Due Deligence Report of KASB

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Important Note
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Important note to any person not authorised to have access to this report
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Any person who is not envisaged under the ‘Tripartite Agreement’ dated December 15, 2014, entered into between the State Bank of Pakistan,
KASB Bank Limited and A. F. Ferguson & Co. (“Agreement”), to have access to our report, is not authorised to have access to this report.
Should any unauthorised person obtain access to and read this report, by reading this report such person accepts and agrees to the following
terms:
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• The reader of this report understands that the work performed by A.F. Ferguson & Co. (“AFF”) was performed in accordance with the
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terms of the Agreement and was performed exclusively for the sole benefit and use of the State Bank of Pakistan.
• The reader of this report acknowledges that this report was prepared for State Bank of Pakistan and may not include all procedures
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deemed necessary for the purposes of the reader.
• The reader agrees that AFF, its partners, principals, employees and agents neither owe nor accept any duty or responsibility to it, whether
in contract or in tort (including without limitation, negligence and breach of statutory duty), and shall not be liable in respect of any loss,
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damage or expense of whatsoever nature which is caused by any use the reader may choose to make of this report, or which is otherwise
consequent upon the gaining of access to the report by the reader. Further, the reader agrees that this report is not to be referred to or
quoted, in whole or in part, in any prospectus, registration statement, offering circular, public filing, loan, other agreement or document
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and not to distribute the report without AFF’s prior written consent.
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Deals
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KASB Bank Limited
Financial and Tax Due Diligence
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of the Bank and certain related
entities
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Strictly private
and confidential
March 16, 2015

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A. F. FERGUSON & CO.

a member firm of the PwC network
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Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Our scope and process
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Our scope As per the terms of the ‘Tripartite Agreement’ dated December 15, 2014, entered into between the State
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Bank of Pakistan, KASB Bank Limited and A. F. Ferguson & Co. (“Agreement”), we were appointed to
carry out:
• Financial and tax due diligence of KASB Bank Ltd. (the “Bank” or “KASB Bank”), KASB Securities
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Limited Extensive
Ltd. (“KSL” or “KASB Securities”), My Solutions Corporation Ltd. (“MSC” or “My Solutions”), KASB
Invest (Pvt.) Ltd. (“KIL”), KASB Modaraba (“KM”), KASB Funds Ltd. (“KFL” or “KASB Funds”); and
• Tax due diligence of Structured Venture (Pvt.) Ltd. (“SVL”).
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• Valuation of the Bank. This part of the scope is covered in our ‘Valuation Report’.
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The scope of our work is detailed in the Agreement which is set out in Appendix 1.
We were unable to carry out a financial and tax due diligence of KIL and KM as relevant information as
well as access to management of these entities was not available. The management of the Bank
UN (“Management of the Bank”) through e-mail dated January 21, 2015 informed us that only public
information in respect of these entities would be available as shareholding of the Bank in KIL and KM
decreased in 2014 to 13.7% and 21.73%, respectively, and consequently, the Bank does not have the
ability to exercise control over these entities.
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Our work focused on the historical results for the period of eleven months ended November 30, 2014
(“11M 2014”). It does not cover commercial or operational matters. Our fieldwork was completed on
March 3, 2015.
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We would like to highlight that the adjustments proposed in this report are from a due diligence
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perspective.
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KASB Bank Limited Confidential Information for the sole benefit and use of AFF’s Client. March 16, 2015
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Our scope and process
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Access to information Overall, the information provided has given us a reasonable basis to analyse the significant drivers and
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issues of the Bank and certain related entities. However, we have not received certain information
related to our work which was requested from Management of the Bank, KSL, MSC, KFL and SVL and
this has impacted the quality of analysis. Please refer Appendix 5 for the list of outstanding information.
Limited Extensive
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Clarity of information The information provided by the managements of the respective companies, together with our access to
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managements of these companies, has allowed us to gain insight and understanding into some of the
more significant risks, trends and issues of these companies.
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Poor Good
Important scope comments UN Further important details regarding the scope and process of our work are included in Appendix 2.
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Executive Executive report 5
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1 Overview 6
report 2 Timeline 7
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3 Balance sheet 9
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4 Profit and loss 10
5 Key deal issues 11
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1 Overview Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Overview
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• The Bank is engaged in commercial banking, consumer Group Structure
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banking and corporate and investment banking activities
Asia Mr Muzaffar Ali Shah Bukhari 2.17%
and related services through 105 branches. Mr Nasir Ali Syeda Mubashira Bukhari Khuwaja 2.17%
International
Shah Bukhari Mr Mehmood Ali Shah Bukhari 2.17%
• The Bank is listed on all the three stock exchanges. Finance Ltd.
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Mrs Ambreen Bukhari 1.83%
• The Bank has been unable to meet minimum capital 40.39% TEK Capital 1.26%
requirements and capital adequacy requirements. 50% 9.61%
First Capital Equities Ltd. 4.86%
• From close of business on November 14, 2014, the State Tikehau Asia 1.71%
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Bank of Pakistan (“SBP”) imposed a six month KASB Hoqani, Family Members & Associates 1.24%
Corporation M/s LH (Mauritius) Ltd. 1.02%
moratorium on the Bank.
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Limited KASB Securities Ltd. 1.02%
Others 6.53%
83.62%
16.38%
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Corporation Ltd.
100%
KASB Bank
6.83%
Note
Evolvence Capital
Ltd.
Limited
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KASB Securities KASB Invest (Pvt.)
77.12% 13.7%
Ltd. Ltd.
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40.3% 21.78% 23.37% 21.73% 43.89%

