemberMr. Nasim BegMember

HUMAN RESOURCE (HR) COMMITTEEMr. Arif HabibChairmanMr. Husain LawaiMemberMr. Asadullah KhawajaMember

CFO AND COMPANY SECRETARYMr. Muhammad Amin Bhoori

AUDITORSM. Yousuf Adil Salim & Co.Chartered Accountants

LEGAL ADVISORSLiaquat Merchant Associates

HEAD OFFICEArif Habib Center, 23, M.T. Khan RoadKarachi – 74000, PakistanUAN: (021) 111-124-725Fax: (021) 2435736

REGISTERED OFFICE2/1, R.Y.16, Old Queens Road,Karachi – 74000

SHARE REGISTRARTechnology Trade (Pvt) Ltd.Dagia House, 241-C, Block 2,PECHS, off Shahrah-e-Quaideen,Karachi – 74000, PakistanTel: (021) 34391316-7Fax: (021) 34391318

ENTITY RATINGSRated by: JCR-VISMedium to long term “A”Short term “A-2”

E-mail: [email protected]: www.arifhabibbank.comToll free: 0800 24252

VISION“We are committed to be recognized as thepreferred supplier of financial services to themarkets we serve” MISSION

“Our mission is to differentiate ourselves as aninstitution built on Trust, Integrity, Good Governanceand Commitment to Deliver Value to all stakeholders i.e.customers, creditors, employees, investors and thecommunity at large. Reach out and provide financialservices to under-served and un-served customer segment”


KEY OPERATING AND FINANCIAL DATA

ASSETSCash and balances with treasury banksBalances with other banksLendings to financial institutionsInvestments-GrossAdvances-GrossOperating fixed assetsDeferred tax assetsOther assetsTotal Assets- GrossProvision against non performing advancesSurplus / (Deficit) on revaluation of investmentsProvision held against other assetsTOTAL ASSETS - NET OF PROVISIONS

LIABILITIES

Deposits and other accountsBorrowingsBills payableSub-ordinated loansDeferred tax liabilitiesOther liabilities

NET ASSETS

REPRESENTED BY

EQUITYShare capitalShare premium Statutory reservesGeneral reservesUnappropriated profit/Accumulated (loss)Total Equity

Deficit on revaluation of assets - net

228 646

1,079 1,753 1,565

385 -

227 5,883 (140)

(22) (24)

5,696

2,526 - 4 - 0

93

3,073

3,000 -

19 -

75 3,094

(21)

754 53

2,856 5,441 8,158

598 -

448 18,307

(128) (33) (24)

18,121

9,465 1,749

384 -

40 182

6,302

4,500 1,500

65 67

193 6,325

(23)

1,350 66

200 5,576

16,510 928 361

1,070 26,060

(752) (481)

(24) 24,803

16,616 1,870

76 - -

420

5,820

5,000 1,000

65 250

(182) 6,133

(313)

1,924 725

1,434 12,690 21,072

1,571 381

1,190 40,985 (2,568)

(244) -

38,173

31,307 1,555

213 - -

1,043

4,054

5,000 1,000

65 -

(1,999) 4,066

(12)

Rupees in Million

DECEMBER 31 2006 2007 2008 2009

TOTAL LIABILITES - 2009Other liabilities

3%

Deposits and other accounts

92%

Bills payable1%

Borrowing 4%

Balances with other banks

Investments-gross

Operating fixed assets

Other assets

Cash and balances with treasury banks

Lendings to financial institutions

Advances-Gross

Deferred tax assets

TOTAL ASSETS - GROSS 2009

4% 1% 3% 2% 3%

31%

51%

5%


KEY OPERATING AND FINANCIAL DATA

2006 2007 2008 2009

4000

3000

200

1000

0

1000

-2000

-3000

-4000

+5000

Mark-up/Return/ Interest earned

Net Mark-up/ Interest income

Non Markup/ Interest income

Profit before provisions and tax

Profit Before Taxation

Profit After Taxation

RESULTS OF OPERATIONS

Mark-up/Return/Interest earnedMark-up/Return/Interest expensedNet Mark-up/ Interest incomeNet Markup/Interest Income after provisionsNon Markup / Interest IncomeNon Markup / Interest ExpensesProfit before provisions and taxProvision against non performing loans and advancesPROFIT BEFORE TAXATIONTaxation PROFIT AFTER TAXATION

143 23

119 119 21

91 50

0 50

(44) 94

618 252 366 366 346 385 327

- 327

97 230

2,472 1,586

886 263 167 777

(970) (623) (347) (156) (191)

3,514 2,878

637 (1,404)

196 1,077

(4,326) (1,817) (2,286)

(219) (2,067)

Rupees in Million

DECEMBER 31 2006 2007 2008 2009

FINANCIAL RATIOS

Return on equity (ROE)Return on assets ( ROA)Profit before tax ratioGross spread ratioReturn on capital employed (ROCE)Advances to deposits ratio- GrossAdvance to deposit ratio - NetIncome to expenses ratio (times)Cost to revenue ratioDebt to equity ratioTotal assets to shareholders' funds (times)NPL ratioCapital adequacy ratio

SHARE INFORMATION

Weighted average number of shares outstandingEarning / (Loss) per share (Rupee)Market value of sharesPrice earning ratio (PE)Book value per share

NON FINANCIAL INFORMATION

Non performing loans (NPL) (Rs. in mn)Number of employeesNumber of branches

3.06%1.65%

35.03%83.68%

3.06%61.93%67.48%

1.25 43.45%81.65%

2 8.96%

56.22%

85.10 1.1

- -

10.24

140192

7

3.65%1.27%

52.91%59.16%

3.65%86.19%87.55%

1.51 64.76%

177.31% 3

1.57%45.03%

351.78 0.65

13,500 58.65 14.00

128319

12

-3.29%-0.77%

-14.05%35.85%-3.29%99.36%94.84%

1.52 70.36%

301.44% 4

16.31%20.85%

459.59 (0.38) 2,765

(14.45) 11.64

2,694 541

33

-50.98%-5.41%

-65.04%18.11%

-50.98%67.31%59.10%

1.74 95.28%

808.23% 9

23.81%12.38%

500.00 (4.14)3,350

(1.69) 8.11

5017618

40

Ratios (in % or times)

DECEMBER 31 2006 2007 2008 2009


DIRECTORS' REPORT

On behalf of the Board of Directors of Arif Habib Bank Limited (AHBL), we are pleased to present the financial statements for the year ended December 31, 2009.

Economic OverviewWhile the global economy continued to struggle under the recessionary pressures of the last two years, and a turnaround remained elusive, Pakistan's economy continued to face the challenges of (a) deteriorating law and order (b) severe power shortages (c) lower local and foreign direct investment and (d) pressures on Pakistan Rupee Exchange Rate. Continued deficit financing and shortages of essential commodities resulted in a high rate of inflation. Even though the CPI dropped ostensibly to 8.9 % in October 2009 (the lowest level in the preceding 26 months), this was more due to the high base effect of 12 months ago rather than a major change in the fundamentals of the economy, even though State Bank of Pakistan's (SBP) tight monetary policy did help to dampen the demand side. Nevertheless, as the index went past the high base effect, it rebounded to 13.68% in January 2010, showing that the low CPI in October 2009 was more of a blimp than a significant change in the underlying inflation - which is very much with us, for the time being.

The high inflation resulted in the devaluation of the Pak Rupee, which, coupled with higher import tariffs, discouraged the import of non-essential items. Large scale manufacturing suffered because of the power shortages, high cost of inputs and low overseas demand for our products. This further reduced the need for imports (of machinery, spares and other consumables). All these developments resulted in a narrowing of the Trade Deficit from US$ 8.22 billion in the first six months of FY 09 (ended 31st December 2008) to US$ 5.71 billion during the corresponding period of FY10. Concurrently, the current account deficit reduced from US$ 7.85 billion in FY 09 to US$ 1.76 billion in FY 10 over the same period, with an increase in the Home Remittances from US$ 3.64 billion to US$ 4.53 billion playing an important role in this improvement.

However, gains in the current account deficit may not be sustained to the same extent during the second half of FY 10 because of an expected increase in imports due to an anticipated revival in domestic manufacturing and rising international commodity prices, coupled with a reduction in some key exports - such as basmati rice and cement.

Despite some significant gains on the macroeconomic stability front in the wake of a very challenging economic and security environment, a lot more needs to be done to ensure steady progress and sustainable recovery. Meanwhile, as a result of the SDR allocation and monetary flows under the Stand-by Arrangements (SBA) with the International Monetary Fund (IMF), Pakistan's Foreign Exchange Reserves depict a very healthy position. This liquidity has encouraged foreign portfolio investors to take advantage of the attractive valuations prevailing at present in the Pakistan Stock Markets, and accordingly foreign portfolio investment in the country has evidenced a modest increase.

The GDP growth for FY 10 is expected to register a modest recovery to around 3% as compared to 2% in FY 09.

Banking Sector OverviewThe impact of the global economic down turn, and the negative growth in the domestic manufacturing sector, coupled with the disastrous after-effects of the freezing of the Stock Markets for 4 months, from August to December 2008, resulted in a surge in the Non Performing Loans (NPLs) and a drastic decline in the value of the banks' investments in the equity market. Consequently, the overall profitability of most banks went down significantly in 2009, as compared to the previous year, with several of small banks expected to post losses for the year.

Several of the banks in our peer Group have been confronted with the challenge of meeting the requirement of Minimum Paid-up Capital (net of losses) of Rs 6 billion by year-end 2009. The downturn in the economy over the last two years and the resultant loses on account of NPLs and diminution in the value of the investments, have left these banks perilously short on equity. One of the feasible ways for such banks to meet this challenge is to merge with other similar banks and beef up the combined Paid-up Capital to the required level - which is being encouraged by the SBP, and which some banks, including your Bank, are already implementing.

Financial Highlights & OperationsFinancial Highlights of the Bank for the year ended December 31, 2009 are as follows:

Loss for the year before taxation EquityPaid-up-capitalDepositsAdvances (Net of provisions)InvestmentsAdvances to Deposits RatioLoss per share (Rupee)No. of Branches

(2,285,586)4,065,9415,000,000

31,307,48818,503,81512,446,033

59.10%(4.13)

40

(347,274)6,132,7315,000,000

16,616,46615,758,678

5,094,61394.84%

(0.38)33

(Rupees in '000)2009 2008


DIRECTORS' REPORT

The Bank faced unprecedented challenges during the year, which started with an acute liquidity position and a badly infected creditportfolio - mainly on account of the collapse of the stock markets during the second half of 2008. The first priority was to ensure sufficient liquidity to meet the Statutory Liquidity Requirement (SLR) and any unexpected withdrawals of large deposits. Diversifying the deposit base so as to reduce the chances of sudden large withdrawals, was a key element of the stragety. This was tackled at the highest levels of the management, and substantial hot deposits were replaced by more stable deposits from the Pension Funds, Provident Funds, Corporate Bodies and high networth individuals. At the same time, the rank and file were geared up to mobilizing the low-cost Current and Savings Accounts (CASA) to build up a core of low-cost deposits. The management achieved both tasks successfully, and presently your bank enjoys one of the best liquidity ratios in the industry with the SLR eligible securities being about 200% more than the requirement.

The deposit mobilization drive was also a success and total deposits increased by 88% to Rs 31.3 bn (billion) while the CASA deposits increased from Rs 4.4 bn to Rs 13.7 bn during the year, i.e. an increase of 211%. At the same time the average monthly cost of deposits reduced from 13.47% in December 2008 to 9.96% in December 2009.

To maintain a high level of liquidity - very essential in these troubled times, the Bank had to sacrifice its profitability by investing most of its newly generated deposits in readily encashable securities which grew by 219% to Rs11.7 bn. As a result of very prudent policies of the Bank, the increase in advances (net of provisions) was only 17%, with the major emphasis being on tackling the legacy portfolio of Non Performing Loans.

The Bank incurred a loss before tax of Rs. 2,286 million as compared to a loss before tax of Rs. 347 million during last year. The major factors which caused this loss were:

• additional provisions for classified advances, amounting to Rs 1,817 million, • reversal of related markup on classified accounts amounting to Rs 450 million, and • impairment loss of Rs. 224 million which includes Rs 50 million being provision on Sukuk Bonds under Prudential Regulations, and

Rs 174 million under SBP's BSD Circular No. 4 dated February 13, 2009 which permitted banks to avail of the relaxation allowed vide the Securities and Exchange Commission of Pakistan (SECP) notification No.150(I)/2009 dated February 13, 2009, allowing losses from the impairment in the value of investments as at 31-12-08 to be passed directly to the equity, and then to be re-routedthrough the Profit & Loss Account during 2009.

Due to above reasons, the Bank's equity decreased to Rs. 4.066 billion as at 31-12-09 as against last year's equity of Rs. 6.133 billion.(i.e. a decrease of 33.70%).

AppropriationsFollowing are the proposed appropriations out of profit/(loss) for the year 2009:

Accumulated (loss)/Un-appropriated profit brought forwardLoss for the year after taxation Un-appropriated (loss)/profit available for appropriation

APPROPRIATIONS:• Transfer to statutory reserve• Transfer (from)/to general reserveUn-appropriated loss carried forward

(182,097)(2,066,790)(2,248,887)

-(250,000)

(1,998,887)

192,744(191,408) 1,336

- 183,433

(182,097)

(Rupees in '000)

2009 2008

DIRECTORS' REPORT

Minimum Paid up Capital and MergersAccording to the State Bank of Pakistan (SBP) BSD Circular No. 7 of 2009 dated April 15, 2009 the Minimum Capital Requirement (MCR) for banks had to be Rs 6 billion (free of losses) as of December 31, 2009. The paid up capital of the Bank was Rs. 5 billion and it had reserves and accumulated losses of Rs. 1 billion and Rs. 2.0 billion respectively at the Balance Sheet date. Keeping in view the said requirements, the Board of Directors of the Bank has approached the SBP and requested for extension in the deadline prescribed for meeting the MCR on the basis of following grounds:

• Suroor Investments Limited (SIL), a company incorporated in Mauritius, has entered into a Share Purchase Agreement (SPA) with Arif Habib Securities Limited (AHSL) on June 30, 2009 for acquisition of 297,034,854 ordinary shares of the Bank beneficially owned by AHSL. Payment of Rs. 2.6 billion (Rs 9 per share) to AHSL was completed on December 24, 2009, in terms of the SPA. However, transfer of these shares will be completed after fulfillment of certain regulatory requirements.

• SIL has also entered into similar Share Purchase Agreements (SPAs) with majority shareholders of MyBank Limited (MYBL) and Atlas Bank Limited (ATBL). After the transactions have been completed, these banks will be merged with Arif Habib Bank Limited (AHBL). According to the available financials for the three banks, the capital base of the merged entity will be sufficient to meet the minimum capital requirement (MCR) of Rs. 6 billion as at December 31, 2009 as stipulated in above mentioned circular.

On the basis of above mentioned grounds, the management has obtained extension from the SBP for meeting the MCR by March 31, 2010, or completion of the merger process, whichever occurs earlier.

Credit RatingJCR-VIS Credit Rating Company Limited has assigned the Bank credit ratings of 'A' for the medium to long-term and 'A-2' for short term.

Business and Branch NetworkAs at December 31, 2009 the Bank was operating with 40 branches across the country. We feel pleasure in informing you that the Bank has now presence in all the Provinces of the country and Azad Jammu & Kashmir. During the year under review, the Bank's business activities have been expanded to interior Sindh and Baluchistan by opening branches in Hyderabad, Sukkur, Mirpur Khas and Quetta.

The Bank has further improved its outreach by installing ATM machines at selected PSO petrol pumps in Karachi, Lahore, Islamabad and Faisalabad. This initiative has greatly facilitated our customers, and will also enable us to win over new customers.

As a part of its overall strategy of diversifying and expanding its business base, the Bank quadrupled its Foreign Exchange, Trade Finance and Guarantee business during the year, and has entered into arrangements with various reputable Exchange Companies for enhancing the home remittances business.

After achieving VISA Certification for the VISA DEBIT card, the Bank has soft launched the co-branded card to its employees and existing customers, as a prelude to a formal launch in April 2010. This will enable AHBL's VISA DEBIT card- holders to access over 1 million plus ATM machines and 12 million VISA merchants' point of sale terminals worldwide.

With a view to providing a wide range of products and services to our customers, the Bank has rolled out the "Bancassurance Program". This facility is another meaningful extension of the management's vision of introducing innovative products. Initially, the facility is available through selected branches in Karachi, it will be expanded to branches in Lahore and Islamabad in the near future. Another product with the title of "etop-up" was also launched during the year. This innovative service allows all AHBL account holders to recharge their respective prepaid mobile phone balances by a direct debit to their deposit accounts via SMS or the Call Center, any time during the day or night, 7 days a week.

Recently the Bank has been granted permission by SBP to enter into Personal Loans under their Consumer Finance regulations. This has given your bank a new avenue to not only diversify our loans portfolio but also to ensure attractive returns. However, given the state of economy at present, initially, the bank plans to venture into this business through good corporate deals and well secured personal loans in order to minimize the chances of NPLs.

Future OutlookIn line with the management's vision of making this Bank a front runner amongst its peer Banks, the proposed mergers as stated earlier will bring synergies and access to a wider range of markets and customers. This will also reinforce the Bank's commitment to long term growth and support its strategic plan to become one of the leading banks in Pakistan.



DIRECTORS' REPORT

Presently, the Bank's earnings have been depressed because of the substantial NPLs and impairment losses on its investments; but this is a passing phenomena which is being tackled very vigorously by the management. We are confident that these issues and problems will be behind us by the end of 2010, and the Bank will emerge from these trying times much sounder and stronger than before.

The Bank will continue to maintain a liquid position which may depress earnings in the short-run; but will benefit in the long run by giving it the reputation of a sound bank which can weather the storms of economic turbulence at the worst of times. The management of the bank expects a modest turnaround in the economic environment by the 2nd half of 2010, the benefits from which will also flow to our Bank, in addition to the benefits of synergies and economies of scale expected from the completion of the merger exercise.

We also plan to become leaders in the introduction of innovative products and services, using the latest technologies and a highly committed and motivated workforce.

Loss per ShareBasic and diluted loss per share has been disclosed in note No. 29.

Pattern of shareholdingThe pattern of shareholding is attached with this report.

Corporate and Financial reporting frameworkThe Directors feel pleasure to give the following statement in respect of the Code of Corporate Governance:

• The financial statements, together with the notes thereon have been drawn up in conformity with the Companies Ordinance, 1984. These statements present fairly the Company's state of affairs, results of its operations, cash flows and changes in equity.

• Proper books of accounts of the company have been maintained.• Appropriate accounting policies have been consistently applied.• The International Financial Reporting Standards, as applicable in Pakistan, have been followed in the preparation of financial statements

and any departure therefrom having a material impact on the financials, has been adequately disclosed.• The system of internal control is sound in design and has been effectively implemented and monitored.• There is no significant doubt about the company's ability to continue as a going concern.• There has been no material departure from the best practices of Corporate Governance, as detailed in the listing regulations.• Key operating and financial data is available in the annual report.• All the statutory liabilities, if any, have been adequately disclosed in the financial statements.

Board MeetingsThe number of Board meetings held during the year ended December 31, 2009 were seven (7) and attendance therein by the Directors was as below:

*Mr. Kalim ur Rahman attended the meeting in place of Mr. Husain Lawai who was not in Pakistan at the time of the meeting.

** Mirza Mahmood Ahmad has not attended any of the Board meetings during the year pending clearance from SBP under Fit and Proper Test. Once clearance is received from SBP, he will be eligible to attend the Board meetings.

1

2

3

4

5

6

7

8

9

Arif Habib

Husain Lawai (President & CEO)

Kalim ur Rahman (Acting President & CEO)*

Asadullah Khawaja

Nasim Beg

Md. Abdul Hamid Miah

Mirza Mahmood Ahmad**

Mohammad Khan Hoti

Salim Chamdia (Resigned)

7

6

1

7

6

4

0

2

2

NAMES.NO.MEETINGS ATTENDED


Arif HabibChairman of the Board

March 03, 2010

Husain LawaiPresident & CEO

DIRECTORS' REPORT

Risk Management We have in place a Risk Management framework for identifying and managing various types of risks; but it needs to be strengthened through greater use of technology and some additional manpower. An integrated approach to risk management is under process. The basic principles employed in the formulation of the risk management policies and procedures have been defined in the Bank's Risk Management Policy and involve identification, measurement, monitoring and controlling of various types of risks to ensure that:

• The Bank's risk exposure is within the limits established by the Board of Directors.• Risk taking decisions are in line with the business strategy and objectives of the Bank.• The expected payoffs compensate the risks taken by the Bank.• Risk taking decisions are explicit and clear.• Sufficient capital is available as a buffer to absorb unexpected losses from risk taking activities.

In complying with the SBP Guidelines on Risk Management issued in August 2003, the Board of Directors of the Bank approved the response to the Questionnaire on Institutional Risk Assessment Framework (IRAF), submitted to the SBP.

