Financial Accounting

Project Bank Alfalah

1/15/2011

Section:

M.Com B

Submitted To:

Prof. Azfar Ali

Submitted By:

Hammad Malik Ahmed Anwar Shah Ammarah Tariq Anam Aslam

0053 0056 0084 0089

UNIVERSITY OF CENTRAL PUNJAB

Table of Contents
Sr. # 1 2 3 4 5 6 7 8 9 10 11 12 Topic Page # 1 3 4 5 6 7 10 12 15 18 20 24

Commercial Banking Scenario in Pakistan Introduction to Bank Alfalah Board of Directors Chairmans Message Branches of Bank Alfalah Auditors Report to Shareholders Balance Sheet Cash flow statements Statement of Changes in Equity Statement of Comprehensive Income Accounting Policies Conclusion

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UNIVERSITY OF CENTRAL PUNJAB O F C E N T R A L P U N J A B

COMMERCIAL BANKING SCENARIO IN PAKISTAN

At the time of independence in 1947, there were 38 scheduled banks with 195 offices in Pakistan but by December 31, 1973, there were 14 scheduled Pakistani commercial banks with 3,233 offices all over Pakistan & 74 offices in foreign countries. Nationalization of Banks took place on 1st January 1974 under the Nationalization act 1974, due to certain objectives. But it had negative effects on efficiency of the banking sector afterwards a privatization Commission was set up on January 22, 1991, the commission transferred many banks to the private sector i.e., MCB & ABL. The government approved & permitted the establishment of 10 new private banks in 1991; hence many new private banks have incorporated, since then, BANK ALFALAH in one of the namely established private scheduled banks in Pakistan.

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UNIVERSITY OF CENTRAL PUNJAB O F C E N T R A L P U N J A B

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UNIVERSITY OF CENTRAL PUNJAB O F C E N T R A L P U N J A B

Bank Alfalah Limited was incorporated on June 21st, 1992 as a public limited company under the Companies Ordinance 1984. Its banking operations commenced from November 1st, 1997. The bank is engaged in commercial banking and related services as defined in the Banking companies ordinance, 1962. The Bank is currently operating through various branches in Pakistan, Bahrain, Bangladesh & Afghanistan, with the registered office at B.A.Building, I.I.Chundrigar,Karachi. Since its inception, as the new identity of H.C.E.B after the privatization in 1997, the management of the bank has implemented strategies and policies to carve a distinct position for the bank in the market place. Strengthened with the banking of the Abu Dhabi Group and driven by the strategic goals set out by its board of management, the Bank has invested in revolutionary technology to have an extensive range of products and services. This facilitates our commitment to a culture of innovation and seeks out synergies with clients and service providers to ensure uninterrupted services to its customers. We perceive the requirements of our customers and match them with quality products and service solutions. During the past five years, we have emerged as one of the foremost financial institution in the region endeavoring to meet the needs of tomorrow today.

BOARD OF DIRECTORS
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H.E. Sheikh Hamdan Bin Mubarak Al Nahayan Chairman

Mr. Abdulla Nasser Hawalileel Al-Mansoori Director

Mr. Abdull Khalil Al Mutawa Director

Mr.Khalid Mana Saeed Al Otaiba Director

Mr. Ikram Ul-Majeed Sehgal Director

Mr. Nadeem Iqbal Sheikh Director

Mr. Sirajuddin Aziz Director & CEO

CHAIRMANS MESSAGE

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UNIVERSITY OF CENTRAL PUNJAB O F C E N T R A L P U N J A B

"Our core philosophy of honesty, transparency in customer dealings,

product innovation, excellence in customer service and our commitment to being a responsible corporate citizen pervades this website

Since the inception of Bank Alfalah, by the grace of The Almighty, we have moved rapidly in expanding our branch network and deposit base, along with making profitable advances and increasing the range of products and services. We have made a break-through in providing premier services at an affordable cost to our customers. Keeping in view our valued clients and the need for constant and effective communication of information, we have designed this website to be as user friendly as possible. As we pursue the path of excellence, customer satisfaction remains our priority. It is only when we know our customers better, can we deliver a higher quality of services, thereby adding synergy to our existing management expertise, financial strength and profitability. This is yet another channel of communication for the delivery of quality products and services that enhance value to our stakeholders.