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New Horizon
Shakarganj Food KASB Capital
Exploration and KASB Modaraba KASB Funds Ltd.
Products Ltd. Ltd.
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Production Ltd.
Note: The Bank’s investment in ECL represents 6.83% voting rights in ECL and the percentage of paid-up capital held by
the Bank in ECL is 8.03%.
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Source: Management Information
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2 Timeline Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Evolution of the Bank – key dates
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In order to meet minimum
The name of PCBL was changed
Khadim Ali Shah Bukhari and capital requirement,
to KASB Bank Ltd. (the “Bank”).
Company was established as the International Housing In order to meet minimum
KASB, except for its brokerage
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first public limited brokerage Platinum Finance Ltd. (in which Mr. capital requirement, the Bank
business, was amalgamated into
company in Pakistan and was Commercial Bank Nasir Ali Shah Bukhari, amalgamated KCL and
the Bank. The brokerage business
listed on the Karachi Stock Ltd. (“PCBL”) was sponsor / director of the Network Leasing Corporation
of KASB was transferred to KASB
Exchange as Khadim Ali Shah incorporated as a Bank, held 64.33% shares) Ltd. (in which KCL directly
Securities Ltd. (“KSL”) which was
Bukhari & Company Ltd. public limited was amalgamated into the held 78.84%) with and into
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a new entity.
(“KASB”). company. Bank. the Bank.
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1991 1994 2002 2003 2006 2008
1950’s 1993
UN 1995 2005
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In 1955, Khadim Ali Merrill Lynch PCBL received banking KASB acquires The Bank set-up KASB Capital Ltd.
Shah Bukhari and (Asia Pacific) Ltd. license from SBP and PCBL. KASB Funds Ltd. (“KCL”) was formed.
Company was entered into an certificate of (“KFL”). The Bank’s
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established as a arrangement with commencement of investments in KSL

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cotton trading firm. KASB to work in business from and KFL were
The firm ventured the areas of Securities and transferred to KCL.
into securities trading research and Exchange Commission
in 1958. investment of Pakistan (“SECP”).
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banking.
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2 Timeline Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Moratorium and suspension – key dates
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Moratorium was imposed on the Bank by SBP. Under the
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moratorium:
• Only withdrawals of deposit upto Rs 300,000 per depositor per
account was allowed; KSL wrote a letter to KSE and
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• further/new financings were not allowed; informed them that the suspension
• disbursement against fund/non-fund based financing of operations was due to funds
commitments were not allowed, unless approved by SBP; placed in its account with the Bank Merrill Lynch
• the Bank was not allowed to enter into any contract, commitment, on which restrictions had been (Asia Pacific) Ltd.
understanding or engagement involving any financial liability on imposed by SBP and not due to terminated its
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part of the Bank or commit to make any investments or purchase financial position/performance of arrangement with
any assets without prior written approval of SBP. the company. the Bank.
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14-Nov-2014 24-Nov-2014 31-Dec-2014
18-Nov-2014
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Operations of KSL were suspended by SECP. Relaxation of restrictions by SECP. Consequently: Further relaxation of restrictions by SECP.
In this regard: • execution of buy orders on 100% cash was allowed. Consequently:
• all investor accounts were frozen. • T+0 days settlement was allowed instead of the normal T+2 • execution of buy orders on 50% cash basis was
• investors were not allowed to sell or buy settlement period. allowed.
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scrips. • leveraging or buying on credit was not allowed. • trades executed on behalf of Non-Broker Clearing
• scrips bought in futures were sold off • buying in futures was not allowed. Members to be affirmed not later than one hour
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regardless of consent of investors. • sell orders were to be executed only against pre-existing before closure of market.
• investors were allowed to transfer their holdings in CDC sub-accounts with KSL. • trade in Deliverable Future Market allowed only on
securities to other brokerage houses. • CDC was directed by SECP to allow movement of securities behalf of customers and not on proprietary accounts
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• investors were called upon to repay leverage from the Participant umbrella only for the purpose of • submission with KSE of weekly reconciliations of
availed for purchase of scrips. settlement of trades through NCCPL. client cash balances as per back office record with
the designated client accounts.
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Source: Management Information, Public Information
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3 Balance sheet Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Equity of Rs 643 million accounts for an advance of Rs 981 million received
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against future issue of right shares. As per Discussions with Management, the
advance has been received from Mr. Nasir Ali Shah Bukhari
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Balance sheet • As at November 30, 2014, loans to Punjab Food Department, Pakistan International Airlines
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Rupees in m illion 30-Nov-14 31-Dec-13 Ltd., Nishat Mills Ltd, Mr. Shaukat Fayaz Tareen and Mr. Azmat Shehzad Tareen constituted
Asse ts 30.1% of the carrying value (net of provision) of loans and advances.
Cash and balances with treasury banks 4,194 4,944
• Investment in government securities account for 81.1% of total carrying value of investments.
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Balances with other banks 356 324
Lendings to financial institutions 24 1,063 The remaining investments include investments in:
Investments 27,705 27,694
Loans and advances 21,342 24,265
• KASB Securities Ltd. [carrying value (net of impairment) of Rs 1,357 million]
Operating fixed assets 2,605 2,571 • Evolvence Capital Ltd. [carrying value of Rs 1,155 million]
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Deferred tax asset - net 4,798 4,818
Other assets 2,541 2,611 • Shakarganj Food Products Ltd., [carrying value of Rs 627.9 million]
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63,565 68,290
• mutual funds of Rs 847.5 million [market value of Rs 884.4 million].
Lia bilitie s
Bills payable 288 871 • Operating fixed assets consist mainly of land and buildings, which have a net book value of Rs
Borrowings 2,393 1,861 1,851 million. These assets were revalued in 2014. In addition, operating fixed assets also
Deposits and other accounts
Other liabilities
58,219
1,323
62,223
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63,073
1,127
66,932
include advance given for four floors in KASB Altitude [carrying value (net of provision) of Rs
361 million].
Ne t a sse ts 1, 3 4 2 1, 3 5 8
• Other assets mainly comprise of non-banking assets acquired in satisfaction of claims of Rs
1,088.8 million and goodwill (allocated to the Investment Banking Group) of Rs 248.4 million.
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Ne t a sse ts re pre se nte d by:
Share capital 19,509 19,509 • Borrowings include an amount of Rs 1,668 million obtained from SBP under the export
Reserves - -
refinance scheme and repo borrowings of Rs 680 million.
Accumulated losses (12,871) (12,397)
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Discount on issue of right shares (6,976) (6,976) • Deposits include deposits of Rs 19,552.2 million received from an iranian company.
Advance against future issue
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of right shares 981 981 • Equity of Rs 643 million accounts for an advance of Rs 981 million received against future issue
643 1, 117 of right shares. As per Discussions with Management, the advance has been received from Mr.
Surplus on revaluation of assets - net of tax 699 241 Nasir Ali Shah Bukhari.
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1, 3 4 2 1, 3 5 8
Adva nc e s to De posits ra tio 36.7% 38.5%