Statement on internal controlThe management of the Bank is responsible for establishing and maintaining a sound system of internal controls to ensure operating efficiency, compliance and reliability of financial reporting.

The following specific initiatives have been adopted:

• An independent Internal Audit Division reporting directly to the Audit Committee of the Board of Directors is effectively functioning.• Compliance Division is working to ensure adherence to Laws, Regulations and Code of Ethics with strong emphasis on KYC & AML.• The statement of Ethics and Business Practices has been signed and adopted by the Directors and Employees of the Bank.• A portfolio of Policies which were approved by the Board, are continuously updated based on the needs and requirements.• Management responds to the recommendations made by the Auditors for improvements in the internal control system.• A number of Board and Management Committees are functioning to ensure adequate communication and control.

AuditorsThe present auditors M/S Yousuf Adil Saleem & Company, Chartered Accountants retire and offer themselves for reappointment. On the recommendation of the Audit Committee, the Board has agreed to recommend the reappointment of M/S Yousuf Adil Saleem & Company, Chartered Accountants as Bank's auditors for the year ending December 31, 2010.

Acknowledgment On behalf of the Board and the Management, we would like to express our sincere gratitude to the State Bank of Pakistan, the Securities and Exchange Commission of Pakistan, and other regulatory bodies for their continued guidance and support.

We sincerely appreciate and thank our shareholders for their trust and confidence, our customers for their patronage and our employees for their commitment and hard work.

On Behalf of the Board of Directors


STATEMENT OF COMPLIANCEWITH THE CODE OF CORPORATE GOVERNANCE

The Statement is being presented to comply with Code of Corporate Governance contained in Prudential Regulation No. G-1, responsibilities of the Board of Directors advised vide SBP BSD Circular No. 15 dated June 13, 2002 and the listing regulations of Karachi, Lahore and Islamabad Stock Exchanges for the purpose of establishing a framework of good governance, whereby a listed company is managed in compliance with the best practices of corporate governance.

The Bank has adopted the Code of Corporate Governance and applied the principles contained in the Code in the following manner:

1. The Bank encourages representation of independent non-executive directors and directors representing minority interest on its Board of Directors. At present, the Board has two sponsor directors, two executive directors and three independent / non-executive directors. Out of three independent / non-executive directors, SBP clearance of one independent / non-executive director is still pending, therefore, the following provisions of the code are not applicable to him.

2. The directors have confirmed that none of them is serving as a director in more than ten listed companies.

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

4. Two casual vacancies occurred in the Board of Directors one of which was filled up within 30 days after obtaining prior approval from the State Bank of Pakistan as per its directives. SBP approval for another director appointed on December 15, 2008 as mentioned in point 1 above is still pending.

5. The Bank has prepared a 'Statement of Ethics and Business Practices', which has been signed by all the directors and the employees of the Bank.

6. The Bank has developed a vision/mission statement, overall corporate strategy and significant policies, which are periodically renewed and updated. A complete record of particulars of significant policies along with the dates on which they were approved or amended is maintained.

7. All the powers of the Board have been duly exercised and the Board has taken decision on material transactions, including appointment and determination of remuneration and terms and conditions of employment of the Chief Executive Officer and other executive directors have been taken by the Board.

8. The meetings of the Board were presided over by the Chairman and the Board met once in every quarter. Written notices of the Board meetings, along with agenda and working papers were circulated atleast seven days before the meetings. The minutes of the meetings were appropriately recorded and circulated.

9. There was no new appointment of CFO, Company Secretary or Head of Internal Audit during the year ended December 31, 2009.

10. The Directors on the Board of the Bank are individuals of repute and integrity with vast diversified experience of the financial and corporate affairs. They are also directors in other listed companies and are well conversant with the local laws and practices.


STATEMENT OF COMPLIANCEWITH THE CODE OF CORPORATE GOVERNANCE

11. The Director's report for this year has been prepared in compliance with the requirements of the Code and describes the salient matters required to be disclosed.

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

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

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

15. The Board has formed an audit committee. It comprises of three members, out of whom one member is non-executive director including the Chairman of the Committee.

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

17. The Board has set-up an effective internal audit function. The staff of Internal Audit Department is suitably qualified and experienced for the purpose and is conversant with the policies and procedures of the Bank.

18. The statutory auditors of the Bank have confirmed that they have been given a satisfactory rating under the quality control review program of the Institute of Chartered Accountants of Pakistan, that they or any of the partners of the firm, their spouses, and minor children do not hold shares of the Bank and that the firm and all its partners are in compliance with International Federation of Accountants (IFAC) guidelines on Code of Ethics as adopted by the Institute of Chartered Accountants of Pakistan.

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

20. The related party transactions have been placed before the Audit Committee and approved by the Board of Directors.

21. We confirm that all other material principles contained in the Code have been complied.

For and on behalf of the Board

Arif HabibChairman of the Board

Karachi:March 03, 2010

Husain LawaiPresident & CEO

AUDITORS’ REVIEW REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCEWITH THE BEST PRACTICES OF CODE OF CORPORATE GOVERNANCE

We have reviewed the Statement of Compliance with the best practices contained in the Code of Corporate

Governance prepared by the Board of Directors of Arif Habib Bank Limited to comply with the Prudential Regulation

No.G-1, Responsibilities of the Board of Directors vide BSD Circular No. 15, dated June 13, 2002.

The responsibility for compliance with the Code of Corporate Governance 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 of

Corporate Governance 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 have not

carried out any special review of the internal control system to enable us to express an opinion as to whether

the Board's statement on internal control covers all controls and the effectiveness of such internal controls.

The Code of Corporate Governance requires Board of Directors to approve related party transactions bifurcating

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. In this connection we are only required and have

ensured compliance of requirement to the extent of Board of Directors approving the related party transactions

in the aforesaid manner. We have not carried out any procedures to enable us to express an opinion as to whether

the related party transactions were carried out at arm's length price.

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 of Corporate Governance as applicable to the Bank for the year ended December 31,

2009.

Chartered Accountants

Karachi Date: March 03, 2010



AUDITORS' REPORT TO THE MEMBERS

We have audited the annexed balance sheet of ARIF HABIB BANK LIMITED (the Bank) as at December 31, 2009 and the related profit and loss account, statement of comprehensive income, statement of changes in equity and cash flow statement, 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 unaudited certified returns from branches except for five 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 Board of Directors to establish and maintain a system of internal control, and prepare and present the financial statements in conformity with 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 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 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 case of loans and advances covered more than 60 percent of the total financings of the Bank, we report that:

a. in our opinion proper books of account 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 purpose of our audit;

b. in our opinion:

i. The balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity withthe Banking Companies Ordinance, 1962 (LVII of 1962), and the Companies Ordinance, 1984 (XLVII of 1984), and arein agreement with the books of account and are further in accordance with accounting policies consistently applied;

ii. The expenditure incurred during the year was for the purpose of the Bank's business; and

iii. The business conducted, investments made and the expenditures incurred during the year were in accordance with theobjects of the Bank and the transactions of the Bank which have come to our notice have been within the powers of theBank;

c. in our opinion and to the best of our information and according to the explanations given to us the balance sheet, profit and loss account, statement of comprehensive income, statement of changes in equity and cash flow statement 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 mannerso required and give a true and fair view of the state of the Bank's affairs as at December 31, 2009 and its true balance of the loss, its total comprehensive loss, changes in equity and its cash flows 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 Bankand deposited in the Central Zakat Fund established under section 7 of that Ordinance.

Chartered Accountants

Engagement Partner:Mushtaq Ali Hirani

Karachi Date: March 03, 2010


ASSETS

Cash and balances with treasury banksBalances with other banksLendings to financial institutionsInvestmentsAdvancesOperating fixed assetsDeferred tax assetsOther assets

LIABILITIES

Bills payableBorrowingsDeposits and other accountsSub-ordinated loansLiabilities against assets subject to finance leaseDeferred tax liabilitiesOther liabilities

NET ASSETS

REPRESENTED BY

Share capitalReservesAccumulated loss

Deficit on revaluation of assets - net of tax

CONTINGENCIES AND COMMITMENTS

789

1011121314

151617

18

19

20

21

1,923,526 724,802

1,433,817 12,446,033 18,503,815

1,570,754 381,016

1,189,612 38,173,375

213,209 1,554,801

31,307,488 - - -

1,043,477 34,118,975 4,054,400

5,000,000 1,064,828

(1,998,887) 4,065,941

(11,541) 4,054,400

1,349,649 65,580

200,000 5,094,613

15,758,678 927,882 360,893

1,045,522 24,802,817

75,963 1,869,940

16,616,466 - - -

420,328 18,982,697

5,820,120

5,000,000 1,314,828 (182,097)6,132,731 (312,611)5,820,120

2009 2008 Rupees in '000'

Note

The annexed notes from 1 to 42 form an integral part of these financial statements.

PRESIDENT AND CHIEF EXECUTIVE DIRECTOR DIRECTOR DIRECTOR

BALANCE SHEETAS AT DECEMBER 31, 2009


Mark-up / return / interest earnedMark-up / return / interest expensedNet mark-up / interest incomeProvision against non-performing loans and advancesProvision for diminution in the value of investmentsBad debts written off directly

Net mark-up / interest (loss) / income after provisions

NON MARK-UP / INTEREST INCOME

Fee, commission and brokerage incomeDividend incomeLoss from dealing in foreign currenciesGain on sale of securities - netUnrealised loss on revaluation of investments classified as held for tradingOther incomeTotal non-markup / interest income

NON MARK-UP / INTEREST EXPENSES

Administrative expensesOther provisions / write-offsOther chargesTotal non-markup / interest expenses

Extra ordinary / unusual itemsLOSS BEFORE TAXATION

Taxation

CurrentPrior yearsDeferred

LOSS AFTER TAXATION

Basic Earnings per share (Rupees)Diluted Earnings per share (Rupees)

2223

11.3.110.11

24

10.1325

26

27

28

2929

3,514,363 (2,877,797)

636,566 (1,816,580)

(224,207) -

(2,040,787)(1,404,221)

141,594 33,120

(52,752)65,534

(4,423)12,616

195,689 (1,208,532)

1,064,723 -

12,331 1,077,054

(2,285,586) -

(2,285,586)

(35,799) 72,359

182,236 218,796

(2,066,790)

(4.13)(4.13)

2,471,982 (1,585,875)

886,107 (623,202)

- -

(623,202)262,905

79,135 107,615 (29,706)

5,311

- 4,425

166,780 429,685

774,742 -

2,217 776,959

(347,274) -

(347,274)

(84,254) 4,105

236,015 155,866

(191,408)

(0.38)(0.38)

2009 2008 Rupees in '000'

Note

PROFIT AND LOSS ACCOUNTFOR THE YEAR ENDED DECEMBER 31, 2009



STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED DECEMBER 31, 2009



Loss after taxation for the year

Other comprehensive income

Total comprehensive income for the year

(2,066,790)

-

(2,066,790)

(191,408)

-

(191,408)

Rupees in '000

December 31,2008

December 31, 2009



CASH FLOW STATEMENTFOR THE YEAR ENDED DECEMBER 31, 2009



Note

A. CASH FLOWS FROM OPERATING ACTIVITIES

Loss before taxationDividend income

Adjustments:DepreciationAmortizationImpairment of goodwillProvision against non-performing advancesProvision for diminution in value of investmentsUnrealized loss on revaluation of investment in held for trading securities Loss / (gain) on sale of fixed assetsProvision for compensated absencesProvision for gratuity

(Increase) / decrease in operating assetsLendings to financial institutionsHeld for trading securitiesAdvancesOther assets

Increase / (decrease) in operating liabilitiesBills payableBorrowings from financial institutionsDeposits and other accountsOther liabilities

Income tax paidNet cash generated from operating activities

B. CASH FLOWS FROM INVESTING ACTIVITIES

Net investments in available for sale securitiesInvestment in associateDividend receivedInvestments in operating fixed assetsSale proceeds from disposal of property and equipmentNet cash used in investing activities

(347,274) (107,615) (454,889)

46,793 26,072 60,794

623,202 -

- (845) 8,492 9,625

774,133 319,244

2,655,582 61,952

(8,352,632) (590,678)

(6,225,776)

(308,216) 121,337

7,151,681 221,175

7,185,977 1,279,445 (123,291) 1,156,154

(90,159) (112,773)

111,163 (494,906)

39,354 (547,321)

2009 2008 Rupees in '000'

(2,285,586) (33,120)

(2,318,706)

104,385 27,918

- 1,816,580

224,207

4,423 30

4,729 10,714

2,192,986 (125,720)

(1,233,817) (108,298)

(4,561,717) (110,214)

(6,014,046)

137,246 (315,139)

14,691,022 607,706

15,120,835 8,981,070

(5,301) 8,975,769

(7,008,567) -

32,732 (767,012)

177 (7,742,670)

C. CASH FLOWS FROM FINANCING ACTIVITIES

Issue of share capitalShare premium on issue of share capitalNet cash generated from financing activities

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of the year

Cash and cash equivalents at end of the year

- - -

608,833

806,396

1,415,229

- - -

1,233,099

1,415,229

2,648,32830


STATEMENT OF CHANGE IN EQUITYFOR THE YEAR ENDED DECEMBER 31, 2009



Share capital

Balance as at January 01, 2008

Total comprehensive income for the year ended December 31, 2008

Loss for the yearTransfer to general reserve

Transactions with owners

Issue of bonus shares

Balance as at December 31, 2008

Total comprehensive income for the year ended December 31, 2009

Loss for the yearTransfer from general reserve

Balance as at December 31, 2009

6.324.139

(191,408)-

-

(6,132,731)

(2,066,790) -

(4,065,941)

4,500,000

- -

500,000

5,000,000

- -

5,000,000

1,500,000

- -

(500,000)

1,000,000

- -

1,000,000

64,828

- -

-

64,828

- -

64,828

66,567

- 183,433

-

250,000

- (250,000)

-

192,744

(191,408) (183,433)

-

(182,097)

(2,066,790) 250,000

(1,998,887)

Rupees in '000'

Share premium

Statutoryreserve

Generalreserve

Unappropriatedprofit/

accumulatedloss)

Total

Capital Reserves Revenue Reserves


NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2009

1. STATUS AND NATURE OF BUSINESS

1.1 Arif Habib Bank Limited (the Bank) was incorporated in Pakistan as public company limited by shares on December 09, 2005 under the Companies Ordinance, 1984. It is listed on all the stock exchanges of Pakistan. Registered office is situated at 2/1 R.Y. 16, Old Queens Road, Karachi in the province of Sindh.

1.2 The Bank is principally engaged in the business of banking, through its 40 branches (2008: 33 branches), as defined in the Banking Companies Ordinance, 1962. The medium to long term rating of the Bank rated by JCR-VIS, credit rating company, is 'A' with a positive outlook. Short term rating of the Bank is 'A-2'.

1.3 Suroor Investment Limited (SIL), a company incorporated in Mauritius, has entered into a Share Purchase Agreement (SPA) with Arif Habib Securities Limited (AHSL) - the holding company on June 30, 2009 for acquisition of 297,034,854 ordinary shares of the Bank beneficially owned by AHSL. Full payment was made to AHSL before the year ended December 31, 2009 as required under the SPA. Transfer of shares will be done after necessary regulatory requirements.

1.4 In accordance with BSD Circular No. 7 dated April 15, 2009, the minimum paid up capital requirement (free of losses) of the bank at December 31, 2009 is Rs 6 billion. The paid up capital of the Bank as at December 31, 2009 is Rs. 5 billion and the Bank has reserves and accumulated losses of Rs. 1.1 billion and Rs. 2 billion respectively as of the said date. The management approached SBP to grant extension of the said minimum capital requirement on the basis that SIL, the holding company has

also entered into Share Purchase Agreements (SPAs) with majority shareholders of Mybank Limited and Atlas Bank Limitedand as directed by the State Bank of Pakistan intend to merge these banks with and into Arif Habib Bank Limited. SBP vide its letter No. BSD/BAI-3/608/008/2010 dated January 6, 2010 has granted extension to the Bank till March 31, 2010 or completion of merger process whichever occurs earlier to meet the shortfall.

2. BASIS OF PRESENTATION

In accordance with the directives of the Federal Government regarding the shifting of the banking system to Islamic modes, the State Bank of Pakistan (SBP) has issued various circulars from time to time. Permissible forms of trade-related modes of financing include purchase of goods by banks from their customers and immediate resale to them at appropriate mark-up in price on

deferred payment basis. The purchase and sales arising under these arrangements are not reflected in these financial statements as such but are restricted to the amount of facility actually utilized and the appropriate portion of mark-up thereon.

3. STATEMENT OF COMPLIANCE

3.1 These financial statements are prepared in accordance with the approved accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board as are notified under the Companies Ordinance, 1984, provisions and directives issued under the Banking Companies Ordinance, 1962, the Companies Ordinance, 1984, and the directives issued by the State Bank of Pakistan (SBP). In case requirements differ, the provisions and directives issued under the Banking Companies Ordinance, 1962, the

Companies Ordinance, 1984 and the directives issued by 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 Changes in accounting policy and disclosures - standards, interpretations and amendments to published approved accounting standards that are effective in the current year.

3.3.1 IAS 1 (revised), ‘Presentation of Financial Statements’ (effective from January 1, 2009). The revised standard prohibits the presentation of items of income and expenses (that is, ‘non-owner changes in equity’) in the statement of changes in equity. It requires non-owner changes in equity to be presented separately from owner changes in equity. All non-owner changes in equity are required to be shown in a performance statement, but entities can choose whether to present one performance statement (the statement of comprehensive income) or two statements (the income statement and statement of comprehensive income). Where entities restate or reclassify comparative information, they are required to present a restated statement of financial position as at the beginning comparative period, in addition to the current requirement to present statements of financial position at the end of the current period and comparative period.



The Bank has applied IAS 1 (revised) during the current period, and has accordingly changed its accounting policy to comply with the new requirements of IAS. The Bank has elected to show elements of comprehensive income in a separate statement. The change in presentation has not affected the values of the net assets of the Bank for either the current or any of the prior periods and there is no impact on the earnings per share. Further, as surplus on revaluation of assets does not form part of the equity under the local laws and is presented below the equity in the balance sheet, accordingly changes in equity arising from surplus on revaluation of assets have not been considered as part of comprehensive income and accordingly these are not included in the statement of comprehensive income presented in these financial statements.

3.3.2 IAS 23 (Amendment) 'Borrowing costs' (effective from January 1, 2009). This standard requires an entity to capitalise borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset (one that takes a substantial period of time to get ready for use or sale) as part of the cost of that asset. The option of immediately expensing those borrowing costs has been removed. Further, the definition of borrowing cost has been amended so that interest expense is calculated using the effective interest rate method. The Bank has adopted the aforementioned amendments from January 1, 2009. The management of the Bank believes that presently this amendment does not have any impact on the Bank's financial statements.

3.3.3 IAS 19 ( Amendment), 'Employee benefits' (effective from January 1,2009).

- The amendment clarifies that a plan amendment that results in a change in the extent to which benefit promises are affected by future salary increase in a curtailment, while an amendment that changes benefits attributable to past service gives rise to a negative past service cost if it results in a reduction in the present value of the defined benefit obligation.

- The definition of return on plan assets has been amended to state that plan administration cost are deducted in the calculation of the return on plan assets only to the extent that such costs have been excluded from measurement of the defined benefit obligation.

- The distinction between short term and long term employee benefits will be based on whether benefits are due to be settled within or after 12 months of employee service being rendered.

- IAS 37, 'Provisions, contingent liabilities and contingent assets', requires contingent liabilities to be disclosed, which are not recognized. IAS 19 has been amended to be consistent.

The Bank has adopted the aforementioned amendments from January 1, 2009. The management of the Bank believes that this amendment dose not have any impact on the Bank’s financial statements.

3.3.4 IAS 36 (Amendment), ‘Impairment of assets’ (effective from January 1, 2009). As per the new requirements, where fair value less costs to sell is calculated on the basis of discounted cash flows, disclosures equivalent to those for value-in-use calculation should be made. The Bank has adopted the aforementioned amendments from January 1, 2009. The management of the Bank believes that presently this amendment does not have any impact on the Bank's financial statements.

3.3.5 IAS 38 (Amendment), ‘Intangible assets’ (effective from January 1, 2009). The amended standard states that a prepayment may only be recognised in the event that payment has been made in advance of obtaining right of access to goods or receipt of services. The Bank has adopted the aforementioned amendments from January 1, 2009. The management of the Bank believes that this amendment does not have any impact on the Bank's financial statements.

3.3.6 There are other amendments to the approved accounting standards and interpretations that are mandatory for accounting periods beginning on or after January 1, 2009 but are considered not to be relevant or to have any significant effect on theBank's operations and are therefore not detailed in these financial statements.

3.4 Standards, interpretations and amendments to published approved accounting standards that are not applied

IFRS 8 'Operating segments', (effective from January 1, 2009). IFRS 8 replaces IAS 14, 'Segment reporting'. The new standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes. In addition, the segments are reported in a manner that is more consistent with the internal reporting provided to the chief operating decision-maker. 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 the SBP has defined the segment categorization through the BSD Circular. Accordingly, the requirements specified by the IFRS 8 as above are presently not applicable on the Bank's financial statements.