H.E.Sheikh Hamdan Bin Mubarak Al Nahayan

BRANCHES OF BANK ALFALAH

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The bank is currently operating through more than an international at presence in Afghanistan, and Bangladesh and Bahrain, with the registered office B.A.Building, I.I.Chundrigar, Karachi. Some of the main branches are located in all of the major cities including: Bahawalnagar,

362

branches domestically and

Hyderabad, Lahore, Kasur, Islamabad, Gawadar, Peshawar, Faisalabad, Quetta, D.I.Khan, Rawalpindi, Sargodha, Sukkur, Sialkot, Multan,Dera Ghazi Khan, Murree, Attock District, Gujranwala, Pirmahal, Mirpur Khas, Mandi Bahauddin, Lodhran etc.

Vision
To be the premier organization operating locally & internationality that provides the complete range of financial services to all segments under one roof.

Mission
To develop & deliver the most innovative products, manage customer experience, deliver quality services that contributes to brand strength, establishes a competitive advantage and enhances profitability, thus providing value to the stakeholders of the bank.

Slogan THE CARING BANK

AUDITORS REPORT TO THE SHAREHOLDERS

We have audited the annexed balance sheet of Bank Alfalah Limited as at December 31, 2009 and the related profit and loss account, statement of
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comprehensive income statement, cash flow statement and statement of changes in equity together with the notes forming part thereof (here-in-after referred to as the financial statements) for the year then ended, in which are incorporated the un audited certified returns from the branches except for thirty eight branches which have been audited 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 banks management to establish and maintain a system of internal control, and prepare and present the financial statements in conformity with the approve accounting standards and the requirement of the Banking Companies Ordinance,1962, and the Companies Ordinance, 1984. Our responsibility is to express an opinion on these statements base on our audit. We conducted our audit in accordance with the international Standards on Auditing as applicable in Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of any material misstatement. An audit includes examining, on a test basis, evidence supporting the amount s and disclosures in the financial statements. An audit also includes assessing the accounting policies and significant estimates made by management, as well as, evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion and after due verification, which in the case of loans and advances covered more than sixty percent of the total loans and advances 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, and the returns referred to above received from the branches have been found adequate for the purpose of our audit;
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(b) In our opinion: The balance sheet and profit and loss account together with the notes thereon have been drawn up in conformity with the banking Companies Ordinance, 1962 and the Companies Ordinance, 1984, and are in agreement with the books of account and are further in accordance with accounting policies consistently applied, except for the changes as stated in note 3.2 to the financial statements, with which we concur; The expenditure incurred during the year was for the purpose of the banks business; and The business conducted, investments made and the expenditure incurred during the year were in accordance with the objects of the bank and the transactions of the bank which have come to our notice have been within the powers of the bank.

(c) In our opinion and to the best of our information and according to the explanations given to us the balance sheet, profit and loss account, statement of comprehensive income, cash flow statement and statement of changes in equity together with the notes forming part thereof conform with the approved accounting standards as applicable in Pakistan and given the information required by the Banking Companies Ordinance 1962 and the Companies Ordinance 1984 in the manner so required and give a true and fair view of the state of the banks affairs as at December 31, 2009, and its

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true balance of profit, its cash flows and changes in equity for the year then ended; and

(d) In our opinion Zakat deducted at source under the Zakat and Ushr Ordinance 1980 was deducted by the bank and deposited in the Central Zakat fund established under section 7 of that ordinance.

Ferguson & Co.

Chartered Accountants Engagement Partner: Salman Hussain Dated: March 16, 2010 Karachi.

BANK ALFALAH LIMITED BALANCE SHEET AS AT DECEMBER 31, 2009 ASSETS

Cash and balance with treasury banks Balance with other banks Lending to financial institutions Investments Advances Fixed Assets Deferred tax assets
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NOTE
6 7 8 9 10 11 -

(RUPEES IN 000) 2009

35056012 22722639 14947435 99159957 188042438 14492194 -

UNIVERSITY OF CENTRAL PUNJAB O F C E N T R A L P U N J A B

Other assets TOTAL ASSETS

12

14649380 389070055

LIABILITIES
Bills Payable Borrowings Deposits and other accounts Sub-ordinate loans Liabilities against assets subject to financial lease Deferred tax liabilities Other liabilities TOTAL LIABILITIES NET ASSETS

NOTE
13 14 15 16 17 18

(RUPEES IN OOO)
3766144 20653921 324759752 7570181 179851 10006786 366936635 22133420

REPRESENTED BY
Share capital Reserves Inappropriate profit TOTAL Surplus on revaluation of assets net of tax TOTAL

NOTE 19

(RUPEES IN OOO) 13491563 3587969 2690728 19770260

20

2363160 22133420

CONTINGENCIES AND COMMITMENTS:

The annexed notes 1 to 44 and Annexure I and II from an integral part of these financial statements.