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4 Profit and loss Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
As per management accounts, the Bank incurred a loss after tax of Rs 515
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million in 2014
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Profit and loss account • Net interest income of the Bank declined by 9.4% in 2014. We have
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Rupees in m illion 2014 Dec-14 11M 2014 2013 been given to understand by the Management that this was due to:
Interest income 4,719.6 353.2 4,366.4 4,936.5 • decrease in performing loans and advances from Rs 23.1 billion
Interest expense (2,809.6) (201.0) (2,608.6) (2,805.2)
as at December 31, 2013 to Rs 19.2 billion as at November 30,
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Ne t ma rk- up / inte re st inc ome 1, 9 10 . 0 15 2 . 2 1, 7 5 7 . 8 2 , 13 1. 3
Provision against non- performing loans and advances (366.6) (7.5) (359.1) (1,116.3) 2014; and
Provision for diminution in the value of investments (235.3) (22.7) (212.6) (594.7)
Bad debts written off directly (1.9) (0.8) (1.1) (1.3)
• decrease in yield on advances from 10.6% to 9.9% resulting from
Ne t ma rk- up / inte re st inc ome a fte r provisions 1, 3 0 6 . 2 12 1. 2 1, 18 5 . 0 4 19 . 0 increase in composition of lower rate fixed income loans and
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advances.
Fee, commission and brokerage income 233.2 7.7 225.5 301.6
• Provisions against loans and advances and investments was also
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Dividend income 215.9 2.5 213.4 189.4
Income from dealing in foreign currencies 36.8 (1.6) 38.4 18.1 lower by Rs 1,108 million in 2014.
Gain / (loss) on sale of securities 92.1 51.1 41.0 100.9
Other income / (charges) 113.5 10.2 103.3 76.2 • Administrative expenses remained relatively stable mainly due to:
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6 9 1. 5
1, 9 9 7 . 7
69.9
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6 2 1. 6
1, 8 0 6 . 6
686.2
1, 10 5 . 2
• departure of 66 executive-level staff during 11M 2014. The
rehiring was done at lower positions.
Administrative expenses (2,477.4) (190.0) (2,287.4) (2,485.7)
• increments were not given to 13 senior employees who report
Other provisions / write- offs (26.2) (18.1) (8.1) -
directly to the CEO of the Bank. However, these employees were
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Other charges (0.2) - (0.2) (94.7)
Tota l non ma rk- up / inte re st e xpe nse s (2 , 5 0 3 . 8 ) (2 0 8 . 1) (2 , 2 9 5 . 7 ) (2 , 5 8 0 . 4 ) allowed an increment of 3% as compensation for inflation.
P rofit be fore ta xa tion (5 0 6 . 1) (17 . 0 ) (4 8 9 . 1) (1, 4 7 5 . 2 )
• the head of Investment Banking Group and head of Global
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Taxation - current (49.9) (3.6) (46.3) (52.6) Transaction Banking and Alternative Delivery Channel left the
Taxation - deferred 41.2 - 41.2 (55.3) Bank in August 2014 and July 2014, respectively. These
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(8 . 7 ) (3 . 6 ) (5 . 1) (10 7 . 9 ) positions remained vacant till December 31, 2014.