3.5 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 January 1, 2010: -

3.5.1 IFRIC – 17 Distributions of Non-cash Assets to Owners (effective for annual periods beginning on or after July 01, 2009) states that when a Bank disributes non cash assets to its shareholders as dividend, the liability for the dividend is measured at fair value. If there are subsequent changes in the fair value before the liability is discharged, this is recognised in equity. When the non cash asset is distributed, the difference between the carrying amount and fair value is recognised in the income statement. As the Bank does not distribute non-cash assets to its shareholders, this interpretation has no impact on the Bank’s financial statements.

3.5.2 Amendment to IFRS 5 ‘Measurement of non-current assets (or disposal groups) classified as held-for-sale’. The amendment provides clarification that IFRS 5 specifies the disclosures required in respect of non-current assets (or disposal groups) classified as held for sale or discontinued operations. It also clarifies that the general requirement of IAS 1 still apply, particularly paragraph 15 (to achieve a fair presentation) and paragraph 125 (sources of estimation uncertainty) of IAS 1. The Bank will apply IFRS 5 (amendment) from 1 January 2010. It is not expected to have a material impact on the Bank's financial statements.

3.5.3 Amendment to IAS 32 - Financial Instruments: Presentation – Classification of Rights Issues (effective for annual periods beginning on or after February 01, 2010). The IASB amended IAS 32 to allow rights, options or warrants to acquire a fixed number of the entity’s own equity instruments for a fixed amount of any currency to be classified as equity instruments provided the entity offers the rights, options or warrants pro rata to all of its existing owners of the same class of its own non-derivative equity instruments.

3.5.4 IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments (effective for annual periods beginning on or afterJuly 01, 2010). This interpretation provides guidance on the accounting for debt for equity swaps. This interpretation has no impact on the Bank’s financial statements.

3.5.5 IAS 24 - Related Party Disclosures (revised 2009) – effective for annual periods beginning on or after January 01, 2011. The revision amends the definition of a related party and modifies certain related party disclosure requirements for government-related entities. The amendment would result in certain changes in disclosures.

3.5.6 Amendments to IFRIC 14 IAS 19 - The Limit on a Defined Benefit Assets, Minimum Funding Requirements and their Interaction (effective for annual periods beginning on or after January 01, 2011). These amendments remove unintended consequences

arising from the treatment of prepayments where there is a minimum funding requirement. These amendments result in prepayments of contributions in certain circumstances being recognised as an asset rather than an expense. This amendment is not likely to have any impact on Bank’s financial statements.

3.5.7 The International Accounting Standards Board made certain amendments to existing standards as part of its Second annual improvements project. The effective dates for these amendments vary by standard and most will be applicable to the Bank’s 2010 financial statements.

3.5.8 There are other amendments to the approved accounting standards and interpretations that are mandatory for accounting periods beginning on or after January 1, 2010 but are considered not to be relevant or to have any significant effect on the Bank's operations and are therefore not detailed in these financial statements.

3.6 Early adoption of standards

The Bank did not early adopt new or amended standard in 2009.

4. BASIS OF MEASUREMENT

4.1 Accounting convention

These financial statements have been prepared under the historical cost convention, except that certain financial instruments are carried at fair value and staff retirement benefits are stated at present value.



4.2 Critical accounting estimates and judgments

The preparation of financial statements in conformity with approved accounting standards requires to make certain judgments, accounting estimates and assumptions. It also requires the management to exercise its judgment in the process of applying the Bank's accounting policies. These estimates and associated assumptions are continually evaluated and are based on historical experience, statutory requirements and other factors considered reasonable in the circumstances. Revision to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected. The estimates and assumptions that are expected to have a significant effect on the assets and liabilities, income and expenses have been disclosed in note 6 to these financial statements.

5. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting policies adopted in the preparation of these financial statements are the same as those applied in the preparation of the financial statements of the Bank for the year ended December 31, 2008 (except for the change mentioned in note 5.1 below) and are enumerated as follows:

5.1 Change in accounting policy

Starting January 01, 2009, the Bank has changed its accounting policy in respect of 'Presentation of financial statements'.

IAS 1 (Revised) ‘Presentation of Financial Statements’ (effective for annual periods beginning on or after January 1, 2009)-The revised standard prohibits the presentation of items of income and expenses (that is, non-owner changes in equity’) in the statement of changes in equity, requiring ‘non-owner changes in equity’ to be presented, an entity may present the components of profit or loss either as part of a single statement of comprehensive income or in a separate income statement. The Bank has opted to resent the components of profit or loss in a separate statement while a statement of comprehensive income is presented separately as permitted under revised IAS 1. As surplus on revaluation of assets does not form part of the equity under the local laws and is presented below the equity in the balance sheet, accordingly changes in equity arising form surplus on revaluation of assets have not been considered part of comprehensive income and accordingly these are not included in the statement of comprehensive income presented in these financial statement.

Comparative information has been re-presented so that it is also in conformity with the revised standard. Since the change in accounting policy only impacts presentation aspects, there is no impact on earnings per share.

5.2 Cash and cash equivalents

For the purpose of cash flow statements, cash and cash equivalents include cash and balances with treasury banks and balances with other banks (net of overdrawn nostro balances) in current and deposit accounts.

5.3 Lending to / borrowings from financial and other institutions

The Bank enters into transactions of borrowings (re-purchase) from and lending (reverse re-purchase) to financial and other institutions, at contracted rates for a specified period of time. These are recorded as under:

Repurchase agreement borrowings

Securities sold subject to an agreement to repurchase at a specified future date (repos) are continued to be recognised in the balance sheet and are measured in accordance with accounting policies for investment securities. The counterparty liability for amounts received under these agreements is included in borrowings. The difference between sale and repurchase price is treated as mark-up expense and is accrued over the period of the repo agreement.

Repurchase agreement lendings

Securities purchased under agreement to resell at a specified future date (reverse repos) are not recognised in the balance sheet. Amounts paid under these agreements are included in lendings to financial institutions. The difference between purchase and resale price is treated as mark-up earned and is accrued over the period of the reverse repo agreement.

Securities purchased are not recognised in the financial statements, unless these are sold to third parties, in which case the obligation to return them is recorded at fair value as a trading liability under borrowings from financial institutions

5.4 Investments

The management determines the appropriate classification of its investments at the time of purchase and classifies these investments as held for trading, available for sale or held to maturity. These are initially recognised at cost, being the fair value of the consideration given including the acquisition cost.



Held-for-trading

These are securities which are either acquired for generating a profit from short-term fluctuations in market prices, interest rate movements, dealer's margin or are securities included in portfolio in which a pattern of short-term profit taking exists.

Held-to-maturity

These are securities with fixed or determinable payments and fixed maturity that the Bank has the positive intent and ability to hold to maturity.

Available-for-sale

These are investments, other than those in associates, that do not fall under the held for trading or held to maturity categories.

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

In accordance with the requirements of SBP, quoted securities, other than those classified as held to maturity and investments in associates, are stated at market value. Investments classified as held to maturity are carried at amortized cost whereas investments in associates (which qualify for accounting under International Accounting Standard -28 ' Investment in Associates') are carried at cost in accordance with the directive of SBP.

The unrealized surplus / (deficit) arising as a result of revaluation of the Bank's held for trading investment portfolio is taken to profit and loss account.

The surplus / (deficit) arising on revaluation of quoted securities classified as available for sale is kept in a separate account shown in the balance sheet below equity. The surplus / (deficit) arising on these securities is taken to profit and loss account when actually realized on disposal.

Quoted securities are revalued as per directives of SBP. Unquoted equity securities are valued at lower of cost and break-up value. Subsequent increases and decreases in the carrying value are credited/charged to profit and loss account. 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. Investments in other unquoted securities are valued at cost less impairment losses, if any.

Gain and losses arising on sale of investments during the year are taken to the profit and loss account.

Provisions for diminution in the value of securities (except for debentures, participation term certificates and term financecertificates) is made after considering impairment, if any, in their value. Provision for diminution in value of debentures, participation term certificates and term finance certificates are made in accordance with the requirements of Prudential Regulations issued by SBP.

5.5 Advances

Advances are stated net of general and specific provisions. The specific and general provisions for advances are made in accordance with the requirements of Prudential Regulations and other directives issued by the State Bank of Pakistan and are charged to the profit and loss account. Non-performing loans and advances in respect of which the bank does not expect any recoveries in future years are written off.

Leases, where the Bank transfers substantially all the risks and rewards incidental to the ownership of an assets are classified as finance leases. A receivable is recognised at an amount equal to the present value of the minimum lease payments, including guaranteed residual value, if any. Unearned finance income is recognised over the term of the lease, so as to produce a constant periodic return on the outstanding net investment in lease.

5.6 Operating fixed assets and depreciation

OwnedProperty and equipment, other than leasehold land which is not depreciated, are stated at cost less accumulated depreciation and impairment losses, if any.Depreciation is calculated using the straight line method to write down the cost of assets to their residual values over the estimated useful lives. The rates at which the assets are depreciated are disclosed in Note 12.2 to the financial statements. The residual values, useful lives and depreciation method are reviewed and adjusted, if appropriate, at each balance sheet date.

Depreciation on additions is charged from the month the assets are available for use while no depreciation is charged in the month in which the assets are disposed off.



Subsequent costs are included in an asset's carrying amount or recognised as a separate asset as appropriate, only when it is probable that future benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the profit and loss account as and when incurred.

An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from itsuse or disposal. Any gain or loss arising on derecognition of the assets is recognised in the profit and loss account in the year when asset is derecognised.

Capital work in progress

Capital work-in-progress are stated at cost.

Intangible assets

Intangible assets, other than goodwill, having a finite useful life are stated at cost less accumulated amortization and accumulated impairment losses, if any. Intangible assets are amortized over their estimated useful lives, using the straight line method. Amortization is charged from the month the assets are available for use at the rate stated in note 12.3.

5.7 Non current assets held for sale

Non current assets (or disposal groups comprising assets and liabilities) that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. The assets (or disposal groups) are measured at lower of their carrying amount and fair value less cost to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses on remeasurement are recognised in profit or loss.

5.8 Assets acquired in satisfaction of claims

The Bank occasionally acquires assets in settlement of certain advances. These are stated at lower of the net realizable value of the related advances and the current market value of such assets.

5.9 Impairment

The carrying amounts of assets are reviewed at each balance sheet date for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable. If such indication exists, and where the carrying value exceeds the estimated recoverable amount, assets are written down to their recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The resulting impairment loss is taken to the profit and loss account.

5.10 Deferred costs

Pre-operating / preliminary expenses are included in the deferred costs and are amortized over five years on straight line basis from the date of commencement of business.

5.11 Staff retirement and other benefits

Defined contribution plan

The Bank operates defined contribution provident fund for all employees. Equal monthly contributions are made both by the Bank and the employees to the fund at the rate of 8.33 percent of basic salary.

Defined benefit scheme

The Bank operates an unfunded gratuity scheme for all its permanent employees who have completed the minimum qualifying period of five years. Provision is made to meet the cost of such gratuity benefits on the basis of actuarial recommendations and are charged to income currently. The actuarial valuations are periodically carried out using the 'Projected Unit Credit Method'.

Annual contributions towards the defined benefit schemes are made on the basis of actuarial valuation carried out using the Projected Unit Credit Method. Actuarial gains/losses arising from experience adjustments and changes in actuarial assumptions are amortized over the future expected remaining working lives of the employees, to the extent of the greater of ten percent of the present value of the defined benefit obligation at that date (before deducting plan assets) and ten percent of the fair value of any plan assets at that date.



Employees' compensated absences

The Bank provides its liability towards compensated absences accumulated by its employees on the basis of actuarial valuation carried out using the Projected Unit Credit Method. Actuarial gain/loss are amortized over the future expected average remaining lives of the employees, to the extent of ten percent of the present value of the defined benefit obligations at that date.

5.12 Taxation

Current

Provision for current taxation is based on taxable income at the current rate of tax after taking with applicable tax credits, rebates and exemptions available; if any. The charge for current tax also include adjustments where considered necessary, relating to prior years which arise from assessments finalized during the year.

Deferred

Deferred tax is recognized on all major temporary differences, tax credits and unused losses at the balance sheet date between the amounts attributed to assets and liabilities for financial reporting purposes and amounts used for taxation purposes. Deferred tax is calculated at the rates that are expected to apply to the periods when the differences will reverse, based on tax rates that have been enacted or substantially enacted at the balance sheet date.

A deferred tax asset is recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

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

5.13 Provisions

Provisions are recognized when the Bank has a legal or constructive obligation as a result of past events and it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and are adjusted to reflect the current best estimate.

5.14 Foreign currencies

Foreign currency transactions and translations

Transactions in foreign currencies are translated into rupees at the exchange rates prevailing on the transaction date. Monetary assets and liabilities in foreign currencies are expressed in rupees terms at the rates of exchange ruling on the balance sheet date. Forward foreign exchange contracts are valued at forward rates determined with reference to their respective maturities.

Translation gains and losses

Translation gains and losses are included in the profit and loss account.

5.15 Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic environment in which theBank operates. The financial statements are presented in Pakistani Rupees, which is the bank's functional and presentation currency.

5.16 Proposed dividend and appropriation to reserves

Dividends and appropriations to reserves, except appropriations which are required by the law, after the balance sheet date are recognised as liability in the bank's financial statements in the year in which these are approved.



5.17 Revenue recognition

Revenue is recognized to the extent that the economic benefits will flow to the Bank and the revenue can be reliably measured. The following recognition criteria are used for revenue recognition:

Advances and investments

Markup / return on regular loans / advances and investments is recognized on time proportion basis. Where debt securities are purchased at premium or discount, the same is amortized through the profit and loss account over the remaining period using effective interest method.

Interest or markup recoverable on classified loans and advances and investments is recognized on receipt basis. Interest / return / mark-up on rescheduled / restructured loans and advances and investments is recognized as permitted by the regulations of the SBP.

Dividend income is recognized when the bank's right to receive the dividend is established.

Gain and loss on sale of investments are recognized in the profit and loss account.

Lease financing

Financing method is used in accounting for income from lease financing. Under this method, the unearned lease income (excess of the sum of total lease rentals and estimated residual value over the cost of leased assets) is deferred and taken to income over the term of the lease period so as to produce a constant periodic rate of return on the outstanding net investment in lease. Unrealized income on classified leases if any, is recognized on receipt basis.

Gains/losses on termination of lease contracts, documentation charges, front-end fees and other lease income are recognized as income on receipts basis.

Fees, brokerage and commission

Fees, brokerage and commission on letters of credit/guarantees and others are generally recognized on an accrual basis.

5.18 Off setting

Financial assets and financial liabilities are off set and the net amount is reported in the financial statements when there is a legal enforceable right to set off the recognized amounts and the Bank intends either to settle either on a net basis, or to realize the assets and to settle the liabilities simultaneously.

5.19 Financial instruments

Financial assets and liabilities

Financial instruments carried on the balance sheet include cash and bank balances, lendings to financial institutions, investments, advances, certain other receivables, borrowings from financial institutions, deposits 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. Financial assets are de-recognised when the contractual right to future cash flows from the asset expire or is transferred along with the risk and reward of the asset. Financial liabilities are de-recognised when obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on de-recognition of the financial asset and liabilities is recognised in the profit and loss account of the current period.

Derivative financial instruments

Derivative financial instruments are initially recognized at their fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value using appropriate valuation techniques. All derivative financial instruments are carried as assets when fair value is positive and liabilities when fair value is negative. Any change in the fair value of derivative financial instruments is taken to the profit and loss account.



5.20 Segment reporting

A segment is a distinguishable component of the Bank that is subject to risks and rewards that are different from those of other segment. A business segment is one that is engaged either in providing certain products or services, whereas a geographical segment is one engaged in providing certain products or services within a particular economic environment. Segment information is presented as per the Bank’s functional structure and the guidance of State Bank of Pakistan. The Bank comprises of the following main business segments: -

Business segments

• Corporate financeThis includes investment banking activities such as mergers and acquisitions, underwriting, privatization, securitization, Initial Public Offers (IPOs) and secondary private placements.

• Trading and salesThis segment undertakes the Bank’s treasury, money market and capital market activities.

• Retail bankingRetail banking provides services to small borrowers i.e. consumers, small and medium enterprises (SMEs) and borrowers’ agriculture sector. It includes loans, deposits and other transactions with retail customers.

• Commercial bankingThis includes loans, deposits and other transactions with corporate customers.

• Payment and settlementThis includes payments and collections, funds transfer, clearing and settlement with the customers.

Geographical segmentsThe Bank conducts all its operations in Pakistan.

6. CRITICAL ACCOUNTING JUDGMENTS AND KEY

SOURCES OF ESTIMATION UNCERTAINTY

In the process of applying the Bank’s accounting policies, as described in note 5, the management has made the following estimates and judgments which are significant to financial statements: -

• classification of investments (Note 5.4);

• determining the residual values and useful lives of property and equipment (Note 5.6);

• impairment (Note 5.9);

• accounting for post employment benefits (Note 5.11);

• recognition of taxation and deferred tax (Note 5.12);

• provisions (Note 5.4, 5.5 and 5.13).



7. CASH AND BALANCES WITH TREASURY BANKS

In handLocal currencyForeign currencies

With State Bank of Pakistan inLocal currency current accountForeign currency current accountForeign currency deposit account - Non remunerative - Remunerative

With National Bank of Pakistan inLocal currency current account

2009 2008 Rupees in '000'

Note

7.17.2

7.37.4

152,032 20,802

853,912 4,768

77,517 233,463

7,155 1,349,649

296,474 45,798

1,108,944 15,393

101,090 303,270

52,557 1,923,526

7.1 Deposits with the SBP are maintained to comply with the statutory requirements issued from time to time.

7.2 This represents US Dollar Settlement account maintained with SBP.

7.3 This represents foreign currency special cash reserve maintained with SBP equivalent to at least 5% of the Bank's foreign currency deposits.

7.4 This represents foreign currency special cash reserves maintained with SBP equivalent to at least 15% of the Bank's foreign currency deposits. Profit rates on this deposit are fixed on a monthly basis by SBP. Profit rate remained Nil in 2009 (2008: 0.90% to 3.60%).

9.1 These are short-term lendings to various financial institutions against the government securities shown in note 9.1.2 below. These carry mark-up at rates ranging between 12.15 % and 12.40 % (2008: nil) per annum and will mature on various dates, latest by January 07, 2010.

9.1.1 Particulars of lendings

In local currencyIn foreign currencies

8. BALANCES WITH OTHER BANKS

In PakistanOn current accountsOutside PakistanOn current accounts

9. LENDINGS TO FINANCIAL INSTITUTIONS

Repurchase agreement lendings (Reverse Repo)Call money lendings

15,542

50,038 65,580

8,283

716,519 724,802

200,000 -

200,000

1,433,817 -

1,433,817

- 200,000

200,000

1,433,817 -

1,433,817

9.1



9.1.2 Securities held as collateral against lendings to Financial Institutions

Market Treasury Bills

Held by Bank

Rupees in '000'

Further given as collateral

Total Held by Bank

Further given as collateral

Total

December 31, 2009 December 31, 2008

1,433,817

1,433,817

-

-

1,433,817

1,433,817

-

-

-

-

-

-

10.1.1 These includes mutual funds units / certificates of Pakistan Income Enhancement Fund, Pakistan Premier Fund Limited, Pakistan Capital Protected Fund and Pakistan Strategic Allocation Fund which are associated undertakings as per the Companies Ordinance, 1984 on the basis of common directorship in the management company operating these funds. However, for the purpose of measurement, they have been classified as available for sale as the Bank does not exercise any significant influence over them.

10. INVESTMENTS

10.1 Investments by types:

Held-for-trading securitiesListed ordinary shares

Available - for - sale securitiesMarket Treasury BillsPakistan Investment BondsListed ordinary sharesMutual funds unit open endMutual funds unit closed endTerm Finance Certificates - listedTerm Finance Certificates - unlistedSukuk Bonds

AssociatesListed ordinary sharesInvestment at cost

Less: Provision for diminution in valueof investmentsInvestments - net of provisions

Unrealized loss on held for trading securitiesDeficit on revaluation ofavailable for sale securities

Total investments at market value

- - - - - - - - - - - - - - - - - - - - - Rupees in '000 - - - - - - - - - - - - - - - - - - - -

December 31, 2009 December 31, 2008

-

733,602 364,608 422,738 145,000

11,229 99,980

1,499,900 400,000

3,677,057

112,773 3,789,830

- 3,789,830

-

(317,427)

3,472,403

Held by bank

-

1,574,702 -

211,021 - - - - -

1,785,723

- 1,785,723

- 1,785,723

-

(163,513)

1,622,210

Given ascollateral

-

2,308,304 364,608 633,759 145,000

11,229 99,980

1,499,900 400,000

5,462,780

112,773 5,575,553

- 5,575,553

-

(480,940)

5,094,613

Total

10.3 10.3 10.4

10.1.1 & 10.5 10.1.1 & 10.5

10.6 10.7 10.8

10.9

10.11

10.13

20

Note

108,298

8,210,515 451,748 700,120 115,000 53,244

300,084 1,499,700

605,304 11,935,715

112,773 12,156,786

(221,379) 11,935,407

(4,423)

(14,038)

11,916,946

Held by bank

108,298

8,698,346 451,748 700,120 115,000 53,244

345,057 1,499,700

605,304 12,468,519

112,773 12,689,590

(221,379) 12,468,211

(4,423)

(17,755)

12,446,033

Total

-

487,831 - - - -

44,973 - -

532,804

- 532,804

- 532,804

-

(3,717)

529,087

Given ascollateral



10.3 Market Treasury Bills and Pakistan Investment Bonds are held with SBP and are eligible for rediscounting. Market Treasury Bills embody effective yield ranging from 11.79% to 12.60% (2008 : 9.84% to 13.85%) per annum and are maturing within 12 months. Pakistan Investment Bonds carry markup ranging from 8 % to 12 % (2008 : 7% to 11%) per annum on semi-annual basis and are maturing within 3 to 10 years. Certain government securities are kept with SBP to meet statutory liquidity requirement calculated on the basis of demand and time liabilities.