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UNIVERSITY OF CENTRAL PUNJAB O F C E N T R A L P U N J A B

BANK ALFALAH LIMITED CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2009 CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax Less: Dividend income 1016316 (248217) 768099 1467784 64999 3694546 317164 (1419) (2849) 59817 (43521)
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NOTE

(RUPEES 000)

(+)ADJUSTMENTS:
Depreciation Amortization Provision against loans and advances Provision for diminution in value

of

investments Provision against off balance sheet obligations Loss on revaluation of investments classified as held for trading Bad debts written off directly Gain on sale of fixed assets Provision for gratuity

189352 5745873 6513972

(INCREASE)/DECREASE IN OPERATING ASSETS

Less: Lending to financial institutions Less: Held for trading securities Less: Advances Less: Other Assets (11237039) (242172) (5813) (4785364) (16270388)

INCREASE/DECREASE IN OPERATING LIABILITES

Bills payable Borrowings Deposits and other accounts Other liabilities Gratuity paid Income tax paid Net cash flow from operating activities 314113 6963699 24026894 144034 (189352) (1557045)

19945927

CASH FLOWS FROM INVESTING ACTIVITIES

Net investments in available for sale securities Net investments in held to maturity securities Investments in associated companies Dividend income received Investments in fixed assets Proceeds from sale of fixed assets Net cash generated from investing activities (16255052) (7487002) 253568 (1903456) 112166

(25279776)

CASH FLOW FROM FINANCING ACTIVITIES

Issuance of subordinate loans Redemption of subordinate loans Issuance of right shares Dividend Paid Net cash generated from financing activities Exchange difference on translation of the net investments in foreign branches Increase in cash and cash equivalents Cash and cash equivalent at beginning of the year
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5000000 (988) 3997500

8996512
242506 3905169 57583878

CASH AND CASH EQUIVALENT AT THE END OF THE YEAR

31

61489047

The annexed notes 1 to 44 and Annexure I and II from an integral part of these financial statements.

BANK ALFALAH LIMITED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2009 (Rupees000) Particulars Share Capital Share Premium Statutory Reserve Reserve for Exchange issue Bonus Shares
Balance at Jan 6500000 1, 2008 Changes in
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Inappropriate Profit

Total

of Translation Reserve
87058

2327775

4851840

1376667 3

equity for 2008 Comprehensiv e income for the year ended December 31,2008 Transfer from surplus on revaluation of fixed assets Transfer to statutory reserve Final dividend 31,2007 declared subsequent per share Transfer reserve to year end Rs.1.5 to for cash for

490963

1301301

1792264

24586

24586

260260

(260260)

(975000)

(975000 )

year ended Dec

1495000

(1495000)

issue of bonus shares Issue of bonus 1495000 shares Balance at 7995000 2588035 (1495000) 578021 3447467 1460852 3

Dec31, 2008 Changes in equity for 2009 Comprehensiv e income for the year ended Dec31,2009
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242506

897035

1139541

Transfer from surplus on revaluation of fixed assets Transfer to statutory reserve Issue of right 3997500 shares Transfer reserve to for

24696

24696

179407

(179407)

1499063

(1499063)

3997500 -

issue of bonus shares Issue of bonus 1499063 shares for year ended % Dec 31,2008@12.5 (1499063) -

Balance

at 134915

2767442

820527

2690728

197702 60

Dec31, 2009 63 (a) This represents reserve created under section 21(i)(a) of the Banking Companies Ordinance,1962 (b) As more fully explained in note 10.5.1 of these financial statements balance of Rs. 1562.488 million (2008: Rs. 404.459 million) as at Dec 31,2009 representing additional profit arising from availing FSV benefit for determining provision requirements is not available to the bank for the purpose of distribution of dividend to shareholders The annexed notes 1 to 44 and Annexure I and II from an integral part of these financial statements.

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BANK ALFALAH LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2009 Particulars Interest earned Less: Interest expensed Net interest income Less: Provision against loans and advances Less: Provision for diminution in value of investments Less: Bad debts written off directly Interest income after provision Non mark up/ Interest income Add: fee, commission and brokerage income Add: Dividend income Add: Income from dealing in foreign currencies Add: Gain on sale of securities Add: Unrealized Gain Add: Other income Non mark up/ interest expenses Less: Administrative expenses Less: Provision against off balance sheet oblige Less: other charges PROFIT BEFORE TAXATION Less: Taxation PROFIT AFTER TAXATION Add: Other incomes TOTAL COMPREHENSIVE INCOME FOR THE
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Note 23 24 10.5 9.21 10.6

2009 35561312 24654180 10907132 3694546 317164 59817 6835605 1913004 248217 1019732

25 9.23 26 27 18.2 28

688924 2849 1309527 12017858 10923507 (1419) 79454 1016316 119281 897035 242506 1139541

UNIVERSITY OF CENTRAL PUNJAB O F C E N T R A L P U N J A B

YEAR

The annexed notes 1 to 44 and Annexure I and II from an integral part of these financial statements.