P rofit / (loss) a fte r ta xa tion (5 14 . 8 ) (2 0 . 6 ) (4 9 4 . 2 ) (1, 5 8 3 . 1)
Normalised profit and loss was not prepared due to

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For presentation purposes only
Source: Management Information insufficient information in respect of “non-recurring”

items.
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5 Key deal issues Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Adjustments to net assets of the Bank as at November 30, 2014
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Loans and Advances
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Additional provision recommended against performing loans in Non-Consumer portfolio
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Rupees in m illion - - - - - - O utsta nding- - - - - - Be ne fit of P rinc ipa l ne t
se c urity / of be ne fit of Ma rk- up inc ome
Non- c olla te ra l se c urity / re ve rsa l to Re c omme nde d
No. Funde d* funde d Tota l
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Na me c onside re d c olla te ra l suspe nse a c c ount* provision
1 Mr. Shaukat Fayaz Ahmed Tarin- restructured 837.0 - 837.0 - 837.0 19.4 209.3
2 Mr. Azmat Shahzad Ahmed Tarin- restructured 505.0 - 505.0 - 505.0 11.7 126.3
3 Quetta Textile Mills Limited 200.0 - 200.0 - 200.0 4.4 50.0
4 New Horizon Exploration and Production Limited 14.9 97.8 112.7 112.3 0.4 0.3 0.4
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5 Century Publications (Private) Limited 40.0 - 40.0 88.0 - 1.4 -
5 Lucky Star Steel Mills Ltd.- (restructuring in process) 405.6 2.1 407.7 62.5 345.2 22.5 86.3
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6 Lakhani Traders- restructured 28.5 - 28.5 52.0 - 5.9 -
7 Towellers Ltd.- restructured 36.1 - 36.1 - 36.1 - 6.9
8 Nova International 119.1 - 119.1 83.7 35.4 4.4 17.7
9 Eden Builders (Pvt.) Ltd.- restructured 16.3 4.0 20.3 - 20.3 0.5 20.3
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Colony Mills Ltd.
Abdur Rafique - restructured
Arif Ali Shah Bukhari**
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115.6
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20.5
49.7
115.6
20.5
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49.7
115.6
20.5
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2.6 49.7
13.2
20.5
13 Haji Ghani- restructured 59.2 - 59.2 - 59.2 0.9 3.8
14 Dewan Muhammad Yousuf - restructured 143.5 - 143.5 - 143.5 - 22.4
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15 Macca Sugar Mills Pvt. Ltd 40.0 - 40.0 16.3 23.7 0.9 11.9
16 Moon CNG Station 2.4 2.8 5.2 45.6 - - -
17 Majeed CNG Filling Station - 4.0 4.0 22.9 - - -
18 Duraid Qureshi - restructured 47.8 - 47.8 - 47.8 0.9 3.7
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19 New Asia Woolen Mills 31.7 - 31.7 59.7 - 3.0 -

2,692.4 13 1. 2 2,823.6 543.0 2,439.4 78.8 642.4
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* Payments received up to February 8, 2015 in respect of principal were adjusted from the outstanding exposure as at November 30, 2014 for the purpose of calculation of provision. In addition, payments
received up to February 8, 2015 in respect of mark-up were also adjusted for the purpose of calculation of mark-up reversal to suspense account.
** Expired guarantee of Rs 17.27 million was excluded from the outstanding non-funded exposure.
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Source: Management Information, AFF Analysis

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Loans and Advances
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Additional provision recommended against non-performing loans in the Non-Consumer portfolio
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Rupees in m illion Additional provision
Description recommended
Provision not made against Dewan Cement Limited, Dewan Salman Fibres Limited and Agritech Limited due to relaxation provided by SBP 252.9
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Additional provision recommended against benefit availed in respect of shares pledged with the Bank for loans provided to Colony Industries (Private) Limited, Mansoor 284.0
Rashid and Salman Taseer.
Additional provision recommended in respect of Abdullah Brothers, Malik and Sons and M Iqbal and Sons as the amount of FSV considered by the Bank, is incorrect. 5.2
Additional provision recommended in respect of benefit availed by the Bank on the basis of pledge stock report which is more than six months old, in respect of loan provided
18.0
to AZM Chemical Company.
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Additional provision recommended in respect of IKMA Builders and Developers and Arif Ali Shah Bukhari as the Bank has incorrectly availed FSV benefit in the absence of
58.4
documents mentioned in legal opinion.
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Additional provision recommended in respect of benefit availed against specialised plant and machinery and related assets in respect of loans provided to Byco Petroleum
360.2
Pakistan Limited, Telecard Limited, Agritech Limited, Azgard Limited and Pakistan Telephone Cables Limited.
Benefit availed in respect of pledged stock and leased assets of Gulistan Group. 153.0
FSV benefit expiring in 2014. 9.6
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Additional provision recommended against non-performing loans in the Consumer portfolio

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Description recom m ended
As per Prudential Regulations for SME financing, a full- scope valuation is valid for 3 years from the date of last full- scope valuation. In addition, desktop valuations may only 205.8
be used to update provisions. If a full- scope valuation expires, a desktop valuation cannot be used to take benefit of FSV. The amount of benefit availed by the Bank in
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respect of "Karobar Asaan" amounts to Rs 211.95 million as at November 30, 2014. However, we noted that FSV benefit of Rs 205.8 million is based on valuation reports which
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are more than 3 years old as at November 30, 2014.

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Investments
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Area of
consideration Key message
Investment in Evolvence Capital Ltd. (“ECL”) is an alternative investment company. The company is incorporated in the British Virgin Islands
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Evolvence Capital and is based in the U.A.E. We have been given to understand that ECL operates in the education, consumer and private equity
Ltd. segments through its various subsidiaries.
The Management has obtained the following information from ECL in respect of shares issued to KASB group during the period
from 2002 to 2006:
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Date of Am ount of No. of Par Am ount Note 1: These shares were acquired by
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KASB Securities Ltd. for a total
investm ent Investor investm ent shares value Prem ium paid consideration of approximately Rs 61
USD USD USD USD million.
16- Jan- 02 Mr. Nasir Ali Shah Bukhari 100,000 1,000,000 0.10 - 100,000 Note 2 Note 2: These shares were transferred
16- Jan- 02
6- Jul- 03
6- Jul- 03
KASB & Co.
KASB & Co.