10.2 Investments by segments:

Federal Government Securities: - Market Treasury Bills

- Pakistan Investment Bonds

Fully Paid up Ordinary Shares / Units / Certificate:- Listed companies- Mutual funds - open end- Mutual funds - closed end

Term Finance Certificates and Bonds- Listed Term Finance Certificate- Unlisted Term Finance Certificates- Sukuk Bonds

Investment in associatesTotal investment at costLess: Provision for diminution in value of investmentsInvestments - net of provisionsDeficit on revaluation of securities - held for tradingDeficit on revaluation of securities - available for saleTotal investments at market value

2009 2008 Rupees in '000'

Note

2,308,304 364,608

633,759 145,000

11,229

99,980 1,499,900

400,000

112,773 5,575,553

- 5,575,553

- (480,940) 5,094,613

8,698,346 451,748

808,418 115,000 53,244

345,057 1,499,700

605,304

112,773 12,689,590

(221,379) 12,468,211

(4,423) (17,755)

12,446,033

10.310.3

10.410.1.1 & 10.510.1.1 & 10.5

10.610.710.8

10.9

10.11

10.13 20

10.4 Particulars of investment in ordinary shares - listed

Name of companies

Al-Abbas Cement Company LimitedArif Habib LimitedAskari Commercial Bank LimitedAllied Bank LimitedAttock Petroleum LimitedAttock Refinery LimitedBank Al Falah LimitedBank Islami Pakistan LimitedBosicor Pakistan LimitedCrescent Steel and Allied Products Ltd.Dawood Lawrancepur LimitedDewan Salman Fibre LimitedD.S. Industries LimitedD.G. Khan Cement LimitedDost Steels LimitedEye Television Network Limited

- -

5,000,000 -

60,131 53,000

200,000 - - - - - -

957,000 - -

1,478,026 2

4,000,011 29,000

- 6

10 7

150 15 28

4 60

500,000 100

65

10101010101010101010101010101010

- -

50,000 -

601 530

2,000 - - - - - -

9,570 - -

14,780 -

40,000 290

- - - - 2 - - - 1

5,000 1 1

Rupees in '000'

2009 2008Number of shares held

2009 2008Total nominal valuePaid-up value

per share



Name of companies

Fauji Fertilizer Bin Qasim LimitedFauji Fertilizer Company LimitedFauji Cement Company LimitedFaysal Bank LimitedFirst National Equities LimitedHabib Bank LimitedHub Power Company LimitedIbrahim Fibres LimitedInvest and Finance Securities LimitedJaved Omer Vohra and Company Ltd.Jahangir Siddiqui and Company LimitedLucky Cement Company LimitedMCB Bank LimitedMaple Leaf Cement Factory LimitedNational Bank of PakistanNishat Chunian LimitedNishat Chunian Power LimitedNishat Power LimitedNetsol Technologies LimitedNIB Bank LimitedOil & Gas Development Company Ltd.Pakistan Oilfields LimitedPakistan Petroleum LimitedPakistan State Oil LimitedPak Suzuki Motors LimitedPervaiz Ahmed Securities LimitedPakistan Cement Company LimitedPakistan PTA LimitedSilk Bank LimitedSui Northern Gas Pipelines LimitedSui Southern Gas Company LimitedTelecard Pakistan LimitedTRG Pakistan Limited (Class A)The Bank of PunjabUnited Bank LimitedWorld Call Telecom Limited

290,000 25,000

- - - -

100,000 466,500

- - - - - -

230,000 -

5,377,600 13,884,174

- - -

480,000 -

100,000 200,000

- - - - - - - - -

969,000 -

21 54,600

22 1 8

8,401 -

430,500 21 33

7 300,000

5 4

25,003 2 - - 4

15 50,000

480,001 6

100,000 200,000

50 64 54 19

5 1

74 8 2

400,306 4

101010101010101010101010101010101010101010101010101010101010101010101010

2,900 250

- - - -

1,000 4,665

- - - - - -

2,300 -

53,776 138,842

- - -

4,800 -

1,000 2,000

- - - - - - - - -

9,690 -

- 546

- - -

84 -

4,305 - - -

3,000 - -

250 - --

- -

500 4,800

- 1,000 2,000

1 1 1 - - - 1 - -

4,003 -



per shareRupees in '000'

10.5 Particulars of investment in mutual funds

Mutual fund open end

Namco Income FundPakistan Income Enhancement

Fund (Note 10.1.1)

Mutual fund close end

JS Value Fund LimitedPICIC Growth FundPakistan Premier

Fund (Note 10.1.1)

-

1,986,777

- -

2,338,500

153,975

2,000,000

278 1

500,012

100

50

10010

10

-

99,339

- -

23,385

15,398

100,000

28 -

5,000

Name of companies

Pakistan Capital Protected Fund - 1 (Note 10.1.1)Pakistan Strategic Allocation Fund (Note 10.1.1)

3,198,000

2,500,000

3,198,000

500,000

10

10

31,980

25,000

31,980

5,000



per shareRupees in '000'



10.6 Particulars of investment in listed Term Finance Certificates - Face value of Rs.5,000/- each

Name of companies

Allied Bank Limited20,000 (2008: Nil) certificatesName of Chief Executive:Mr.Mohammad Aftab Manzoor

United Bank Limited10,000 (2008: Nil) certificatesName of Chief Executive:Mr. Atif R. Bukhari

Engro Corporation Limited20,000 (2008: Nil) certificatesName of Chief Executive:Mr. Asad Umar

NIB Bank Limited20,000 (2008: 20,000) certificatesName of Chief Executive:Mr. Khawaja Iqbal Hassan

'AA-'

'AA'

AA'

'A+'

6 monthsKIBOR plus 1.15%

6 monthsKIBOR plus 1.15%

6 monthsKIBOR plus1.55%


Semi-annually

Semi-annually

Semi-annually

Semi-annually

100,000

50,000

100,000

100,000

-

-

-

100,000

Rating 2009 2008Total nominal value

Repayment

Rupees in '000'

Markuprate

10.7 Particulars of investment in unlisted Term Finance Certificates - Face value of Rs.5,000/- each

Pak American Fertilizer Limited100,000 (2008: 100,000) certificatesMaturity date: December 14, 2015Name of Chief Executive:Mr. Ahmed Jauded Bilal

Gujranwala Electric PowerCompany Limited66,666 (2008: 66,666) certificatesMaturity date: August 16, 2011Name of Chief ExecutiveMr. Rana Muhammad Ashraf Zahid

Islamabad Electric Power CompanyLimited66,667 (2008: 66,667) certificatesMaturity date: August 16, 2011Name of Chief ExecutiveMr. Raja Abdul Ghafoor

AA-

Unrated

Unrated




Semi-annually

Semi-annually

Semi-annually

500,000

333,330

333,335

500,000

333,330

333,335



Name of companies

Faisalabad Electric PowerCompany Limited66,667 (2008: 66,667) certificatesMaturity date: August 16, 2011Name of Chief ExecutiveMr. Ahmed Saeed Akhtar

Unrated 6 monthsKIBOR plus

0.23%

Semi-annually 333,335 333,335

Rating 2009 2008Total nominal value

Repayment

Rupees in '000'

Markuprate

10.8 Particulars of investment in Sukuk Bonds - Face value of Rs.5,000/- each

Arzoo Textile Mills Limited40,000 (2008: 40,000) certificatesMaturity date: April 15, 2014Name of Chief ExecutiveMr. Naseem Saigol

Pak Electron Limited40,000 (2008: 40,000) certificatesMaturity date: March 15, 2015Name of Chief ExecutiveMr.Azhar Majeed Sheikh

Liberty Power Tech Limited40,000 (2008: Nil) certificatesMaturity date: March 15, 2015Name of Chief ExecutiveMr. Ashraf Mukati

Unrated

A+

Unrated

6 monthsKIBOR plus2% for first2 year and1.75% for

year 3 onwards.

3 monthsKibor plus

1%

3 months Kibor plus

3%

Semi-annually

Quarterly

Quarterly

200,000

200,000

205,304

200,000

200,000

-

10.9 Investment in associate

Thatta Cement Company Limited

10.9.1 Summarized financial information in respect of associate is set out below:-

Total assets Total liabilities Net assets

Revenue

Profit for the period

These figures are based the latest available unaudited condensed interim financial statements as at September 30, 2009.

112,773

1,378,260 (589,335)

788,925

350,911

14,304

112,773

820,513 (165,274)

655,239

501,452

85,448

--

PACRA-

PACRA-

PACRA-------

PACRA---

JCR-VIS--

PACRA--

PACRAJCR-VIS

--

PACRA-

JCR-VIS----

PACRA----

JCR-VIS-

UnratedUnrated

A+Unrated

A1+Unrated

A1+UnratedUnratedUnratedUnratedUnratedUnrated

Unrated A1+

UnratedUnratedUnrated

A1+UnratedUnratedUnratedUnratedUnrated

A1+A1+

UnratedUnratedUnratedUnrated

A1+UnratedUnrated

Unrated Unrated

A1+UnratedUnratedUnratedUnrated

A1+Unrated

UnratedUnrated

A1Unrated

AAUnrated

AAUnratedUnratedUnratedUnratedUnratedUnrated

Unrated AA

UnratedUnratedUnrated

AA+UnratedUnrated5 - Star

UnratedUnrated

AA+AAA

UnratedUnrated

AUnrated

AAAUnratedUnrated

Unrated Unrated

AAAUnratedUnratedUnratedUnrated

AA+Unrated

2,300,146 290,134 500,049 200,000

58,280 56,903

908 - 1 1 1 1

10,635 3 -

3,207 333,335 333,330

629 333,335

15,705 1 -

9,381 1

1,258 - -

92,182 15,772

2,500 200,000

49,196 1

1,010 14,458

1,140 27,439

100,200 15,922 14,776

- 4,981,840

8,695,609 419,448 486,770 150,000 136,500

- -

96,641 - - - -

19,536 -

92,926 -

333,335 333,330

6 333,335

17,083 -

205,304 - - -

55,389 176,746

91,723 18,346

- 184,248 110,770

- 14,031 29,744 11,000 29,326

100,670 17,792 25,718 44,061

12,229,385


Short TermRating

Long TermRating

Rating by

2008

Rupees in '000'2009 2008



10.10 Quality of Available for Sale Securities

Securities

Market Treasury BillsPakistan Investment BondsPak American Fertilizer (Pvt) Limited - (TFCs)Arzoo Textile Mills Limited (SUKUK)Askari Bank LimitedAl Abbas Cement Company LimitedAllied Bank LimitedAllied Bank Limited - (TFCs)Bosicor Pakistan LimitedDawood Lawrancepur LimitedD.S. Industries LimitedDost Steel LimitedD.G. Khan Cement LimitedEye Television Network LimitedEngro Chemical Pakistan Limited (TFCs)Fauji Fertilizer Company LimitedFaisalabad Electric Supply Co Limited (TFCs)Gujranwala Electric Power Co Limited (TFCs)Habib Bank LimitedIslamabad Electric Supply Co Limited (TFCs)Ibrahim Fibres LimitedJS Value Fund LimitedLiberty Power Tech LimitedLucky Cement Company LimitedMCB Bank LimitedNational Bank of PakistanNishat Chunian Power LimitedNishat Power LimitedNIB Bank Limited (TFCs)Namco Income FundOil & Gas Development Company LimitedPak Electron Limited - (SUKUK)Pakistan Oilfields LimitedPakistan Petroleum LimitedPakistan Premier FundPakistan State Oil LimitedPakistan Strategic Allocation FundPakistan Capital Protected Fund-1Pakistan Income Enhancement FundPak Suzuki Motors LimitedUnited Bank LimitedUnited Bank Limited - (TFCs)

UnratedUnrated

A1Unrated

A1+-------

Unrated-

Unrated-

UnratedUnrated

A1+UnratedUnrated

-Unrated

---

A1+A1+

UnratedUnrated

-UnratedUnrated

-Unrated

A1+UnratedUnratedUnratedUnrated

A1+Unrated

UnratedUnrated

A+Unrated

AA--

AA-----

Unrated-

AA-

UnratedUnrated

AA+UnratedUnrated

-Unrated

---

AAAAA+

Unrated-

UnratedUnrated

-Unrated

AA+UnratedUnratedUnratedUnrated

AA+AA+

--

PACRA -

PACRA--

JCR-VIS------

PACRA---

JCR-VIS-------

PACRAPACRAPACRA

------

PACRA---

- JCR-VISJCR-VIS

NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2009NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED DECEMBER 31, 2009

Short TermRating

Long TermRating

Rating by

2009



10.11 Particulars of provision

Opening balanceCharge for the yearWrite off during the yearClosing balance

2009 2008Rupees in '000'

- 224,207 (2,828)

221,379

- - - -

Note

10.11.1

10.11.1 It includes impairment loss of Rs 171 million recorded by the Bank during the year in accordance with the requirements of SBP BSD Circular No. 4 dated February 13, 2009 and Securities and Exchange Commission of Pakistan (SECP) SRO 150 (1)/2009 dated February 13, 2009.

Rupees in '000'

2009 Unrealized gain /(loss)

2008 Unrealized gain /(loss)

10.14 Shares pledged with National Clearing Company of Pakistan Limited againstContinuous Funding System (CFS) margin

Askari Bank Limited

Number ofshares

AmountRupees in '000'

Number ofshares

AmountRupees in '000'

2009 2008

- - 3,840,000 55,949

10.12 Particulars of Provision in respect of Type and Segment

By TypeAvailable-for-sale securitiesOrdinary Shares of listed companiesSukuk Bond

By SegmentFully Paid up Ordinary Shares - Listed companiesSukuk Bond

(171,379) (50,000)

(221,379)

(171,379) (50,000)

(221,379)

- - -

- - -

10.13 Unrealized loss on investments classified as held for trading

Attock Petroleum LimitedAttock Refinery LimitedBank Al-Falah LimitedD G Khan Cement Company LimitedHub Power Company LimitedFauji Fertilizer Company LimitedFauji Fertilizer Bin Qasim LimitedNational Bank of PakistanUnited Bank Limited

(780) (966)

60 (823) (141)

(6) 351

(390) (1,728) (4,423)

- - - - - - - - - -


11.1 Particulars of advances

11.1.1 In local currencyIn foreign currencies

11.1.2 Short TermLong Term

20,803,583 268,475

21,072,058

16,235,600 4,836,458

21,072,058

16,465,848 44,493

16,510,341

12,870,595 3,639,746

16,510,341

11.3 Advances include Rs.5,016.836 million (2008 : Rs.2,693.654 million) which have been placed under non-performing status as detailed below:-

- - - - - - - - - - - - - - - - - - - - - Rupees in '000 - - - - - - - - - - - - - - - - - - - - -

ClassifiedAdvances

ProvisionHeld

ProvisionRequired

ClassifiedAdvances

ProvisionHeld

ProvisionRequired

2009 2008

Category ofClassification

SubstandardDoubtfulLoss

383,045 1,693,502 2,940,289 5,016,836

25,913528,822

2,013,5082,568,243

25,913528,822

2,013,5082,568,243

1,314,612 745,993 633,049

2,693,654

123,677 173,633 454,353 751,663

123,677 173,633 454,353 751,663

11. ADVANCES

Loans, cash credits, running finances, etc. In Pakistan Outside Pakistan

Financing in respect of Continuous Funding System (CFS)

Net investment in finance lease In Pakistan Outside Pakistan

Bills discounted and purchased (excluding Treasury Bills) Payable in Pakistan Payable outside Pakistan

Advances - Gross

Provision against non-performing advancesAdvances - net of provision

20,719,557 -

20,719,557

-

142,388 -

142,388

97,064 113,049 210,113

21,072,058

(2,568,243) 18,503,815

16,346,866 -

16,346,866

2,516

116,466 -

116,466

- 44,493 44,493

16,510,341

(751,663) 15,758,678

2009 2008Rupees in '000'

Note

11.2

11.3

Lease rentals receivable

Residual value

Minimum lease payments

Financial charges for future periods

Present value of minimum lease payments

-

-

-

-

-

-

-

-

-

-

126,073

45,922

171,995

(29,607)

142,388

26,636

-

26,636

(13,306)

13,330

39,386

-

39,386

(18,312)

21,074

119,492

33,676

153,168

(36,702)

116,466

2009 2008

86,687

45,922

132,609

(11,295)

121,314

Later thanone and less

than five years

92,856

33,676

126,532

(23,396)

103,136

- - - - - - - - - - - - - - - - - - - - - - - - - - - - Rupees in '000 - - - - - - - - - - - - - - - - - - - - - - - - - - - -

Not laterthan one

year

Overfive

yearsTotal

Not laterthan one

year

Overfive

yearsTotal

Later thanone and less

than five years

11.2 Net Investment in Finance Lease




11.3.2 Particulars of provisions against non-performing advances


2,568,243 -

2,568,243

- - -

2,568,243 -

2,568,243

751,663 -

751,663

- - -

751,663 -

751,663

11.3.1 Particulars of provision against non-performing advances

- - - - - - - - - - - - - - - - - - - - - Rupees in '000 - - - - - - - - - - - - - - - - - - - - -

Specific TotalGeneral Specific TotalGeneral

2009 2008

Opening balanceCharge for the yearAmount written offReversalsClosing balance

751,663 2,018,268

- (201,688) 2,568,243

- - - - -

751,663 2,018,268

- (201,688) 2,568,243

128,461 623,202

- -

751,663

- - - - -

128,461 623,202

- -

751,663

12. OPERATING FIXED ASSETS

Capital work-in-progressProperty and equipmentAdvances for purchase of propertyAdvances for renovation and refurbishmentIntangible assets

-Computer software

12.1 Capital work-in-progress

Civil worksAdvances to suppliers and contractors

90,624 1,417,849

- -

62,281 1,570,754

84,691 5,933

90,624

132,214 485,812

85,000 152,479

72,377 927,882

123,319 8,895

132,214

11.4 Particulars of loans and advances to Directors, Associated Companies, etc.

Debts due by directors, executives or officers of the bank or any of them either severally or jointly with any other persons

Balance at beginning of the yearLoans granted during the yearRepayments during the yearBalance at end of the year

Debts due by companies or firms in which the directors of the bank are interested as directors, partners or in the case of private companies as members


Debts due by subsidiary companies, controlled firms, managed modarabas and other related parties


Note 2009 2008Rupees in '000'

12.112.2

38

12.3

224,477 144,583 (57,333) 311,727

930,458 1,371,260 (955,540) 1,346,178

- 414,355

(413,494) 861

1,658,766

83,252 207,968 (66,743) 224,477

809,646 5,350,873

(5,230,061) 930,458

481,275 903,083

(1,384,358) -

1,154,935



12.2.1 "During the year, the Bank has transferred an amount of Rs. 185.856 million incurred on refurbishment of rental premises obtained by the Bank in Arif Habib Center (AHC) from capital work in progress to property and equipment being used by the Bank. Finalization of the actual cost allocation attributable to the Bank is in process. An amount of Rs.12.390 million has been charged as depreciation against such assets. The actual cost is subject to change once the cost allocation is agreed. Further, once the cost is finalized, it would be transferred to proper categories of assets, however such change would not have a material impact on depreciationcharge for the current year.

* It represents assets written off during the year.