ACCOUNTING POLICIES OF BANK ALFALAH Statement of Compliance

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These financial statements have been prepared in accordance with approve accounting standards as applicable in Pakistan. Approved accounting standards comprise of such International Financial Standards issued by the International Accounting Standards Boards as are notified under the Companies Ordinance,1984, provision of and directives idled under the companies Ordinance , 1984 Banking Companies Ordinance,1962 and the directives issued by State Bank of Pakistan. In case the requirements differ, the provisions of and directives issued under the companies Ordinance 1984, Banking Ordinance, 1962 and the directive issued by SBP prevail.

Early adoption of standards

The bank did not early adopt new or amended standards in 2009.

Accounting Convention
These financial statements have been prepared under the historical cost convention except that certain fixed assets are stated at revalued amounts, and held for trading and available for sale investments and derivative financial instruments are measured at fair value. The financial statements are presented in Pakistani Rupees, which is the Banks functional and presentation currency. The amount is rounded to nearest thousand.

Tangible Fixed Assets

Fixed assets except office premises are shown at historical cost less accumulated depreciation and accumulated impairment losses, if any. Depreciation is charged to

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income applying the straight line. The depreciation charged for the year is calculated after taking into account residual value, if any.

Intangible Fixed Assets

Intangible assets having a finite useful life are stated at cost less accumulated amortization and accumulated impairment losses, if any. Such intangible assets are amortized using the straight line method over their estimated useful lives

Capital work in progress

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

Current Taxation
Current tax is the expected tax payable on the taxable income for the year using tax rates enacted at the balance sheet date and any adjustment to tax payable in respect of previous years.

Defined Contribution Plan

The Bank operates a recognized provident fund scheme for all its permanent employees to which equal monthly contributions are made both by the Bank and employees at the rate of 8.33 percent of basic salary. The Bank has no further payment obligations once the contributions have been paid.

Acceptance
Acceptance comprises undertakings by the Bank to pay bills of exchange drawn on customers. The Bank expects most acceptances to be simultaneously settled with the reimbursement from the customers.
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Foreign Operation
Assets and Liabilities of foreign operations are translated into rupees at the exchange rate prevailing at the balance sheet date. The results of foreign operations are translated at average rate of exchange for the year.

Earnings per Share

The Bank presents basic and diluted earnings per share for its shareholders. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the bank by the weighted average number of ordinary share outstanding during the year

Ijarah Arrangements
Ijarah contracts entered into by the bank essentially arrangements whereby the bank (being the owner of assets) transfer its usufruct to its customers for an agreed period at an agreed consideration. The significant ijarah contracts entered into by the bank are with respect to vehicles plant and machinery and equipments and are for periods ranging from3 to 5 years.

Fee, Commission and brokerage

Fee, commission and brokerage income except income from guarantees are accounted for on receipt basis. Commission on guarantees is recognized on time period basis.

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Functional and Presentation currency

Items included in the financial statements are measured using the currency of the primary economic environment which the bank operates.

Workers welfare Fund

The workers welfare Ordinance ,1971 has been amended vide Finance Act 2008 by virtue of which the bank is now liable to pay WWF @2% of profit before tax as per accounts or declared income as per income tax return, whichever is higher.

Dividend and appropriation to reserves

Dividend and appropriation to reserves, except appropriations which are required under the law, after the balance sheet date are recognized as a liability in the banks financial statements in the year in which these are approved.

CONCLUSION
The Bank Al-Falah has a significant progress in the banking sector, and it has achieved this position in a very short time period, just in 3 years in Pakistan.the Bank Al-Falah has a great share in market as well as high growth rate as compared to all other banks, due to its best Customer dealing, Compensations to Customers
UNIVERSITY OF CENTRAL PUNJAB O F C E N T R A L P U N J A B

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and Employees as well and Organizational Control due to the best and powerful Planning, Leading and Controlling sectors. As there is no doubt that Bank Al-Falah is best in its field , but it has also some weak points like some of resources are still un-utilized and the political pressure of references regarding the posts in the organization. Over all the Bank Al-Falah has proved to be the best bank in the whole banking sector, due to the fact that its weaknesses are not more than its strengths.

REFERENCES
Visit of Bank Alfalah, College Road Branch

www.bankalfalah.com www.en.wikipedia.org

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