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Mr. Nasir Ali Shah Bukhari
100,000
100,000
100,000
1,000,000
1,000,000
1,000,000
0.10
0.10
0.10
-
-
-
100,000
100,000
100,000
Note 1
Note 2
Note 1
by Mr. Nasir Ali Shah Bukhari to KASB
Capital Ltd. on December 19, 2006. We
have not been provided with
11- May- 05 KASB Securities Ltd. 500,000 357,142 0.10 1.30 499,999 Note 1 information on the consideration paid
21- Mar- 06 KASB Securities Ltd. (bonus) - 471,428 0.10 - 47,143 for these shares by KASB Capital Ltd.
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21- Mar- 06 Mr. Nasir Ali Shah Bukhari (bonus) - 400,000 0.10 - 40,000 Note 2 KASB Securities Ltd. acquired these
22- Jul- 06 KASB Securities Ltd. 325,717 171,430 0.10 1.80 325,717 Note 1 shares from KASB Capital Ltd. on April
5,400,000 1,312,859 13, 2007 for a total consideration of Rs
273.6 million.
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KSL sold the above shares to KASB Capital Ltd. on October 31, 2008 at cost of Rs 334.6 million. Subsequently, KASB Capital Ltd.
was merged into the Bank on December 31, 2008. Consequent to the merger, the above investment in ECL became part of the
investment portfolio of the Bank.
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The Bank applied the ‘purchase method’ (under IFRS 3) to account for the above transaction. As per IFRS 3 ‘Business
Combinations’, identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are
measured initially at their fair values at the acquisition date. In the absence of information on fair value, the Management of the
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Investments
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Area of
Investment in Bank recorded the investment at Rs 314.9 million based on net assets of USD 56.4 million, as appearing in the unaudited balance
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Evolvence Capital sheet of ECL as at December 31, 2008. However, in 2011, ECL provided the audited financial statements for the year ended March
Ltd. (cont’d) 31, 2009. As per these financial statements, the net assets of ECL as at March 31, 2008 (i.e. comparative period) amounted to USD
220.1 million. We understand that the difference in net assets was due to transition of the financial statements of the company
from ‘Full IFRS’ to ‘IFRS for SMEs’ effective from April 1, 2008. However, this change was incorporated in the comparative
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information in the financial statements and, interalia, resulted in restatement of investment in associates to fair value.
Consequently, in 2011, the book value of the Bank’s investment in ECL was increased to Rs 1,155.3 million through a prior year
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adjustment of Rs 840.4 million. We would like to point out that ECL re-adopted ‘Full IFRS’ for the purposes of its financial
statements with effect from April 1, 2012.
Based on management accounts for the half-year ended September 30, 2014, the net assets of ECL amounted to USD 170.3 million.
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In addition, as per the management accounts, total assets of USD 245.2 million mainly consist of:
• investment in subsidiaries of USD 185.9 million. These are classified as at “fair value through profit and loss”. However, the fair
value of these investments was last carried out as at March 31, 2014. As per the financial statements for the year ended March
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31, 2013, fair valuation of investments in subsidiaries is undertaken by ECL using the ‘Discounted Cash Flow’ method.
• long term investments of USD 5.3 million. These represent investments made in companies in the United Arab Emirates and
Middle East, the United States of America and Mauritius. These are classified as at “fair value through profit and loss”. As per
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financial statements for the year ended March 31, 2013, fair valuation of listed securities is undertaken on the basis of market
price and fair valuation of investment in unlisted securities is performed on the basis of net asset value per share.
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• quoted short-term investments of USD 7.8 million. These companies are listed on the stock exchanges of United Arab Emirates
and United States of America. These are marked to market using the last bid price at the date of financial statements.
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• Unquoted short-term investment of USD 15.2 million. The fair value of this investment was determined on the basis of last bid
price provided by a registered stock broker in the United Arab Emirates.
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Investments
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Area of
Investment in • Receivables from related parties of USD 17.9 million.
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Evolvence Capital • Cash and bank balances of USD 6.8 million.
Ltd. (cont’d)
We would like to point out that details of the above assets are not available including underlying financial models and other
information used to determine the fair values of the assets of ECL.
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As at March 31, 2014, ECL had 22 shareholders. We understand that there is a shareholders agreement between these
shareholders. We have not been provided with this agreement. As per information obtained by Management of the Bank from ECL,
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the shareholders agreement does not contain a ‘tag along’ clause or ‘drag along’ clause, however, it contains a ‘right of first refusal’
clause.
As per the management accounts for the year ended March 31, 2014, ECL has issued two classes of shares. One class of shares has
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a par value of USD 0.1 per share whereas the par value of the second class of shares is USD 0.05 per share. As per Management
Information, we understand that both classes of shares carry equal voting rights. However, dividend is to be paid as a common
percentage applied to the paid-up value of each share. Based on the above, we understand that the Bank’s investment of 5.4 million
shares in ECL represents 6.83% voting rights in ECL and the percentage of paid-up capital held by the Bank in ECL is 8.03%.
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We would like to highlight that we have not been provided with a valuation of ECL. As per the management accounts of ECL for the
year ended March 31, 2014, the last share issue of ECL was made during the year ended March 31, 2012 wherein 500,000 shares
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were issued at the rate of USD 1 per share i.e. at a premium of USD 0.9 per share. We noted that the net assets of ECL as per the
audited financial statements for the year ended March 31, 2012 amounted to USD 168.1 million.
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Based on the above information, the factors considered in respect of the Bank’s investment in ECL included the following:
• There is limited information available on ECL. The last audited financial statements available with the Bank relate to the year
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ended March 31, 2013.