261,130

458,999

241,476

68,331

200,605

13,843

173,466

1,417,849

Leasehold Land

Building

Building improvements

Furniture and fixtures

Electrical, office and computer equipment

Vehicles

Others (note 12.2.1)

2009

-

21,725

6,706

3,187

44,044

5,671

-

81,334 -

261,130

497,538

261,798

75,816

297,071

24,218

185,856

1,827,634 -

173,100

309,431

193,021

47,174

122,776 (180)

5,271 (167)

185,856

1,036,629 (347)*

-

88,030

188,107

68,777

28,642

174,475

19,114

-

567,145

-

16,814

13,616

4,298

52,485 (63)

4,782 (78)

12,390

104,385 (141)

-

-

38,539

20,322

7,485

96,466

10,375

12,390

185,577 -

-

5%

10%

10%

20% - 25%

20%

10%

12.2 Property and equipment

Net Book

value atDecember31, 2009


COST

AtDecember 31

2009Additions /(Deletions)*

AtJanuary 01,

2009

Rate of depreciation

%

ACCUMULATED DEPRECIATION

AtJanuary 01,

2009

For theyear / period(on deletion)

AtDecember 31

2009

2009

Rupees in '000

Net Book



COST

AtDecember 31

2009Additions /(Deletions)*

AtJanuary 01,

2009


%


AtJanuary 01,

2009


AtDecember 31

2009

Rupees in '000

Computer software

2008

Rupees in '000

Computer software

62,281 62,281

102,370 102,370

9,452 9,452

92,918 92,918

20% 20,541 20,541

19,548 19,548

40,089 40,089

72,37772,377

92,91892,918

7,7587,758

85,16085,160

20%2,8392,839

17,70217,702

20,54120,541

Net Bookvalue at

December31, 2008


COST

AtDecember 31

2008

Additions /(Deletions)/Adjustment*

AtJanuary 01,

2008


%


AtJanuary 01,

2008


AtDecember 31

2008

Rupees in '000

Net Book



COST

AtDecember 31

2008

Additions /(Deletions)/Adjustment*

AtJanuary 01,

2008


%


AtJanuary 01,

2008


AtDecember 31

2008

2008

12.3 Computer Software 2009

88,030 166,382

62,071

25,455

130,431

13,443

485,812

Leasehold LandBuilding

Building improvements (rented premises)

Furniture and fixtures

Electrical, office and computer equipment

Vehicles

2008

- 13,425

-

970

18,143

3,386

35,924

88,030 188,107

68,777

28,642

174,475

19,114

567,145

88,030 -

(36,232) 33,328

(783) 36,232 14,706

86,281 (38,785)

6,461 (1,066)

228,806 (39,851)

(783)

- 224,339

-

13,936

126,979

13,719

378,973

- 8,300

6,747 (41)

2,217

26,747 (845) 2,782 (497)

46,793 (1,342)

(41)

- 21,725

6,706

3,187

44,045

5,671

81,334

- 5%

10%

10%

20% - 25%

20%



13. DEFERRED TAX ASSETS / LIABILITIES

Deferred debits arising in respect ofDeficit on revaluation of assetsProvision against non performing loansProvision for gratuityProvision for compensated absencesUnused tax lossesProvision for impairment lossesAmortisation of goodwillMinimum turn over tax

Deferred credits arising due toDifference between accounting and tax written down valuesDeferred cost

6,214 298,183

8,792 4,627

158,577 78,533

- 18,836

573,762

(191,117) (1,629)

(192,746) 381,016

168,329 259,040

5,042 3,205

- -

16,154 -

451,770

(89,248) (1,629)

(90,877) 360,893

2009 2008Rupees in '000'

The Bank has an aggregate amount of deferred tax asset of Rs.838 million in respect of unabsorbed tax losses and other timing differences as at December 31, 2009 out of which deferred tax asset of Rs 381 million has been recognized which represents management best estimate of the probable benefits expected to be realized in future years in the form of reduced tax liability as the Bank would be able to set off the profits earned in these years against losses carried forward and other timing differences relating to prior years.

Note

14. OTHER ASSETS

Income / Mark-up accrued in local currencyIncome / Mark-up accrued in foreign currencyAdvances, deposits, advance rent and other prepaymentsNon banking assets acquired in satisfaction of claimsAdvance taxation - net of provisionDividend receivableReceivable from brokersReceivable from group companiesReceivable from National Clearing Company of Pakistan LimitedDeferred costsOthers

Provision held against other assetsOther assets - net of provisions

14.1 Market value of non banking assets acquired in satisfaction of claims

14.2 Deferred costs - net

Opening balanceIncurred during the yearAmortized during the yearClosing balance

14.1

14.2

14.3

695,659 783

166,001 214,762

85,000 488

12,267 - -

13,344 1,308

1,189,612 -

1,189,612

214,762

715,697 145

218,283 -

43,142 100 696 898

67,467 21,714

1,752 1,069,894

(24,372) 1,045,522

-

21,714 -

(8,370) 13,344

30,084 -

(8,370) 21,714



14.3 Provision held against other assets

Opening balanceCharge for the yearReversalsAmount written offClosing balance

24,372 - -

(24,372) -

24,372 - - -

24,372

2009 2008Rupees in '000'

Note

1,554,801 -

1,554,801

1,066,970 487,831

-

- -

1,554,801

- - - -

1,554,801

1,869,940 -

1,869,940

304,079 1,565,861

-

- -

1,869,940

- - - -

1,869,940

16.3 These are secured against promisory notes, export documents and undertakings by the Bank granting the right to SBP to recover the outstanding amount from the Bank at the date of maturity of the finance by directly debiting the current accounts maintained with the SBP. These borrowings are subject to markup rate of 6.5% to 7% (2008: 6.5%) per annum.

16.4 These represent borrowings from various financial institutions at markup rate 12.14% (2008 : 14.9% to 15%) per annum maturing within one week. Market Treasury Bills amounting to Rs.487.831 million (2008 : Rs.1,574.70 million) have been given as collateral against these borrowings.

15. BILLS PAYABLE

In PakistanOutside Pakistan

16. BORROWINGS

In PakistanOutside Pakistan

16.1 Particulars of borrowings with respect to currencies


16.2 Details of borrowings secured / unsecured

Secured

Borrowings from State Bank of PakistanRepurchase agreement borrowingsBorrowings from subsidiary companies, managed

modarabas and associated undertakingsBorrowings from directors (including chief executive)

of the bankOthers

Unsecured

Call borrowingsOverdrawn nostro accountsOthers

213,209 -

213,209

1,554,801 -

1,554,801

75,963 -

75,963

1,869,940 -

1,869,940

16.316.4



17. DEPOSITS AND OTHER ACCOUNTS

CustomersFixed depositsSavings depositsCurrent accounts - RemunerativeCurrent accounts - Non-remunerativeMargin accounts

Financial institutionsRemunerative depositsNon-remunerative deposits

17.1 Particulars of deposits


18. OTHER LIABILITIES

Mark-up / return / interest payable in local currencyPayable to Bangladesh BankPayable to Rupali Bank - BangladeshPayable to brokers against purchase of sharesPayable to vendorsProvision for compensated absencesPayable to Group CompaniesAccrued expensesUnrealised loss on forward foreign exchange contractsPayable to defined benefit planSecurity deposit against lease financeWithholding tax payableOthers

16,927,613 10,475,845

- 3,271,909

616,006 31,291,373

- 16,115 16,115

31,307,488

29,393,994 1,913,494

31,307,488

774,931 41,389 16,292

5,246 10,841 13,221

1,097 55,101

1,499 25,121 45,922

375 52,442

1,043,477

2009 2008Rupees in '000'

11,809,387 3,630,055

- 751,320 398,347

16,589,109

- 27,357 27,357

16,616,466

15,188,748 1,427,718

16,616,466

262,669 41,389 16,292

2,719 6,156 8,492

- 16,706

1,444 14,407 33,676

4,376 12,002

420,328

19. SHARE CAPITAL

19.1 Authorized

Ordinary shares of Rs.10/- each 11,000,000 6,000,000

19.2 Issued, subscribed and paid-up

2009 2008Number of Shares

1,100,000,000 600,000,000

2009 2008Number of Shares

428,500,000 21,500,000 50,000,000

500,000,000

428,500,000 21,500,000 50,000,000

500,000,000

Ordinary shares of Rs.10/- each fully paid in cashIssued for consideration other than cashIssued as bonus shares

4,285,000 215,000 500,000

5,000,000

4,285,000 215,000 500,000

5,000,000



19.3 Reconciliation of number of ordinary shares of Rs.10/- each

At beginning of the yearAdd: Issued during the year as bonus sharesAt end of the year

19.4 Authorized capital of the Bank has been increased from Rs.6 billion to Rs.11 billion during the year.

19.5 Holding company Arif Habib Securities Limited (AHSL) and associated undertaking Rupali Bank Limited, Bangladesh held 297,034,854 (59.41%) and 32,777,450 (6.56%) [2008 : 297,034,854 (59.41%) and 32,777,450 (6.56%)] ordinary shares respectively.

As mentioned in note 1.3 to these financial statements, transfer of 297,304,854 shares owned by AHSL to Suroor Investment Limited will be effected after the necessary regulatory requirements.

2009 2008Rupees in '000'

500,000,000 -

500,000,000

450,000,000 50,000,000

500,000,000

20. DEFICIT ON REVALUATION OF ASSETS - NET OF TAX

Federal Government Securities

Market Treasury BillsPakistan Investment Bonds

Fully paid-up shares / units / certificates:

Term finance certificates and sukuk bondsListed companies sharesOpen end mutual funds unitsClosed end mutual funds unitsTotal deficit on revaluation of securitiesRelated deferred tax asset

21. CONTINGENCIES AND COMMITMENTS

21.1 Direct credit substitutes

Including guarantees and standby letters of credit serving as financialguarantees for loans and securities

GovernmentFinancial institutionsOthers

21.2 Transaction-related contingent liabilities / commitments guarantees issued favouring

GovernmentBanking companies and other financial institutionsOthers

(2,735) (32,301)

(45,423) 57,576

4,015 1,113

(17,755) 6,214

(11,541)

- - - -

(8,158) (74,473)

(7,648) (379,992)

(1,591) (9,078)

(480,940) 168,329

(312,611)

- - - -

8,676,394 1,010,067 1,631,136

11,317,597

475,059 6,550

1,628,147 2,109,756



21.3 Trade-related contingent liabilities

Letter of creditsAcceptances

21.4 Other contingencies - claims against bank not acknowledge as debt

21.5 Contingent asset

There were no contingent assets as at December 31, 2009 (2008: Nil)

21.6 Commitments in respect of forward lending

Forward call lendingForward repurchase agreement lendingCommitments to extend credit

21.7 Commitments in respect of forward foreign exchange contracts

PurchaseSale

21.8 Commitments for the acquisition of operating fixed assets

Civil works (for branches)Acquisition of computer software

21.9 Commitments in respect of underwriting agreements

21.10Commitments in respect of purchase of TFCs

22. MARK-UP / RETURN / INTEREST EARNED

On loans and advances to: Customers Financial InstitutionsOn Investments in: Available for sale securitiesOn lending to financial institutions

23. MARK-UP / RETURN / INTEREST EXPENSED

Deposits and other accountsSecurities sold under repurchase agreementsOther short term borrowings

2,024,123 244,984

2,269,107

83,903

176,876 224,265 401,141

83,903

- 1,533,560

13,304,338 14,837,898

688,650 42,195

730,845

67,266 -

67,266

28,000

100,000

- 933,317

21,272,326 22,205,643

993,085 -

993,085

64,102 -

64,102

-

-

2,248,971 4,650

1,183,077 77,665

3,514,363

1,836,752 4,550

492,316 138,364

2,471,982

2,715,142 125,519

37,136 2,877,797

1,307,536 90,661

187,678 1,585,875

2009 2008Rupees in '000'

Note



2009 2008Rupees in '000'

Note

24. GAIN ON SALE OF SECURITIES - Net

Federal Government Securities- Market Treasury Bills- Pakistan Investment BondsListed sharesMutual Funds Units / CertificatesTerm Finance Certificates

25. OTHER INCOME

Bad debts recoveredGain on disposal of operating fixed assetsOthers

26. ADMINISTRATIVE EXPENSES

Salaries, allowances, etc.Charge for defined benefit plan - gratuityContribution to defined contribution schemeNon-executive directors' fees, allowances and other expensesBrokerage and commissionRent, taxes, insurance and electricity, etc.Legal and professional chargesFees and subscriptionRepairs and maintenanceCommunicationsStationery and printingAdvertisement and publicityTraveling and conveyanceEducation and trainingEntertainmentSecurity services and chargesAuditors' remunerationDepreciationAmortizationImpairment of goodwillOthers

26.1 Auditors' remuneration

Audit fee Tax servicesCertifications, half yearly review and sundry advisory servicesOut of pocket expenses

13,118 1,256

36,542 12,630

1,988 65,534

303 (30)

12,343 12,616

- (19,503) 104,397 (72,126)

(7,457) 5,311

- 845

3,580 4,425

476,307 10,714 13,664

314 5,665

213,190 11,174 29,615

25,183 29,564 14,296 22,814 31,299

1,491 8,479

22,668 2,567

104,385 27,918

- 13,416

1,064,723

317,609 9,625 8,884

210 10,950

112,961 8,867

34,587 14,422 19,130

9,296 45,224 23,755

638 5,914

10,584 1,028

46,793 26,072 60,794

7,399 774,742

32.4

26.112.2

12.3 & 14.2

700 1,000

720 147

2,567

550 130 225 123

1,028



27. OTHER CHARGES

Penalties imposed by State Bank of PakistanBank chargesDecline in market value of non banking assets

28. TAXATION

28.1 For the year-Current-Deferred

For prior year-Current

28.2 The numerical reconciliation between the average tax rate and applicable tax rate has not been presented in these financial statements as income of the Bank is subject to minimum taxation of 0.5% under the provisions of section 113 of the Income Tax Ordinance, 2001.

9,057 3,238

36 12,331

35,799 (182,236) (146,437)

(72,359) (218,796)

222 1,995

- 2,217

84,254 (236,015) (151,761)

(4,105) (155,866)

29. EARNINGS PER SHARE - BASIC AND DILUTED

Loss for the year

Weighted average number of ordinary shares outstanding during the year

Earnings per share - Basic and diluted - (negative)

30. CASH AND CASH EQUIVALENTS

Cash and balance with treasury banksBalance with other banks

31. STAFF STRENGTH

PermanentContractual basisBank's own staff strength at the end of the yearOutsourcedTotal staff strength

2009 2008Rupees in '000'

(2,066,790)

500,000,000

(4.13)

(191,408)

500,000,000

(0.38)

32. DEFINED BENEFIT SCHEME

32.1 The benefits under the unfunded gratuity scheme are payable to permanent and contractual basis employees on retirement at the age of 60 years or earlier cessation of services in lump sum. The benefit is equal to one month's last drawn basic salary of each year of confirmed services, subject to a minimum of five years of service. The actuarial valuation of the funded scheme is carried out periodically. Latest actuarial valuation was carried out as at December 31, 2009 using "Projected Unit Credit Method".

1,923,526 724,802

2,648,328

1,349,649 65,580

1,415,229

433 182 615

- 615

375 166 541

- 541

Rs.

Note

78

2009 2008Rupees in '000'

Note

2009 2008


33. DEFINED CONTRIBUTION PLAN

The Bank operates a provident fund scheme administered by the Board of Trustees for all its permanent employees. Equal monthly contributions are made both by the Bank and employees to the fund @ 8.33% of basic salary. During the year employees made a contribution of Rs.13.664 million (2008 : Rs.8.884 million) to the fund. The Bank has also made a contribution of equal amount of the fund.

32.2 Principal actuarial assumptions

The following significant assumptions were used for actuarial valuation of the scheme:-

Discount rateExpected rate of salary increase

32.3 Reconciliation of liability recognised by the Bank

Present value of defined benefit obligationsNet actuarial gains or losses not recognized

32.4 Movement in liability recognised by the Bank

Opening balanceCharge for the yearClosing balance

32.5 Charge for the year

Current service costInterest costActuarial gains and lossesPast service cost

2009

13%13%

2008

15%15%

2009 2008Rupees in '000'

23,665 1,456

25,121

14,407 10,714 25,121

8,464 2,250

- -

10,714

15,003 (596)

14,407

4,782 9,625

14,407

8,894 556

4 171

9,625

The expected future charge for defined benefit plan is Rs.14.913 million (2008 : Rs.12.275 million) according to actuarial recommendation.

Note



34. COMPENSATION OF DIRECTORS AND EXECUTIVES


FeesManagerial remunerationCharge for defined benefit planCharge for defined contribution planRent and house maintenanceUtilitiesDearness AllowanceMedicalConveyanceCar allowanceBonusPayment to Ex-president for past services

- 10,909

-

- 4,909 1,091

909 1,091

- -

909

- 19,818

1

- 6,469

-

219 1,171

260 -

260 388 500 440

29,120 38,827

2

314 -

-

- - - - - - - -

- 314

2

210 -

-

- - -

- - - - -

- 210

2

- 130,981

-

9,368 58,942 13,098 11,217 13,098 16,031 27,210 10,225

- 290,170

116

- 72,511

-

5,889 32,630

7,251 -

7,251 11,924 17,225 11,500

- 166,181

71

-----------------------------------'Rupees in '000'-----------------------------------

DirectorsPresident / Chief Executive Executives

2009 2008 2009 2008 2009 2008

Number of person(s)

34.1 Executive means employee, other than the Chief Executive and directors, whose basic salary exceeds five hundred thousand rupees in a financial year. The Chief Executive and certain executives are provided with free use of Bank company maintained cars in accordance with their entitlements.

34.2 Number of persons include the outgoing President, Director(s) and executives.

35. FAIR VALUE OF FINANCIAL INSTRUMENTS

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. Consequently differences can arise between carrying values and the fair values or fair value estimates.

The fair value of investments in Term Finance Certificates and Federal Government securities are based on quoted market prices and PKRV rates respectively. Fair value of unquoted equity investments is determined on the basis of lower of cost and breakup value of these investments as per the latest available financial statements.

Fair value of fixed term loans, other assets, other liabilities and fixed term deposits cannot be calculated with sufficient reliability due to absence of current and active market for such assets and liabilities and reliable data regarding market rates for similarinstruments. The provision for non-performing advances has been calculated in accordance with the Bank's accounting policy as stated in note 5.5.

The maturity and repricing profile and effective rates are stated in notes 40.4.4 and 40.5.1 respectively.

In the opinion of the management, the fair value of the remaining financial assets and liabilities are not significantly different from their carrying values since assets and liabilities are either short term in nature or, in the case of customer loans and deposits, are frequently repriced.



36. SEGMENT DETAILS WITH RESPECT TO BUSINESS ACTIVITIES

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

37. TRUST ACTIVITIES

The Bank is not engaged in any trust activities.

38. RELATED PARTY TRANSACTIONS

Related parties comprise associated undertakings, majority shareholders, retirement benefit plans, directors and key management personnel of the Bank. Transactions with related parties are executed substantially on the same commercial terms as those prevailing at the time for comparable transactions with unrelated parties and do not involve more than a normal amount of risk.

2008

Total income Total expenses Net income / (loss) before tax

Segment assets (Gross)Segment non performing loansSegment provisionSegment assets (Net)Segment liabilitiesSegment return on assets (ROA) (%)Segment cost of funds (%)

717,811 362,221 355,590

7,139,971 7,658 7,658

7,132,313 1,600,636

4.99%5.08%

1,423,230 2,486,237

(1,063,007)

17,055,891 2,578,136

767,920 16,287,971 16,545,678

(6.53)%15.26%

449,493 117,606 331,887

471,888 444 444

471,444 758,351 70.40%24.95%

1,120 237 883

360 - -

360 76,012

245.28%65.83%

2,638,762 2,986,036 (347,274)

25,578,852 2,586,251

776,035 24,802,817 18,982,697

47,108 19,735 27,373

910,742 13 13

910,729 2,020 3.01%2.17%

- - - - - - - - - - - - - - - Rupees in '000 - - - - - - - - - - - - -

Trading &Sales

Retail Banking

Commercial Banking

Payment &Settlement

TotalCorporateFinance

2009

Total income Total expenses Net income / (loss) before tax

Segment assets (Gross)Segment non performing loansSegment provisionSegment assets (Net)Segment liabilitiesSegment return on assets (ROA) (%)Segment cost of funds (%)

1,306,860 568,628 738,232

17,230,556 - -

17,230,556 565,872

4.28%3.30%

206,406 1,532,463

(1,326,057)

3,854,766 1,780,655

760,795 3,093,971 5,723,562

(42.86)%49.53%

2,171,577 3,881,140

(1,709,563)

19,645,596 3,236,181 1,807,448

17,838,148 27,614,835

(9.58)%21.76%

2,089 250

1,839

887 - -

887 213,334 207.33%

28.18%

3,710,052 5,995,638

(2,285,586)

40,741,618 5,016,836 2,568,243

38,173,375 34,118,975

23,120 13,157

9,963

9,812 - -

9,812 1,372

101.54%134.09%

- - - - - - - - - - - - - - - Rupees in '000 - - - - - - - - - - - - -

Trading &Sales

Retail Banking

Commercial Banking

Payment &Settlement

TotalCorporateFinance



Details of transaction with the related parties, other than those which have been disclosed elsewhere in these financial statements, are as follows: -

Associates/ related parties

Key management

personnel

Associates/related parties

Key management

personnel

20082009

AdvancesBalance at beginning of the yearSanctioned / granted during the yearPayment received during the yearBalance at end of the year

DepositsBalance at beginning of the yearDeposits during the yearWithdrawal during the yearBalance at end of the year

Investment in sharesThatta Cement Company Limited

Advance for renovation and refurbishmentAdvance rentPurchase of assets (note 12.2.1)Bills payableGuarantees, letters of credits and acceptancesContribution paid to the provident fundOther payableMark up payableMark up receivable

Profit / expense for the yearBrokerage expenses paid - CFSBrokerage expenses paid - equity securitiesRent ExpenseMark up earnedCapital gain/(Loss)Dividend incomeMark up expensedMark up paidCommon expensesProceed from disposal of operating fixed assets

930,458 1,785,615

(1,369,034) 1,347,039

1,489,978 76,936,419

(77,984,084) 442,313

112,773

- 6,125

185,856 -

161,383 13,664

1,097 4,285

65,435

- 1,693

15,816 157,561

5,592 17,900 97,084

100,982 - -

14,237 117,141 (27,684) 103,694

404,049 37,327,191

(37,727,306) 3,934

-

- - - - - - -

22 -

- - -

3,674 - -

36,490 36,652

- 569

1,290,921 6,253,956

(6,614,419) 930,458

207,098 313,227,211

(311,944,331) 1,489,978

112,773

152,479 - -

5,625 164,775

8,884 898

8,209 38,202

1,283 7,799 7,800

139,386 (66,562)

65,064 221,848 219,366

1,268 38,785

103,694 3,885

(8,762) 98,817

3,934 3,563,588

(3,559,921) 7,601

-

- - - - - - -

3,565 -

- - -

8,228 - -

6,523 2,981

- -

Rupees in '000



39. CAPITAL ADEQUACY

39.1 Scope of applications

The Basel-II framework is applicable to the Bank in assessment of its capital adequacy requirement.

39.2 Capital structure

Banks regulatory capital is analyzed into two tiers:

Tier 1 capital, which includes fully issued, subscribed and paid up capital, balance in share premium account, general reserves as per the financial statements and net un-appropriated profits, etc after deductions for deficit on revaluation of available for saleinvestments and intangible assets.

Tier 2 capital, which includes general provisions for loan losses (up to a maximum of 1.25 % of risk weighted assets), reserves on the revaluation of fixed assets and equity investments (up to a maximum of 45% of the balance in the related revaluation reserves) and subordinated debt (up to a maximum of 50% of total tier 1).

Tier 3 Capital has also been prescribed by the SBP for managing market risk; however the Bank does not have any Tier 3 capital.

The required capital is achieved by the Bank through: -

(a) enhancement in the risk profile of asset mix at the existing volume level;(b) ensuring better recovery management; and(c) maintain acceptable profit margins.

Detail of the Bank's eligible capital is as follows: -

Tier I Capital

Shareholders equity /Assigned capital Share premium Reserves Unappropriated / unremitted profits (Net of losses) Less: Intangible assets Deficit on revaluation of investments in available for sale securities Total Tier I Capital

Tier II Capital

Subordinated debt (upto 50% of total Tier 1 Capital) General provisions subject to 1.25% of Total Risk Weighted Assets Revaluation Reserve (upto 45%) Total Tier II Capital

Eligible Tier III Capital

Total Regulatory Capital Base

Rupees in '000'

5,000,000 1,000,000

64,828 (1,998,887)

(62,281) (17,755)

3,985,905

- - - -

-

3,985,905

5,000,000 1,000,000

314,828 (191,408)

(72,377) (480,940) 5,570,103

- - - -

-

5,570,103

20082009


39.3 Capital Adequacy

Objectives of managing capital

Capital Management aims to ensure that there is sufficient capital to meet the capital requirements of the Bank as determined by the underlying business strategy and the minimum requirements of the SBP. The Capital Management process is governed by the Bank’s Asset & Liability Committee (ALCO). ALCO is responsible for managing Bank’s capital position vis-à-vis internal as well as regulatory requirements. ALCO also reviews the volume and mix of the Bank’s assets, liabilities and funding sources in light of liquidity, capital, risk and profitability considerations.

Bank's capital management seeks: -

- to comply with the capital requirements set by the regulators and comparable to the peers;

- to actively manage the supply of capital cost and increase capital velocity;

- to increase strategic and tactical flexibility in the deployment of capital to allow for the timely reallocation of capital.

- to improve the liquidity of the Bank's assets to allow for an optimal deployment of the Bank's resources;

- to protect the Bank against unexpected events and maintain strong ratings;

- to safeguard the Bank's ability to continue as a going concern so that it can continue to provide adequate return to shareholders;

- availability of adequate capital(including the quantum) at a reasonable cost so as to enable the Bank to expand; and

- to achieve low overall cost of capital with appropriate mix of capital elements.

Externally imposed capital requirements

In order to strengthen the solvency of Banks / Development Financial Institutions (DFI), SBP through its BSD Circular No. 7 dated April 15, 2009 has advised the Banks to raise their minimum paid up capital to Rs. 6 billion by the end of financial year 2009. Further, banks are required to increase their paid up capital to Rs. 10 billion (free of losses) in a phased manner by the end of financial year 2013. The Bank has at present paid up capital (free of losses) of Rs. 4.066 billion (2008: 6.13 billion) which needs to be raised to above mentioned level in a phased manner till 2013. Further, SBP through the said circular has asked the banks to achieve minimum capital adequacy ratio (CAR) of 10%. The CAR of the Bank as at December 31, 2009 is 12.39% (2008: 20.85%) of its risk weighted exposures.

Credit risk

Portfolios subject to standardized approach (Simple or Comprehensive)

Corporate portfolio etc.SovereignRetailFinancial InstitutionsOthers

Portfolios subject to Internal Rating Based (IRB) approachCorporateSovereignRetailSecuritization etc.


1,822,716 -

57,225 4,797

143,628

- - - -

20,252,401 -

635,831 53,296

1,595,863

- - - -

2,284,449 -

33,192 27,611

242,638

- - - -

22,844,488 -

331,924 276,112

2,426,381

- - - -

20082009

Rupees in '000'

Capital requirements

Risk weighted

assets Rupees in '000'


Risk weighted

assets



20082009

Rupees in '000' Rupees in '000'Equity exposure risk in the banking book

Equity portfolio subject to market-based approachesUnder simple risk weight methodUnder Internal models approach

Equity portfolio subject to PD / LGD

Market risk

Capital requirement for portfolios subject to

Standardized approachInterest rate riskEquity position risk etc.Foreign exchange risk etc.

Capital requirement for portfolios subjectto Internal models approachInterest rate riskForeign exchange risk etc.

Operational risk

Capital requirement for operational risks

Capital Adequacy Ratio

Total eligible regulatory capital held

Total risk weighted assets

Capital Adequacy Ratio (a) / (b)

Risk weighted

assets

- -

1,795,613 1,024,213

-

- -

1,354,318

26,711,535

5,570,103

26,711,535

20.85%


- -

143,649 81,937

-

- -

108,345

2,362,297

Risk weighted

assets

- -

2,348,812 1,958,560

356,987

- -

1,622,851

32,166,115

3,985,905

32,166,115

12.39%


- -

187,905 156,685

28,559

- -

129,828

3,090,867

40. RISK MANAGEMENT

The acceptance and management of financial risk is inherent to banking business activities. The Bank is exposed to numerous risks in pursuit of its business objectives. The core risks are Credit, Market and Liquidity risks. These risks arise directly through the Bank’s commercial activities whilst Operational and Compliance / Legal / Regulatory risks are normal consequences of any business undertaking. We believe a sound Risk Management Framework provides principles for identifying, assessing and monitoring risk within the Bank. The Framework specifies the key elements of the risk management process in order to maximize opportunities, to minimize adversity and to achieve improved outcomes and outputs based on informed decision making.

Clearly defined risk management policies and procedures covering all activities of the Bank including general banking, trade finance, credit evaluation, credit management, treasury operations, administration and human resources management, compliance functions, risk management, accounting, audit and control are in place. The basic principles employed in formulation of the above policiesand procedures involves identification, measurement, monitoring and controlling risks to ensure that:-



- The Bank’s risk exposure is within the limits established by Board of Directors.

- Risk taking decisions are in line with the business strategy and objectives of the Bank.

- The expected payoffs compensate the risks taken by the Bank.

- Risk taking decisions are explicit and clear.

- Sufficient capital as buffer is available to mitigate risk.

Risk responsibilities

The Board of Directors is accountable for overall supervision of the risk management process. This is discharged by distributing responsibilities at the senior management level and determining the manner in which risk authorities are set. The Board is also responsible for approval of all risk policies and ensuring that these are properly implemented. Further, the Board shall also seek appointment of senior management personnel capable of managing the risk activities conducted by the Bank.

The Board of Directors approves the policies proposed by risk management committee of the Bank which discharge various responsibilities assigned to it by the Board.

The Risk Management is headed by a Chief Risk Officer responsible to set-up and implement the Framework of the Bank.

Risk management group organization

A clear management structure has been put in place in the Bank, which clustered around three distinct groups namely, the Business Group, the Support Group and the Risk Management Group. The Business Group is responsible for generation and management of the business and act as the front office of the Bank. The Support Group provides various services necessary for maintaining operations of the Bank on a sustainable basis. The Risk Management Group is responsible for management of the risk inherent in the Bank’s operations. The Risk Management Group comprises of (i) Credit Division, (ii) Compliance Division and the (iii) Risk Management Division. Whilst the activities of the Credit Division are focused on independent risk management of the Bank’s credit activities, the Compliance Division is dedicated to ensure compliance of all internal and external policies and regulations. The Risk Management Division is responsible for managing all other risks emanating from various activities of the Bank. In addition to this, the management has established various committees for periodic risk review.

The Bank has acquired and installed a state of the art, hPLUS™, core banking software. hPLUS™ is a fully functional, well proven, single integrated banking application and is also capable of generating numerous standard and customized MIS reports.

40.1 Credit risk management

Credit risk is the risk that one party to financial instrument fails to discharge an obligation and cause other party to incur a financial loss. The Bank is exposed to credit risk through its lending and investment activities as well as in cases where it acts as an intermediary of behalf of customers or other third parties or issues guarantees. The following objectives govern the credit policy of the Bank: -

- The bank compiles with the requirement of Prudential Regulations prescribed by SBP.

- Facilities provided by the Bank will be well diversified into different sectors as well as financing in different consumer products to achieve a strong market position and adequate return on capital.

- Return commensurate with the risk.

- Lending decision is based on a full appreciation for the risks inherent in the transaction and within the approved limits by the Board of Directors.

- Risk is related correctly and risk changes are identified promptly and remedial action are taken.

The Bank creates loan loss provisions against non-performing commercial advances in accordance with Prudential Regulations issued by SBP. Please refer note 11.4.1 for reconciliation in loan loss provision.



Concentrations of credit risk (whether on or off balance sheet) that arise from financial instruments exist for counterparties when they have similar economic characteristics that would cause their ability to meet contractual obligations to be affected in a similar way by changes in economic or other conditions. As part of managing concentration risk, sector risk is managed on a portfolio basis. Please refer to note 40.1.1.1 for segment reporting.

As a matter of paramount importance the affairs of the customers enjoying credit facilities are carefully reviewed and reconsidered periodically. The facility review provides a timely signal of unfavourable developments in clients’ affairs and warns of dangers before the bank is faced with undesirable positions. For this reason, all facilities of a continuing character are only approved after the next review date, unless otherwise agreed.

Credit administration tasks include the following:

- Maintain Credit, Custody and Security documentation files,

- Register Security and Collateral documents,

- Tracking of covenants,

- Administer facility fees/receipts/payments,

- Load limits into credit system, and

- Satisfy internal and external risk reporting requirements.

It is the Bank's policy to reduce or mitigate credit risk on credit facilities or exposure, as much as possible, in a given commercial environment by securing credit facilities or exposure with collateral. To correctly asses the extent to which the collateral mitigates the credit risk the collateral must be valued according to a specified valuation method and documented and monitored. The legal mechanism by which collateral is pledged and the Bank’s procedures ensures that the Bank has clear rights over the collateral and may liquidate, retain or take legal possession of it in a timely manner in the event of the default, insolvency or bankruptcy or otherwise defined credit event set out in the transaction documentation, of the counterparty and, where applicable, of the custodian holding the collateral.


40.1.1.1 Segments by class of business

2008Agriculture, Forestry, Hunting and FishingMining and QuarryingTextileChemical and PharmaceuticalsCementSugarFootwear and Leather garmentsAutomobile and transportation equipmentElectronic and electrical appliancesConstructionPower (electricity), Gas, Water, SanitaryWholesale and Retail TradeExports/ImportsTransport, Storage and CommunicationFinancialServicesIndividualsOthers

- 2.12%7.09%3.97%4.34%0.82%0.03%0.31%1.13%7.78%

11.92%8.61%0.35%3.03%

27.73%2.83%

11.32%6.63%

100.00%

154 924,333

28,162 45,979

2,194 436

4,817 9

1,670 232,097 115,428

2,783 17,622

1,440,707 1,682,737

250,609 3,343,484 8,523,244

16,616,465

- 5.56%0.17%0.28%0.01%

- 0.03%

- 0.01%1.40%0.69%0.02%0.11%8.67%

10.13%1.51%

20.12%51.29%

100.00%

21,000 -

700,756 968,706 236,906

155 91,448 66,099

304 3,783,170 3,815,368

- -

319,985 12,528,635

29,813 1,045,033 2,249,844

25,857,222

0.08% -

2.71%3.75%0.92%

- 0.35%0.26%

- 14.63%14.76%

- -

1.24%48.45%

0.12%4.04%8.70%

100.00%

- 350,000

1,170,170 654,868 716,094 134,845

4,990 51,179

187,140 1,284,452 1,968,855 1,420,832

58,460 500,000

4,577,598 466,928

1,868,767 1,095,163

16,510,341

- -

2,056,919 1,261,500

650,791 354,955

77,196 54,686

136,985 1,565,126 3,002,252 2,290,846

765,384 923,986

3,062,132 447,140

3,424,654 997,506

21,072,058

2009Agriculture, Forestry, Hunting and FishingMining and QuarryingTextileChemical and PharmaceuticalsCementSugarFootwear and Leather garmentsAutomobile and transportation equipmentElectronic and electrical appliancesConstructionPower (electricity), Gas, Water, SanitaryWholesale and Retail TradeExports/ImportsTransport, Storage and CommunicationFinancialServicesIndividualsOthers

0.00%0.00%9.76%5.99%3.09%1.68%0.37%0.26%0.65%7.43%

14.25%10.87%

3.63%4.38%

14.53%2.12%

16.25%4.73%

100.00%

307 59,326

229,575 72,526

1,531 32,215

3,869 6,848 3,295

403,191 5,513,892

37,978 89,882

1,735,146 927,156 665,977

6,884,657 14,640,117 31,307,488

0.00%0.19%0.73%0.23%0.00%0.10%0.01%0.02%0.01%1.29%

17.61%0.12%0.29%5.54%2.96%2.13%

21.99%46.76%

100.00%

10,000 285,000

1,303,325583,701287,758710,045

34,77028,214

144,4253,076,283

10,771,638275,584418,710

1,574,0245,523,5601,365,8621,265,2201,776,497

29,434,616

0.03%0.97%4.43%1.98%0.98%2.41%0.12%0.10%0.49%

10.45%36.60%

0.94%1.42%5.35%

18.77%4.64%4.30%6.04%

100.00%

Percent Rupees in '000

Percent Percent Rupees in '000

Rupees in '000

Contingencies andcommitmentsDepositsAdvances (Gross)

Segmental Information is presented in respect of the class of business and geographical distribution of Advances, Deposits,Contingencies and Commitments.

40.1.1 Segmental information




40.1.1.2

40.1.1.3 Details of non-performing advances and specific provisions by class of business segment

TextileChemical and PharmaceuticalsAutomobile and transportation equipmentElectronic and electrical appliancesConstructionPower (electricity), Gas, Water, SanitaryWholesale and retail tradeExports/ImportsFinancialServicesIndividualsOthers

202,322 - -

115,334 431,914 199,007

54,452 19,248

2,046,394 164,021

1,780,655 3,489

5,016,836

207,615 19,030

278 -

225,000 -

241,255 -

1,318,744 -

681,113 619

2,693,654

185,156 - -

61,929 57,364 99,504

6,686 19,248

1,212,956 164,021 759,167

2,209 2,568,240

158,075 19,030

278 -

26,546 -

58,842 -

357,185 -

131,088 619

751,663

Rupees in '000

ClassifiedAdvances

Specific Provisions

HeldClassifiedAdvances

Specific Provisions

Held

2009 2008

Public/ GovernmentPrivate


1,019,936 20,052,122 21,072,058

4.84%95.16%

100.00%

11,299,128 20,008,360 31,307,488

36.09%63.91%

100.00%

1,683,817 27,750,799 29,434,616

5.72%94.28%

100.00%

895,881 15,614,460 16,510,341

5.43%94.57%

100.00%

3,571,425 13,045,041 16,616,466

21.49%78.51%

100.00%

895,881 24,961,341 25,857,222

3.46%96.54%

100.00%

2009

2008

Total assets employed include intra group items of Rs. 1,654.37 million (2008: Rs. 1,490.92 million).

40.1.1.4 Details of non-performing advances and specific provisions by sector


- 5,016,836 5,016,836

- 2,568,240 2,568,240

- 2,693,654 2,693,654

- 751,663 751,663

Lossbefore

taxationTotal assetsemployed

Net assetsemployed

Contingenciesand

commitments

Rupees in '000

40.1.1.5 Geographical Segment Analysis

2009Pakistan

2008Pakistan

(2,285,586) 38,173,375 4,054,400 29,434,616

(347,274) 24,802,817 5,820,120 25,857,630


40.2 Credit Risk - General disclosure Basel II specific

40.2.1 Credit Risk - General disclosures

The Bank is following standardized approach for all its Credit Risk Exposures.

40.2.1.1 Credit Risk: Disclosures for portfolio subject to Standardized Approach and supervisory risk weights in IRB approachBasel II specific

Under standardized approach, the capital requirement is based on the credit rating assigned to the counterparties by the External Credit Assessment Institutions (ECAIs) duly recognized by SBP for capital adequacy purposes. In this connection, the Bank utilizes the credit ratings assigned by ECAIs and has recognized agencies such as PACRA (Pakistan Credit Rating Agency), JCR-VIS (Japan Credit Rating Company – Vital Information Systems), Fitch, Moody’s and Standard & Poors which are also recognized by the SBP. The Bank also utilizes rating scores of Export Credit Agencies (ECA) participating in the “Arrangement on Officially Supported Export Credits”.

The Standardized Approach to credit risk sets out fixed risk weights corresponding, where appropriate, to external credit assessment levels or for unrated claims.

Selection of ECAIs

The Bank selects particular ECAI(s) for each type of claim. Amongst the ECAIs that have been recognised as eligible by SBP, the following are being used against each respective claim type.

Sovereigns Exposures: For foreign currency claims on sovereigns, the Bank uses country risk scores of Export Credit Agencies (ECA) participating in the “Arrangement on Officially Supported Export Credits” available on OECD’s website.

Exposures to Multilateral Development Banks (MDBs): For exposures on MDBs not eligible for a 0% risk weight, ratings of Moody’s, S&P and Fitch are being used to calculate risk-weighted assets.

Exposures to Public Sector Entities (PSEs): For PSE exposures, ratings of PACRA and JCR-VIS are used to arrive at risk weights.

Bank Exposures: For foreign banks (i.e., incorporated outside Pakistan), ratings of Moody’s, S&P and Fitch is being used to arriveat risk weights. However, for local banks (i.e., incorporated in Pakistan) ratings of PACRA and JCR-VIS are used.

Corporate Exposures: Ratings assigned by PACRA and JCR-VIS are used for claims on Corporate (excluding equity exposures).

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 as compared to unsolicited ratings. Unsolicited ratings may only be used in cases where a solicited rating is not available.



Mapping to SBP rating grades

The selected final ratings (after application of the principles stated above) for all exposures need to be translated to the standard rating grades given by the SBP. In this regard, the mapping tables to be used for converting ECAI ratings to SBP rating grades are given below:

Types of exposures and ECAI's usedDecember 31, 2009

ExposuresCorporate

BanksSovereigns

SME'sSecuritizations

Others

Fitch -

Yes - - - -

Moody’s -

Yes - - - -

S & P -

Yes - - - -

PACRA Yes Yes

- - -

Yes

JCR-VIS Yes Yes

- - -

Yes

Short – Term Rating Grades Mapping

SBP Ratinggrade

S1

S2S3S4

Fitch

F1

F2F3Others

Moody’s

P-1

P-2P-3Others

S & P

A-1+A-1A-2A-3Others

PACRA

A-1+A-1A-2A-3Others

JCR-VIS

A-1+A-1A-2A-3Others

Long – Term Rating Grades Mapping

Moody’sAaaAa1Aa2Aa3A1A2A3Baa1Baa2Baa3Ba1Ba2Ba3B1B2B3Caa1 andbelow

S & PAAAAA+AAAA-A+AA-BBB+BBBBBB-BB+BBBB-B+BB-CCC+ andbelow

SBP Ratinggrade

1

2

3

4

5

6

FitchAAAAA+AAAA-A+AA-BBB+BBBBBB-BB+BBBB-B+BB-CCC+ andbelow

PACRAAAAAA+AAAA-A+AA-BBB+BBBBBB-BB+BBBB-B+BB-CCCCCC

JCR-VISAAAAA+AAAA-A+AA-BBB+BBBBBB-BB+BBBB-B+BB-CCCCCCD

ECA Scores01

2

3

4

56

7



Corporate

Retail

Past due Loan

Bank

Sovereign etc.