• As per the un-audited management accounts of ECL for the half-year ended September 30, 2014, net assets amount to USD
170.3 million. Based on the exchange rate as at November 28, 2014 of Rs 101.8828/USD and the shareholding percentage of
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Investments
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Area of
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Investment in 8.03%, the Bank’s share of net assets of ECL works out to Rs 1,393.4 million.
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Evolvence Capital • As discussed above, details relating to assets of ECL are not available.
Ltd. (cont’d)
• The net assets approach (where appropriate) represents a “controlling interest” level of value. As the Bank’s investment in ECL
represents a minority investment in an unlisted entity, therefore, estimates of value should account for appropriate discounts.
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• As far as we are aware, the Bank has never received dividends from ECL.
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• Based on price of last share issue made by ECL of USD 1 per share and the exchange rate as at November 28, 2014 of Rs
101.8828/USD, the estimate of value of Bank’s investment in ECL works out to Rs 550.2 million. However, we are not aware of
the circumstances and considerations underlying this share issue nor do we have any information on the basis of valuation used
for this share issue.
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Taking into account various factors (including those listed above), the nature of limited information available and uncertainties
involved, the carrying value of ECL has been considered to be in the range of Rs 550 million to Rs 1,155.3 million.
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SP
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Investments
OR
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Area of
Investment in New NHEPL had working interests in three petroleum concessions, the Kunri and Jherruck blocks in Pakistan and a block in Tajikistan.
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Horizon Exploration Based on Management Information and Discussions with Management of NHEPL, we understand that the company is currently
and Production Ltd. faced with significant funding issues, due to which:
• it abandoned the Tajikistan block; and
• was unable to meet its work commitments in respect of the blocks in Pakistan.
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The exploration license for Kunri Block, which is co-owned by NHEPL and Kuwait Energy Company, expired on June 5, 2012 and
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was not extended by the Directorate General of Petroleum Concessions (“DGPC”). The co-owners filed an application with DGPC
for transfer of remaining work commitment of the block to Jherruck Block. However, no response has been received. As per letter
issued by the external auditors to the board of directors of NHEPL, dated August 18, 2014, the company may be liable to liquidated
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damages depending on DGPC’s response to the application. As per the financial statements for the year ended December 31, 2013,
these liquidated damages were estimated at Rs 375.4 million.
The exploration license for the Jherruck Block expired on December 31, 2014. We understand that NHEPL has applied for an
extension of 18 months in the exploration license to enable the company to complete the remaining work commitment.
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In addition, we have been given to understand that NHEPL is in discussion with GEM Investments America LLC (“GEMIA”) for
raising equity. However, we have been informed that this process is currently suspended, pending renewal/extension of the
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exploration licenses in Pakistan.

As per the management accounts for the period of eleven months ended November 30, 2014, NHEPL has net assets of Rs 284.7
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million. Total assets of Rs 450.5 million consist mainly of pre-commencement discovery exploration expenditure of Rs 351.2
million and stores and spares of Rs 58.8 million which have remained unused for approximately three years. As per letter issued by
the external auditors, these stores and spares need to be evaluated for impairment/obsolescence.
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Investments
OR
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Area of
Investment in New As at November 30, 2014, the carrying value (net of provision) of the Bank’s investment in NHEPL amounted to Rs 308 million. In
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Horizon Exploration view of the above factors, we have recommended provision against the carrying value (net of provision) of the Bank’s investment in
and Production Ltd NHEPL.
(cont’d)
Investment in KASB Based on management accounts for the 11M 2014, the assets of KASB Capital Ltd. (“KCL”) mainly include the following:
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Capital Ltd. • investment in shares of NHEPL with a carrying value of USD 0.96 million.
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• lending to NHEPL of USD 0.13 million. Interest of USD 0.02 million has been accrued on this loan for the period from January
2011 to November 2014.
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• short term deposits of USD 0.21 million with Afrasia Bank Ltd.
• balances with banks amounting to USD 0.14 million.
After adjusting for the above investment and loan to NHEPL, the company’s net assets amount to USD 0.26 million.
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As at November 30, 2014, the carrying value (net of provision) of the Bank’s investment in KCL was Rs 24 million. We have not
been provided with working for assessment of impairment of the Bank’s investment in KCL. The break-up value of the Bank’s
shareholding of 21.78% in KCL, based on the above adjusted net assets (at the exchange rate of Rs 101.8828/USD as at November
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28, 2014), works out to Rs 5.8 million. We would like to highlight that in cases where the net assets approach is appropriate, it
represents a “controlling interest” level of value. In addition, KCL is an unlisted entity. Therefore, appropriate discounts may be
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applicable. However, in the absence of information, we have adjusted the carrying value (net of provision) of the Bank’s investment
in KCL on the basis of the above estimated break-up value.
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Investments
OR
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Area of
Investment in KASB As at November 30, 2014, the Bank holds 3,985,000 shares in KASB Invest (Pvt.) Ltd. (“KIL”) with a cost of Rs 28 million. The
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Invest (Pvt.) Ltd. Bank has made full provision against this investment.
We have been provided with management accounts of KIL for 11M 2014. As per these accounts:
• a rights issue of 24.9 million shares was made by KIL at a price of Rs 5 per share (i.e. at a discount of Rs 5 per share) during the
period of 11M 2014. As per Discussions with Management, we understand that the Bank did not participate in the rights issue.
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We are not aware of the shareholders who subscribed to the rights issue and the basis of the price of Rs 5 per share at which this
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issue was made.
• as at November 30, 2014, the net assets of KIL amounted to Rs 102.9 million and the break-up value per share to Rs 3.54.
Consequent to the rights issue, the Bank’s shareholding in KIL has declined from 96.02% in December 2013 to 13.7% in November
2014.
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Based on the assumption that the rights issue was made at fair value, we have assumed the value of the Bank’s investment in KIL to
be Rs 19.9 million using the above price of Rs 5 per share. Consequently, the provision made by the Bank against the investment in
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KIL has been reversed by this amount.
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LA
SP
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Investments
OR
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Area of
Investment in As at November 30, 2014, the carrying value of the Bank’s investment in 10,446,767 shares of KASB Modaraba (“Modaraba”)
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certificates of KASB amounted to Rs 91.7 million.
Modaraba A rights issue of 19,792,800 certificates was made at a price of Rs 5 per certificate by the Modaraba in October 2014. Based on
Discussions with Management, we understand that the Bank did not participate in the rights issue. This resulted in a decline in the
Bank’s shareholding in the Modaraba from 36.95% in December 2013 to 21.73% in November 2014. We would like to point out that
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we are not aware of the certificate holders who subscribed to the rights issue and the basis of the price of Rs 5 per certificate at
which this issue was made.
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We have been provided with the unaudited balance sheet as at November 30, 2014 and profit and loss account for the period of five
months ended November 30, 2014 of the Modaraba. The net assets of the Modaraba, as per its unaudited balance sheet as at
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November 30, 2014, amounted to Rs 379.5 million.
As per information available on www.ksestocks.com, certificates of the Modaraba traded on only 97 days during the period from
January 1, 2014 to November 30, 2014 with an average volume of 65,830 certificates per day. The market value of certificates of the
Modaraba ranged between Rs 2.2 per certificate to Rs 5.1 per certificate during this period. The market value of the certificates of
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the Modaraba as at November 30, 2014 was Rs 4 per certificate.