Others

20%50%

100%unrated

75%

150%100%

50%

20%50%

unrated

0%

0%35%

100%

Ratingcategory

Amountoutstanding< - -- - - - - - - - - - -- - - -- -- - - - - - - - - - Rupees in '000 - - - ---- - - - - -- - --- - -- - - - - -- - - - - >

Deduction CRM

NetAmount

Amount outstanding

Deduction CRM

NetAmount

-----------------------2009------------------------

1,352,292 788,950

- 13,886,092

347,338

674,002 1,197,021

577,570

2,122,621 19,415 69,689

1,528,697

342,272 236,121

2,382,660

25,524,740

- - -

(1,459,660)

(14,961)

(291,957)291,957

-

(1,147,054) - -

-

- - -

(2,621,675)

270,458 394,475

- 12,426,432

249,283

573,068 1,488,978

288,785

195,113 9,708

13,938

-

- 82,642

2,382,660

18,375,540

-----------------------2008------------------------

671,434 803,141 332,193

10,837,114

803,242

467,412 1,593,195

633,049

216,442 -

50,038

2,072,696

341,278 -

1,550,989

20,372,223

- - -

(1,026,727)

(34,129)

- - -

- - -

-

- - -

(1,060,856)

671,434 803,141 332,193

9,810,387 -

769,113 -

467,412 1,593,195

633,049 -

216,442 -

50,038 -

2,072,696 -

341,278 -

1,550,989

19,311,367

40.2.1.2 Credit Risk: Disclosures with respect to Credit Risk Mitigation for Standardized Approach

The Bank has adopted the Simple Approach of Credit Risk Mitigation for the Banking Book. Since, the trading book of the Bank only comprises equity investments; therefore no Credit Risk Mitigation benefit is taken in the trading book. In instances where the Bank’s exposure on an obligor is secured by collateral that conforms with 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, government securities and eligible guarantees etc. 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 realizable value of eligible collaterals to the extent of outstanding exposure.

Since no specific asset is available by way of security in the context of unfunded credit protection, the creditworthiness and reliability of the provider and the validity and enforceability of that party’s obligations is of paramount importance. Therefore, unfunded credit protection is only "eligible" if it is provided by an appropriate counterparty which may include National Government, Central Bank etc.



40.3 Equity position risk In The banking book

The Bank makes investment for variety of purposes. Some of the investment positions of equity holding are made for revenue generation as part of strategic initiatives, while other equity holdings are held to earn capital gain to support the Bank's business activities.

Classification of investments

Under SBP's directives, equity investment may be classified as “Held For Trading (HFT)”, “Available for Sale (AFS)” or “Investment in Subsidiaries and Associates”. Some of the equity investments are listed and traded in public through stock exchanges, while other investments are unlisted and therefore illiquid.

Policies, valuation and accounting of equity investments

In accordance with the requirements of the SBP, quoted securities are carried at market value whereas investments in associates are accounted for in accordance with the directive of SBP

The unrealized surplus / (deficit) arising on revaluation of the bank’s held for trading investment portfolio is taken to the profit and loss account. The surplus / (deficit) arising on revaluation of quoted securities classified as available for sale is kept in a separate account shown in the balance sheet below equity. The surplus / (deficit) arising on these securities is taken to the profit and loss account when actually realized upon disposal.

Unquoted equity securities are valued at the lower of cost and break-up value. Subsequent increases or decreases in the carrying value are credited / charged to profit and loss account. 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. Investments in other unquoted securities are valued at cost less impairment losses, if any. Provision for diminution in the value of securities is made after considering impairment, if any, in their value.

Profit and loss on sale of investments is included in income currently.

Composition of equity investments - market values

The cumulative realized gain / (loss) arose of Rs. 49.172 million (2008: 32.271 million) from sale of equity securities; howeverunrealized loss of Rs. 17.755 million (2008: 480.940 million) was recognized in the balance sheet in respect of “AFS” securities.

Held fortrading

Availablefor sale

< - -- - - - - - - - - - -- - - -- -- - - - - - - - - - Rupees in '000 - - - ---- - - - - -- - --- - -- - - - - -- - - - - >

Investmentin associates

December 31, 2009Investment

in associatesAvailablefor sale

Held fortrading

December 31, 2008

103,875 -

103,875

757,696 173,372 931,068

112,773 -

112,773

- - -

253,767 145,560 399,327

112,773 -

112,773


Equity Investments- Publicly TradedMutual FundsTotal Value


40.4 Market risk

Market Risk is the risk that the value of on and off-balance sheet positions of the Bank will be adversely affected by movements in market rates or prices such as interest rates, foreign exchange rates, equity prices and/or credit spreads resulting in a loss to earnings and capital.

The Bank is primarily exposed to interest rate risk which is reflected in the level of future income and expense produced by these positions versus levels that would be generated by current levels of interest rates. Other risks include exposures to foreign exchange rates, as well as mortgage, equity market and issuer credit risk factors. The Bank is in the process of developing Value at Risk (VAR) and stress testing models for management of such risks.

40.4.1 Interest rate risk

Interest Rate risk is the potential impact on a bank’s earnings and asset values with variation in interest rates. Interest rate risk arises when there is a mismatch between positions, which are subject to interest rate adjustment within a specified period. These positions include loans, debt securities, certain trading-related assets and liabilities, deposits and borrowings. The Bank's overall goal is to manage interest rate sensitivity so that movements in interest rates do not adversely affect net interest income. Interest rate risk is measured as the potential volatility in our net interest income caused by changes in market interest rates. The Bank seeks to mitigate interest rate risk in a variety of ways including taking offsetting positions and other asset and liability management process. Whilst the Treasury and the Risk Management Division of the Bank monitor and manage the interest rate risk on a daily basis, the overall interest rate risk position and strategies are reviewed on an ongoing basis with Asset and Liability Committee (ALCO).

40.4.2 Foreign exchange risk

The Bank has set the following objectives for managing the inherent risk on foreign currency exposures:

• Maximize profitability with minimum risk by keeping the exposure at desirable levels in view of strict compliance of regulatory/ international standards and the Bank’s internal guidelines.

• Manage appropriate maturity mismatch gaps

• Identify warning and stress zones for mismatch gaps.

• Usage of different tools to manage the inherent risk of product and market, such as compliance of credit limit, monitoring of foreign exchange exposure limit, review of mark to market portfolio and safe settlement, etc.


Foreign exchange risk represents exposures to changes in the values of current holdings and future cash flows denominated in foreign currencies. The potential for loss arises from the process of revaluing foreign currency positions in rupee terms. The Bank’s foreign exchange risk is presently limited to future cash flows in foreign currencies arising from foreign exchange transactions and translation of net open position in foreign currencies. The Bank is carefully monitoring the net foreign currency exposure as well as utilizing the currency swap and forward contract to hedge the related exposure.


Assets Liabilities

<---------------------------------------------- Rupees in '000'---------------------------------------------->

Net foreigncurrencyexposure

Pakistan rupeeUnited States dollarGreat Britain poundJapanese yenEuroOther currencies

36,749,261 1,383,145

37,813 299

28,859 1,213

38,200,590

32,230,622 1,834,433

38,603 -

40,664 -

34,144,322

634,374 (622,292)

- -

(12,082) - -

5,153,013 (1,073,580)

(790) 299

(23,887) 1,213

4,056,268

Off-balancesheet items

Assets Liabilities

<---------------------------------------------- Rupees in '000'---------------------------------------------->

Net foreigncurrencyexposure

Pakistan rupeeUnited States dollarGreat Britain poundJapanese yenEuroOther currencies

24,371,591 419,018

2,466 648

7,969 1,123

24,802,817

17,554,764 1,420,652

1,226 -

6,055 -

18,982,697

990,985 (993,085)

- -

2,100 - -

7,807,812 (1,994,719)

1,241 648

4,015 1,123

5,820,120

Off-balancesheet items

40.4.3 Equity position risk

Equity market risk is risk to earnings on capital that results from adverse changes in the value of equity related portfolios. Equity market risk arises from exposure to securities that represent an ownership interest in a company. The Bank is exposed to the equity market risk on its equity trading portfolio only. Apart from on balance sheet exposure, some off balance sheet equity exposure also comes from the future contracts. Bank is in the process of instituting measures to mitigate the risk associated with the trading equity portfolio through future contract and active trading on stop loss basis. The strategic equity portfolio however remains exposed to market variations. The Board with the recommendations of ALCO approves exposure limits applicable to investments in trading book.


2009

2008

40.4.4 Mismatch of Interest Rate Sensitive Assets and Liabilities

Over 3to 6

Months

On-balance sheet financial instruments

AssetsCash and balances with treasury banksBalances with other banksLending to financial institutionsInvestmentsAdvancesOther assets

LiabilitiesBills payableBorrowingsDeposits and other accountsOther liabilities

On-balance sheet gap

Off-balance sheet financial instruments

Forward Lending(including call lending, repurchase agreement lending, commitments to extend credit, etc.)

Forward borrowings(including call borrowing, repurchase agreement borrowing, etc.)Off-balance sheet gap

Total Yield/Interest Risk Sensitivity Gap

Cumulative Yield/Interest Risk Sensitivity Gap

- -

12.15% to 12.40%8% to 15.60%7.50% to 20%

-

- 6.5% to 12.14%

0.5% to 15% -

12.15% to 12.40%

12.14%

1,923,526 724,802

1,433,817 12,446,033 18,503,815

1,189,612 36,221,605

213,209 1,554,801

31,307,488 1,043,477

34,118,975 2,102,630

14,837,898

487,831

14,350,067

16,452,697

16,452,697

303,270 -

1,433,817 79,475

6,153,519 -

7,970,081

213,209 487,831

11,611,698 -

12,312,738 (4,342,657)

14,738,155

487,831

14,250,324

9,907,667

9,907,667

- - -

2,180,661 3,129,385

- 5,310,046

- 466,600 726,196

- 1,192,796 4,117,250

-

-

-

4,117,250

14,406,358

EffectiveYield/

Interestrate

2009Exposed to yield/ Interest risk

- - -

3,465,165 1,916,869

- 5,382,034

- 596,520

4,503,817 -

5,100,337 281,697

99,743

-

99,743

381,440

10,289,107

Upto 1Month

Over 1to 3

MonthsTotal<---------------------------- Rupees in '000'---------------------------->


- - -

3,111,258 2,352,675

- 5,463,933

- 3,850

10,345,170 -

10,349,020 (4,885,087)

-

-

-

(4,885,087)

9,521,270


<------------------------------------------------------------------ Rupees in '000'------------------------------------------------------------------>

- - -

1,446,237 3,453,753

- 4,899,990

- -

58,865 -

58,865 4,841,125

-

-

-

4,841,125

14,362,395

Over 6 Over 1 Over 2 Over 3 Over 5 bearingMonths to 1 to 2 to 3 to 5 to 10 Above financial

Year Years Years Years Years 10 Years instruments

- - -

267,744 532,620

- 800,364

- -

110,354 -

110,354 690,010

-

-

-

690,010

15,052,405

- - -

639,663 468,421

- 1,108,084

- -

47,356 -

47,356 1,060,728

-

-

-

1,060,728

16,113,133

- - -

276,533 455,872

- 732,405

- - - - -

732,405

-

-

-

732,405

16,845,538

- - - - - - -

- - - - - -

-

-

-

-

16,845,538

1,620,256 724,802

- 979,297

40,701 1,189,612 4,554,668

- -

3,904,032 1,043,477 4,947,509 (392,841)

-

-






Over 3to 6

Months

On-balance sheet financial instruments

AssetsCash and balances with treasury banksBalances with other banksLending to financial institutionsInvestmentsAdvances Other assets

LiabilitiesBills payableBorrowingsDeposits and other accountsOther liabilities

On-balance sheet gap

Off-balance sheet financial instruments

Forward Lending(including call lending, repurchase agreement lending, commitments to extend credit, etc.)

Forward borrowings(including call borrowing, repurchase agreement borrowing, etc.)Off-balance sheet gap

Total Yield/Interest Risk Sensitivity Gap

Cumulative Yield/Interest Risk Sensitivity Gap

0.9% to 3.60%-

15%8.0% to16.88%5.84% to 20.7%

6,5% to 15%1.75% to 19.50%

14% to 17%

14.9% to 15%

1,349,649 65,580

200,000 5,094,613

15,758,678 800,063

23,268,583

75,963 1,869,940

16,616,466 406,641

18,969,010 4,299,573

22,205,643

1,565,861

20,639,782

24,939,355

24,939,355

233,462 -

200,000 -

11,081,770 -

11,515,232

- 1,566,573 8,198,474

- 9,765,047 1,750,185

933,317

1,565,861

(632,544)

1,117,641

1,117,641

- - -

202,813 448,249

- 651,062

- 288,400

1,724,829 -

2,013,229 (1,362,167)

-

-

-

(1,362,167)

288,805

EffectiveYield/

Interestrate


- - -

2,107,342 236,154

- 2,343,496

- 14,967

1,795,198 -

1,810,165 533,332

-

-

-

533,332

1,650,972

Upto 1Month

Over 1to 3

MonthsTotal< - - - - - - - - - - - - - - - - - - Rupees in '000 - - - - - - -- - - - - - - - - - - - >


- - -

119 341,794

- 341,913

- -

3,596,561 -

3,596,561 (3,254,648)

-

-

-

(3,254,648)

(2,965,843)

- - -

619,987 621,625

- 1,241,612

- -

1,700 -

1,700 1,239,912

-

-

-

1,239,912

(1,725,931)

- - -

639,987 695,382

- 1,335,369

- -

32,286 -

32,286 1,303,083

-

-

-

1,303,083

(422,848)

- - -

509,514 1,096,341

- 1,605,855

- -

88,392 -

88,392 1,517,463

-

-

-

1,517,463

1,094,615

- - -

502,751 1,067,806

- 1,570,557

- - - - -

1,570,557

-

-

-

1,570,557

2,665,172

- - - -

138,972 -

138,972

- - - - -

138,972

-

-

-

138,972

2,804,144

1,116,187 65,580

- 512,100

30,585 800,063

2,524,515

75,963 -

1,179,026 406,641

1,661,630 862,885

21,272,326

-

21,272,326

40.5 Liquidity riskLiquidity risk is the risk caused, among others by the inability of the Bank to settle liabilities at due date. The Liquidity Risk Policy is formulated keeping in view State Bank’s guidelines on risk management and best market practice.

Objectives of Bank's liquidity management is to ensure that the Bank is able to honour all its financial commitments on an ongoing basis without (i) effecting the Banks cost of funds (ii) adversely effecting ability to raise funds and (iii) resorting to sale of assets.

Asset and Liability Committee (ALCO), Risk Management Division, Treasury and the Finance Division each have a role in management of liquidity risk.


< - - - - - - - - - -- - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - Rupees in '000 - - - - - - -- -- - - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - >

Over 6 Over 1 Over 2 Over 3 Over 5 bearingMonths to 1 to 2 to 3 to 5 to 10 Above financial

Year Years Years Years Years 10 Years instruments


Assets

Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Other assets Operating fixed assets Deferred tax assets

Liabilities

Bills payable Borrowings Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Other liabilities

Net assets

Share capitalReservesAccumulated lossDeficit on revaluation of assets - net



40.5.1 Maturities of Assets and Liabilities



1,923,526 724,802

1,433,817 12,446,033 18,503,815

1,189,612 1,570,754

381,016 38,173,375

213,209 1,554,801

31,307,488 -

- 1,043,477

34,118,975 4,054,400

5,000,000 1,064,828

(1,998,887) (11,541)

4,054,400

1,923,526 724,802

1,433,817 79,474

6,153,520 810,036

13,796 -

224,207

213,209 487,831

15,515,730 -

- 1,043,477

17,260,247 (17,036,040)

- - -

3,569,040 1,919,293

29,062 27,592

- 5,544,987

- 596,520

4,503,817 -

- -

5,100,337 444,650

2009

< - - - - - - - - - - - - - Rupees in '000 - - - --- - -- - - - - >Total

Upto 1Month

Over 1to 3

Months

- - -

2,180,662 3,133,020

43,593 41,388

- 5,398,663

- 466,600 726,196

-

- -

1,192,796 4,205,867

- - -

3,873,908 2,359,946

301,948 173,400

- 6,709,202

- 3,850

10,345,170 -

- -

10,349,020 (3,639,818)

- - -

1,446,237 3,467,721

4,973 165,551

38,102 5,122,584

- -

58,865 -

- -

58,865 5,063,719

- - -

267,744 541,247

- 165,551

76,203 1,050,745

- -

110,354 -

- -

110,354 940,391

- - -

639,663 471,025

- 166,193 114,305

1,391,186

- -

47,356 -

- -

47,356 1,343,830

- - -

389,305 458,043

- 345,922 152,406

1,345,676

- - - -

- - -

1,345,676

- - - - - -

471,361 -

471,361

- - - -

- - -

471,361

2009

< - - - - - - --- - -- - --- - -- - --- - --- --- - -- - - --- - - - - - - - - - Rupees in '000 - - - --- - - --- - -- -- - --- - - --- - -- - --- - -- - --- - -- -- - - >

Over 3to 6

Months

Over 6 Months to

1 Year

Over 1to 2

Years

Over 2to 3

Years

Over 3to 5

Years

Over 5to 10Years

Above10 Years



Assets

Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Advances Other assets Operating fixed assets Deferred tax assets

Liabilities

Bills payable Borrowings Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred tax liabilities

Net assets

Share capitalReservesUnappropriated profitDeficit on revaluation of assets - net

1,349,649 65,580

200,000 5,094,613

15,758,678 1,045,522

927,882 360,893

24,802,817

75,963 1,869,940

16,616,466 -

- 420,328

- 18,982,697

5,820,120

5,000,000 1,314,828 (182,097) (312,611) 5,820,120

1,349,649 65,580

200,000 512,100

11,083,818 861,416 374,992 360,893

14,808,447

75,963 1,566,573 9,377,500

-

- 420,328

- 11,440,364 3,368,083

- - -

2,107,342 237,775

20,088 10,597

- 2,375,802

- 14,967

1,795,198 -

- - -

1,810,165 565,638

2008

< - - - - - - - - - - - - - Rupees in '000 - - - --- - -- - - - - >Total

Upto 1Month

Over 1to 3

Months


- - - -

138,972 -

149,049 -

288,021

- - - -

- - - -

288,021

- - -

502,751 1,067,806

- 178,170

- 1,748,727

- - - -

- - - -

1,748,727

- - -

509,514 1,097,758

- 71,923

- 1,679,195

- -

88,392 -

- - -

88,392 1,590,803

- - -

639,987 704,101

34,436 43,209

- 1,421,733

- -

32,286 -

- - -

32,286 1,389,447

- - -

619,987 631,109

63,165 52,256

- 1,366,517

- -

1,700 -

- - -

1,700 1,364,817

- - -

119 346,658

40,083 31,791

- 418,651

- -

3,596,561 -

- - -

3,596,561 (3,177,910)

- - -

202,813 450,681

26,335 15,896

- 695,724

- 288,400

1,724,829 -

- - -

2,013,229 (1,317,505)

2008

< - -- - - - - - - -- - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - Rupees in '000 - - - ---- - - - - - - -- - - - - - - -- - - - - - - -- - - - - - - - -- - - - - >

Above10 Years

Over 5to 10Years

Over 3to 5

Years

Over 2to 3

Years

Over 1to 2

Years

Over 6 Months to

1 Year

Over 3to 6

Months



40.6 Operational risk management

The Bank, like all financial institutions, is exposed to many types of operational risks, including the potential losses arising from internal activities or external events caused by breakdowns in information, communication, physical safeguards, business continuity, supervision, transaction processing, settlement systems and procedures and the execution of legal, fiduciary and agency responsibilities.

The Bank maintains a system of internal controls designed to keep operational risk at appropriate levels, in view of the Bank’s financial strength and the characteristics of the activities and market in which it operates. These internal controls are periodically updated to conform to the industry best practices.

The Bank seeks to manage the operational risk from two perspectives, firstly by way of ensuring compliance of standard operating procedures including defined processes for prevention and detection of any fraud and forgery, and work place safety and security, secondly through contingency planning to ensure continuity of business. Policies and procedures covering all activities in Bank are in place.

The Bank is currently in the process of implementing internationally accepted Internal Control-Integrated Framework published by the Committee of Sponsoring Organizations of the Tread way Commission (COSO), with a view to consolidate and enhance the existing internal control processes.

41. DATE OF AUTHORIZATION FOR ISSUE

These financial statements were authorized for issue on March 03, 2010 by the Board of Directors of the Bank.

42. GENERAL

These financial statements have been prepared in accordance with the revised form of annual financial statements of the Bank issued by the State Bank of Pakistan through its BSD Circular No. 4 dated February 17, 2006.