Based on the assumption that the rights issue was made at fair value, we have assumed the value of the Bank’s investment in the
Modaraba to be Rs 52.2 million using the above price of Rs 5 per certificate. Consequently, we have recommended a provision of Rs
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39.5 million against the Bank’s investment in the Modaraba.

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SP
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Investments
OR
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Area of
Investment in TFC The 5 -year Worldcall Telecom Ltd. (“Worldcall”) TFC was acquired by the Bank in October 2008. The Bank’s share in the issue
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of Worldcall amounted to Rs 196.7 million (5.127% of total TFCs). However, on the request of Worldcall, the TFC was restructured with effect
Telecom Ltd. from October 7, 2012 and the maturity of the TFC was extended by two years. Based on Discussions with Management, we
understand that there were delays in payments by Worldcall, however, the Bank has received mark-up due under the redemption
schedule till July 7, 2014
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Worldcall requested another restructuring on July 25, 2014 to extend the maturity of TFC to October 7, 2021 with principal
payable in eleven equal installments starting from October 7, 2016 and deferment of interest payment. We understand that a
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condition of the previous restructuring related to equity injection of USD 35 million. However, the equity injection was delayed to
July 2013 which impacted revival of operating cashflows and the company was not in a position to redeem the principal and
outstanding mark-up as on October 7, 2014. As at September 30, 2014, the company had net current liabilities of Rs 7,531.9 million
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and borrowings of 3,278.3 million. In addition, during the period of nine months ended September 30, 2014, the company incurred
a net loss after tax of Rs 1,824 million.
As per Management Information, the Bank has given its approval to the above restructuring of TFC. However, the approval of at
least 51% of Worldcall TFC holders necessary for restructuring/rescheduling has not been received till February 27, 2015.
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The principal and mark-up payment, due on October 7, 2014, was overdue by more than three months in January 2015. Collateral
held against the TFC consists of (i) hypothecation of all the company’s present and future fixed assets, excluding land and building,
and (ii) assignment of all rights, benefits, claims and/or interests in ‘Wireless Local Loop’ licenses, ‘Long Distance and
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International’ license and assigned frequency spectrums.