Annexure

Statement Showing Written-Off Loans or any otherFinancial Relief of Five Hundred Thousand Rupees orabove Provided During the year ended December 31, 2009

Name andaddress

of theborrower

Name ofindividuals/

partners/directors

(withNIC No.)

Father’s/Husband’s

namePrincipal Interest/

Mark-upOthers Total written-off Mark-up

written-offFinancial

reliefprovided

(9+10+11)

1211109876531 2 4

S. No. Outstanding Liabilities at begining of the year Principal Interest/ Others Total

Rupees in “000”

NIL

Total: _ _ _ _ _ _ __


CATEGORIES OF SHAREHOLDERSAS ON DECEMBER 31, 2009

Associated Companies, Undertakings & Related PartiesArif Habib Securities LimitedRupali Bank Limited

DirectorsMr. Arif HabibMr. Nasim BegMr. Asadullah KhawajaMr. Md. Abdul Hamid Miah

CFO & Company SecretaryMr. Muhammad Amin Bhoori

Public Listed Companies

National Investment Trust & Investment Corporation of Pakistan

Banks, Development Financial Institutions, Non Banking Financial Institutions, Insurance Companies, Modarabas & Mutual Funds

Foreign Shareholders

Individuals

Others

Total

59.41 6.56

3.68 0.22 0.00 0.00

0.00

-

0.20

3.24

0.06

18.58

8.05

100.00

297,034,85432,777,450

18,416,6761,114,877

741

5,599

-

1,002,013

16,203,949

289,095

92,886,297

40,269,115

500,000,000

Shares Held% ageNumber

Categories of Shareholders


CATEGORIES OF SHAREHOLDERSAS ON DECEMBER 31, 2009

Associated Companies, Undertakings & Related PartiesArif Habib Securities LimitedRupali Bank Limited

Directors

National Investment Trust & Investment Corporation of Pakistan

Banks, Development Financial Institutions, Non Banking Financial Institutions, Insurance Companies, Modarabas & Mutual Funds

Foreign Shareholders

Individuals

Others

Total

59.41 6.56

3.91

0.20

3.24

0.06

18.58

8.05

100.00

297,034,85432,777,450

19,531,628

1,002,013

16,203,949

289,095

92,891,896

40,269,115

500,000,000

Shares Held% ageNumber

11

4

2

26

14

46,605

161

46,814

Categories of Shareholders Number of Shareholder


PATTERN OF SHAREHOLDINGAS ON DECEMBER 31, 2009

2,729 2,938

27,842 10,794

1,276 468 192 129

79 42 28 23 34 21 27 10 13 12

9 6 7 2

21 7 2

11 3 4 1 3 1 1 3 2 2 2 3 3 2 1 1 1 6 1

SHAREHOLDING

1 101 501

1,001 5,001

10,001 15,001 20,001 25,001 30,001 35,001 40,001 45,001 50,001 55,001 60,001 65,001 70,001 75,001 80,001 85,001 90,001 95,001

100,001 105,001 110,001 115,001 120,001 125,001 130,001 135,001 140,001 145,001 150,001 155,001 160,001 165,001 170,001 175,001180,001

185,001 190,001

195,001 205,001

100 500

1,000 5,000

10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000 80,000 85,000 90,000 95,000

100,000 105,000 110,000 115,000 120,000 125,000 130,000 135,000 140,000 145,000 150,000 155,000 160,000 165,000 170,000 175,000 180,000185,000

190,000 195,000 200,000

210,000

121,817 828,547

15,815,933 21,054,008

8,989,748 5,638,374 3,393,739 2,922,311 2,183,389 1,364,037 1,059,405

986,983 1,673,360 1,097,147 1,535,548

632,764 877,130 877,302 699,119 495,949 616,055 183,611

2,091,081 717,458 212,220

1,233,268 358,893 489,722 126,525 394,676 137,000 144,444 445,553 302,838 320,000 325,555 501,954 518,745 353,300183,785

189,000 194,444

1,200,000 205,555

ToTOTAL SHARES HELDNO. OF SHAREHOLDERS

From


PATTERN OF SHAREHOLDINGAS ON DECEMBER 31, 2009

1 4 2 1 3 2 2 1 2 1 1 2 1 1 1 1 1 2 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1

46,814

215,001 220,001 225,001 240,001 245,001 260,001 265,001 285,001 295,001 300,001 320,001 330,001 340,001 355,001 380,001 395,001 425,001 445,001 450,001 475,001 550,001 585,001 595,001 600,001 605,001 700,001 775,001 840,001 900,001

1,110,001 1,250,001 1,560,001 2,095,001 2,495,001 3,905,001 5,740,001 9,495,001

18,330,001 24,770,001 32,775,001

297,030,001

220,000 225,000 230,000 245,000 250,000 265,000 270,000 290,000 300,000 305,000 325,000 335,000 345,000 360,000 385,000 400,000 430,000 450,000 455,000 480,000 555,000 590,000 600,000 605,000 610,000 705,000 780,000 845,000 905,000

1,115,000 1,255,000 1,565,000 2,100,000 2,500,000 3,910,000 5,745,000 9,500,000

18,335,000 24,775,000 32,780,000

297,035,000TOTAL

216,444 889,776 458,083 243,500 745,176 526,500 535,555 288,666 600,000 300,500 322,888 663,501 344,444 356,500 385,000 400,000 426,111 895,134 450,265 479,906 554,444 588,500 600,000 605,000 607,000 703,999 776,666 842,013 904,446

1,111,101 1,253,444 1,563,095 2,100,000 2,500,000 3,910,000 5,741,111 9,500,000

18,333,343 24,773,293 32,777,450

297,034,854 500,000,000

SHAREHOLDINGTo

TOTAL SHARES HELDNO. OF SHAREHOLDERSFrom


Notice is hereby given that the fourth Annual General Meeting of the shareholders of Arif Habib Bank Limited ("Bank"), will be held on Monday, March 29, 2010 at 11:00 a.m. at Beach Luxury Hotel, Karachi to transact the following business:

Ordinary Business:

1. To confirm the minutes of Third Annual General Meeting of the Bank held on April 18, 2009.

2. To receive, consider and adopt the audited financial statements of the Bank for the year ended December 31, 2009 alongwith Directors' and Auditors' Report thereon and Statement of Compliance with the Code of Corporate Governance.

3. To elect seven directors in accordance with the provision of Section 178 of the Companies Ordinance, 1984 for the period of three years commencing April 01, 2010. All the retiring directors being eligible and offer themselves for re-election:

NOTICE OF THE FOURTH ANNUAL GENERAL MEETING OF THE SHAREHOLDERS OF ARIF HABIB BANK LIMITED

4. To appoint External Auditors of the Bank for the year ending December 31, 2010 till the conclusion of next Annual General Meeting and fix their remuneration. (Present Auditors', M/s.M.Yousuf Adil Saleem & Co., Chartered Accountants being eligible, offer themselves for re-appointment).

Special Business:

To consider the following resolutions and if thought fit to pass these resolutions as Special Resolutions with or without modifications:

5. To consider and approve change of name of the Bank by passing the following resolution:

"RESOLVED that subject to the approval of the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan, thename of the Bank be and is hereby changed from "Arif Habib Bank Limited" to "Summit Bank Limited".

6. To consider and approve amendments in the Memorandum and Articles of Association of the Bank by passing the following resolution:

"RESOLVED that the Memorandum and Articles of Association of the Bank be amended in the following manner:

- Clause I and II of the Memorandum of Association;- "The name of the Company is Summit Bank Limited";- Definition of the term "Company in Clause 2 of the Articles of Association;

"Company" means Summit Bank Limited.

"RESOLVED that the name Arif Habib Bank Limited wheresover appearing in the Memorandum and Articles of Association and any other documents in relation to the Bank, shall stand replaced, amended and substituted with the name Summit Bank Limited and the intimation of the change be communicated to all concerned institutions, bodies, individuals, departments and authorities."

"RESOLVED that the registered address of the Bank be changed from "2/1, R.Y. 16, Old Queens Road, Karachi" to "6B, F-6, SuperMarket, Islamabad" subject to obtaining approvals from the regulatory authorities.

7. To consider and approve the change of address of the Bank by passing the following resolution:

"RESOLVED that subject to receiving all the relevant regulatory approvals, the registered office address of the Bank be and is hereby changed from "2/1, R.Y. 16, Old Queens Road, Karachi" to "6B, F-6, Super Market, Islamabad".

8. To consider and pass the following resolution:

RESOLVED that the Company Secretary of the Bank be and is hereby authorized, to take all steps necessary, ancillary and incidental for registering and amending the name of the Bank and the Memorandum and Articles of Association, including but not limited to filing of all the requisite statutory forms and all other documents as may be required to be filed with the Companies Registration Office of the Securities and Exchange Commission of Pakistan, the State Bank of Pakistan and other regulatory authorities, executing all suchcertificates, applications, notices, reports, letters and any other document or instrument including any amendments or substitutions to any of the foregoing as may be required in respect of change of name of the Bank, the amendment to the Memorandum and Articles of Association of the Bank and to fulfill all requisite legal, corporate and procedural formalities as may be required in relation to the resolutions passed hereinabove".

01. Mr. Nasser Abdullah Hussain Lootah02. Mr. Husain Lawai03. Mr. Nasim Beg04. Mr. Asadullah Khawaja05. Mr. Md. Jaglul Karim06. Mr. Mohamed Ahmad Mousa Ismail07. Miss Khrida Nasser Abdullah H. Lootah

NOTICE OF THE FOURTH ANNUAL GENERAL MEETING OF THE SHAREHOLDERS OF ARIF HABIB BANK LIMITED

A statement under section 160(1)(b) of the Companies Ordinance, 1984 pertaining to the Special Business referred to above is annexed to this Notice of Meeting.

Other Business:

9. To transact any other business with the permission of the chair.

Notes:

1. The Register of Members of the Bank will remain closed from March 20, 2010 to March 27, 2010 (both days inclusive).

2. A member entitled to attend and vote at this meeting may appoint another member as his / her proxy to attend and vote on his / her behalf. The instrument appointing a Proxy and the power of attorney or other authority under which it is signed or a notarially certified copy of the power of attorney must be valid and received at the Share Registrar of the Bank, M/s. Technology Trade (Pvt.) Ltd., Dagia House, 241-C, Block-2, P.E.C.H.S., Off. Shahrah-e-Quideen, Karachi duly stamped, signed and witnessed not later than 48 hours before the meeting.

3. Shareholders whose shares are deposited with Central Depository Company of Pakistan Limited (CDC) are requested to bring their computerized National Identity Card (CNIC) alongwith their CDC Account Number for verification. In case of corporate entity, the Board of Directors' resolution / power of attorney with specimen signatures of the nominee shall be produced (unless it has been provided earlier) at the time of the meeting.

4. Members are requested to notify any change in their addresses immediately.

5. Members are requested to submit copy of their CNICs with our Share Registrar M/s.Technology Trade (Pvt.) Ltd.

STATEMENT UNDER SECTION 160(1)(b) OF THE COMPANIES ORDINANCE, 1984

1. Change of Name of the Bank.In accordance with the sale purchase agreement of the majority shareholders of the Bank, it was required to change the name of the Bank. To meet this requirement, the Board has approved to change the name of the Bank in its meeting held on March 03, 2010 subject to obtaining shareholders approval and all regulatory approvals.

2. Change of Registered Address of the Bank.The new Board of the Bank intends to transfer the registered address of the Bank from 2/1, R.Y. 16, Old Queen Road, Karachi to 6B, F-6, Super Market, Islamabad. The Board of Directors of the Bank recommended in its meeting held on March 03, 2010 for transfer of registered address of the Bank and subject to the approval of the regulatory authorities and the shareholders of the Bank, the registered address of the Bank will be changed

3. Changes in the Memorandum and Articles of Association of Bank.In order to record the change in the name of the Bank, Clause I and II of the Memorandum, Article 2 of the Articles of the Bank and the mention of the name Arif Habib Bank Limited wheresoever appearing in the Memorandum and Articles of Association will be required to be amended and changed to the new name recommended by the Board of Directors. Therefore, the Board of Directors in its meeting held on March 03, 2010 had recommended to the shareholders for approval of amendments in the Memorandum and Articles of Association of the Bank.

The Directors of the Bank have no interest in the special business and / or special resolution that would need a further disclosure.


By order of the Board

Muhammad Amin BhooriCompany Secretary

Karachi:Date: March 08, 2010


BRANCH NETWORK

KARACHI (17 BRANCHES)

I.I. Chundrigar Road BranchUni Tower, I.I. Chundrigar Road Karachi. Tel:021-32466410-13

Boat Basin BranchGround floor, Plot No. FL-4, Hanging Garden, Block-5, Clifton Karachi.Tel:021-35824171-80, 021-35823469, 021-35823606

Gulshan-e-Iqbal BranchGround Floor, Shop # CA- 1, 2, 3, Hasan Center, Block 16, Main University Road Karachi. Tel: 021-34829024-27

Atrium Mall BranchShop No. 6 and 21 Ground floor, Plot No. 249, Atrium Mall, Zaibunnisa Street, Saddar Karachi.Tel:021-5641000-9

Karachi Stock Exchange BranchRoom No. 60 to 63, KSE Building, Stock Exchange Road Karachi.Tel: 021-32462844-50, 021-32462829-30

Cloth Market Branch28, Cochinwala Market, LaxmiDas Street Karachi.Tel:021-32443651, 021-32443591, 021-32443871

Korangi Branch33/1, Sector-15, Korangi Industrial Area, Karachi.Tel:021-35122231-32

Gulistan-e-Jauhar (Sub-Branch)118/A-B, Shop # 02,03,04 Ground Floor, Rufi Paradise Block-18,K.D.A,Scheme # 36, Gulistan-e-Jauhar, Karachi. Tel:021-34621281-4

Adamjee Nagar (Sub Branch) Tipu Sultan Road, Adamjee Nagar, 115-A/Z, ShabierAbad, Opp Kathiawar Hospital, Karachi. Tel:021-34312984-7

Bahadurabad (Sub Branch)Plot No. C-23, Block 3, CCA, Bihar Muslim Central Com. Area,Bahadurabad, Karachi.Tel:021-34913447, 021-34913449, 021-34913451

S.I.T.E. (Sub Branch)B 49, State Avenue, SITE Karachi. Tel:021-32589662, 021-32589663

Dolmen City Branch Ground Floor, Harbour Front, Triangular Tower, Dolmen City, Block 4, Clifton, Karachi. Tel:021-35297611-1561

Hyderi (Sub Branch) D-10, Block F, North Nazimabad, Hyderi, Karachi.Tel:021-36724972-74

Nooriabad BranchNooriabad Industrial Area, Nooriabad Karachi. Tel:025-4670433

Khayaban-e-Jami Branch64-C, 7th Street, Phase 7, Jami Commercial, DHA, Karachi.Tel:021-35316200-7

M. A. Jinnah Road Branch Mezzanine Floor,Street R.B.6,Survey #19,Ram Bagh Quarters, M.A. Jinnah Road, Karachi.Tel:021-32218395, 021-32218409, 021-2218428

Jodia Bazar BranchA/25/28 Darayalal Street,Jodia Bazar, Karachi. Tel:021-32500

Hyderabad (1 Branch)

Bori Bazar Branch41/364, Saddar, Bori Bazar Hyderabad. Tel:022-2730911-5

Sukkur (1 Branch)

Marich Road Branch B - 885, Marich Bazar, Sukkur. Tel:071-5627781-2, 85, 90

Mirpurkhas (1 Branch)

Mirpurkhas Branch Plot No : 988 to 991 Umerkot Gharibabad, Mirpur Khas.Tel:0233-8751

Lahore (6 Branches)

Y Block DHA Branch163, Block Y, Phase III, DHA Lahore Cantt, Lahore. Tel:042-5749069-79

Lahore Stock Exchange Branch Office No. 5, LSE Building, 19, Aiwan e Iqbal Road, Lahore.Tel: 042-6280852-8, 042-6271715-6

Multan Road (Sub Branch) Plot No. 9/A, Scheme More Corner, Industrial Block,Allama Iqbal Town, Multan Road, Lahore. Tel:042-7497451-6

Ferozpur Road (Sub Branch) Siza Farmer Factory, Sufiabad, Main Ferozerpur Road, Lahore.Tel:042-5800096-98

Gulberg Branch 132-E, Main Boulevard, Gulberg Lahore. Tel:042-5870832-33

Circular Road BranchBaber Center, 51 Circular Road, Lahore. Tel:042-37379371-5

BRANCH NETWORK

ARIF HABIB BANK LIMITED

Islamabad (2 Branches)

Super Market Branch Plot No. 6B, F-6, Super Market, Islamabad. Tel:051-2279167-70

Islamabad Stock Exchange (Sub Branch) Shop No 5, Al Khair Plaza, Islamabad. Tel:051-2806281-3

Rawalpindi (1 Branch)

Bank Road Plot No. 27, Bank Road, Rawalpindi. Tel:051-5120713-18

Multan (2 Branches)

Abdali Road Branch, Plot No. 66-A & 66-B/9, Abdali Road, Multan.Tel:4516761-2, 061-4572519

Hussain Agahi (Sub Branch) Zenith Market, Chowk Bazar, Multan.Tel:061-4511037, 061-4511057, 061-4511059

Faisalabad (2 Branches)

Yarn Market BranchProperty No. 7, Ward No.8, Chack No.212/RB,Tehsil & District Faisalabad.Tel:041-2619885, 041-2619746, 041-2645504

Liaquat Road Branch Liaquat Road, FSD Chak # 212, Faisalabad. Tel:041-2541256-62

Gujranwala (1 Branch)

GT Road BranchProperty #Bx11-7S-105, Main GT Road, Gujranwala.Tel:055-3820970-74

Gujrat (1 Branch)

Gujrat Branch Revenue Area of Jattowakal, Main GT Road Tehsil & Distt, Gujrat. Tel:053- 3517051-54

Peshawar (1 Branch)

Islamia Road BranchUnit No. UG-67A, Upper GF & LG 79B & LG-79C,Deans Trade Centre, Islamia Road, Peshawar. Tel:091-5253981-5

Quetta (1 Branch)

M.A Jinnah Road BranchGround floor, Malik Plaza, M.A. Jinnah Road, Quetta.Tel:081-2865590-95

Sadiqabad (1 Branch)

Sadiqabad Branch Mozzah Khuda Bux Dehar, Macchi Goth, KLP Road, Sadiqabad.Tel:068-5786791, 068-5786792, 068-5786793

Mirpur AJK (1 Branch)

Mirpur AJK Branch NS Tower 119 F/1, Kotli Road, Mirpur, Azad Kashmir.Tel:058274-37193-6

Sialkot (1 Branch)

Paris Road Branch Plot No. 1/1437 Paris Road, Sialkot. Tel:052-4602894-97


Form of Proxy4th Annual General Meeting

ARIF HABIB BANK LIMITED

The Company Secretary Arif Habib Bank Limited2/1, R.Y. 16, Old Queens RoadKarachi.

I/We ______________________________________________________ of __________________________ being a member(s) of Arif Habib Bank Limited holding_____________________________________ ordinary shares as per CDC A/c. No _____________________hereby appoint Mr./Mrs./Miss _____________________________________________________________________________of (full address) ________________________________________________________________________________________________________________ or failing him/herMr./Mrs./Miss______________________________________________________________________________ of (full address) ______________________________________________________________________________________________________________ (being member of the Bank) as my/our Proxy to attend, act and vote for me/us and on my/our behalf at the 4th Annual General Meeting of the Bank will be held on March 29, 2010 and /or any adjournment thereof.

Signed this _________________________________________ day of _________________________________________ 2010.

NOTICE:

(i) A member entitled to attend and vote at the meeting may appoint another member as his / her proxy who shall have such rights as respects attending, speaking and voting at the meeting as are available to a member.

(ii) The account holders, sub-account holders, proxy or nominee shall authenticate his/her identity by showing his/her original national identity card (NIC) or original passport and bring his/her folio number at the time of attending the meeting.

(iii) In the case of corporate entity Board of Directors' resolution/power of attorney with specimen signature of the nominee shall also be produced (unless provided earlier) at the time of meeting.

(iv) In order to be effective, the proxy forms must be received at the office of our registrar M/s. Technology Trade (Pvt.) Ltd; Dagia House 241-C Block-2, PECHS off Shahrah-e-Quaideen Karachi not later than 48 hours before the meeting duly signed and stamped and witnessed by two persons with their names, addresses and NIC numbers mentioned on the form.

(v) In the case of individuals attested copies of NIC or passport of the beneficial owners and the proxy shall be furnished with the proxy form.

(vi) In the case of proxy by a corporate entity, Board of Directors resolution/power of attorney with specimen signature and attested copies of the NIC or passport of the proxy shall be submitted alongwith proxy form.

Witnesses:

1. Name:

Address:

CNIC No:

Signature:

2. Name :

Address:

CNIC No:

Signature:

Signature onRs. 5/-

Revenue Stamp

REGISTRAR

Technology Trade (Pvt) Ltd.Dagia House, 241-C, Block 2, PECHS,Off Shahrah-e-Quaideen, Karachi.Tel: (021) 34391316-7Fax: (021) 34391318

arif habib bank limited

Documents