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We have been provided with the valuation report, dated August 12, 2013, of ‘Wireless Local Loop’, ‘Long Distance and
International’ and ‘hybrid fibre coaxial’ equipment of Worldcall deployed all over Pakistan. As per this report, the Bank’s share of
FSV of the collateral amounts to Rs 521.5 million. The benefit of forced sale value of collateral which may be availed in the
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determination of provision against this TFC, under the Prudential Regulations, works out to Rs 156.4 million. In view of the above,
and considering the specialised nature of collateral,we recommend that provision should be recorded in respect of 50% of the
outstanding amount of TFC of Rs 84.3 million. In addition, mark-up receivable of Rs 4.7 million, as at November 30, 2014, should
also be reversed to suspense account.
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Investments
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Area of
Investment in TFC The Bank holds two TFCs of Agritech Ltd. with face value of Rs 242 million. Based on Discussions with Management of the Bank,
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of Agritech Ltd. we understand that these TFCs were classified as “non-performing” on January 1, 2010. The benefit availed in respect of the forced
sale value of collateral, which consists of land and building, held against the TFCs amounts to Rs 4.3 million as at November 30,
2014. This benefit expires on December 31, 2015.
However, vide circular no. BPRD/BRD-(Policy)/2014-11546 dated June 27, 2014, SBP relaxed the requirement for making
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provision against TFCs of Agritech Ltd. Under the circular, provision is required to be recorded in a phased manner by December
31, 2015. Consequently, the Bank had recorded provision of Rs 174.2 million against TFCs of Agritech Ltd. as at November 30,
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2014.
We have adjusted Rs 63.5 million in respect of provision not made by the Bank due to the above relaxation. In addition, we have
adjusted the amount of benefit of Rs 4.3 million availed in respect of collateral as the land and building relates to the urea fertiliser
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plant. Accordingly, we recommend an adjustment of Rs 67.8 million against the carrying value (net of provision) of these TFCs.
Investment in TFC The Bank holds two term finance certificates (“TFC”) of Azgard Nine Ltd. with face value of Rs 257.4 million. We understand that
of Azgard Nine Ltd. these TFCs were classified by the Bank as “non-performing” on January 1, 2010. The benefit availed in respect of the forced sale
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value of collateral, which consists of land and building, held against the TFCs amounts to Rs 7.1 million as at November 30, 2014.
Consequently, the Bank had recorded provision of Rs 250.3 million against TFCs of Azgard Nine Ltd. as at November 30, 2014.
The benefit of forced sale value expires on December 31, 2015.
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As per the company’s financial statements for the quarter ended September 30, 2014:
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• the net current liabilities of the company amounted to Rs 6,818.4 million, including Rs 4,448 million relating to overdue
principal and mark-up thereon,
• accumulated loss stood at Rs 8,814.6 million.
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We have adjusted the benefit availed by the Bank of Rs 7.1 million in respect of the above collateral.
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Investments
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Area of
Investment in The investment portfolio of the Bank includes an investment in 21,435,858 shares of Agritech Ltd. These shares were acquired by
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shares of Agritech the Bank at the rate of Rs 35 per share in part settlement of the loan of Azgard Nine Ltd. These shares are subject to a “lock-in”
Ltd. period of 5 years which expires on July 26, 2017. However, the Management of the Bank is of the view that the sale restriction is
not applicable to transactions between lenders.
The market value of Agritech Ltd. was Rs 7.37 per share as at November 28, 2014. Accordingly, the market value of the Bank’s
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investment in the company works out to Rs 158 million. However, the carrying value of this investment is Rs 142.1 million. Reason
for the difference has not been provided by Management. As per information on www.ksestocks.com, shares of the company were
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traded on only 80 days during the period of six months from June 1, 2014 to November 30, 2014 with an average volume of 29,250
shares. As per the company’s website, approximately 5 million shares are held by individuals.
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However, vide circular no. BPRD/BRD-(Policy)/2014-11546 dated June 27, 2014, SBP relaxed the requirement for making
provision against shares of Agritech Ltd. Under the circular, provision is required to be recorded in a phased manner by December
31, 2015. Due to this relaxation, provision of Rs 197.2 million, as at November 30, 2014, was recorded by the Bank on deficit on
revaluation of ‘available for sale’ investments.
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As at September 30, 2014, the company had net current liabilities of Rs 18,317.2 million and long-term debt of Rs 12,049.6 million.
In addition, during the period of nine months ended September 30, 2014, the company incurred a net loss after tax of Rs 3,490.1
million.
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We recommend that the deficit on revaluation of ‘available for sale’ investments of Rs 197.2 million should be charged off to the
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income statement. The net of tax impact of the above adjustment works out to Rs 177.5 million. In addition, due to the low trading
volume of the company’ shares and taking into consideration the restriction on sale of shares of Agritech Ltd. and the adverse
financial condition of the company, we recommend a provision against the carrying value (net of provision) of investment of the
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Bank in Agritech Ltd. amounting to Rs 142.1 million.

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Lendings to financial institutions
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Area of
Lending to Invest The Bank granted a loan of Rs 40 million to Invest Capital Investment Bank Ltd. (“ICIBL”) for three months. This loan was rolled-
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Capital Investment over on a periodic basis. ICIBL settled part of principal and total outstanding mark-up on each roll-over upto June 7, 2012. On each
Bank Ltd. subsequent roll-over, ICIBL only settled outstanding mark-up and did not make any payment on account of the outstanding
principal of Rs 32.4 million. ICIBL defaulted on principal and mark-up payments on June 5, 2014.
The Management of the Bank have sent a number of reminders to ICIBL to settle the transaction. In addition, a meeting was held
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with ICIBL on October 23, 2014. However, no agreement on settlement was reached at this meeting. As per Management
Information, the Bank has initiated legal proceedings against ICIBL.
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As at November 30, 2014, the Bank had made provision against 25% of the outstanding principal balance. As at September 30,
2014, the company had accumulated losses of Rs 613 million and net current liabilities of Rs 42.3 million. In addition, as per the
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electronic credit information bureau (“eCIB”) report dated November 30, 2014, the total borrowings of the company amounted to
Rs 209 million. In view of the above factors, we have recommended provision against the net carrying value of Rs 24.3 million of
the outstanding loan to ICIBL.
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Operating fixed assets
OR
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Area of
KASB Altitude The Bank entered into an agreement with KASB Developers (Pvt.) Ltd. (“KDPL”) in 2008 for the purchase of the 11 th, 12th, 17th and
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18th floors in KASB Altitude, a building under construction at Marine Promenade in Karachi, for a purchase consideration of Rs 947
million. The project was to be completed in December 2012. However, as per Management of the Bank, the construction was
suspended due to unauthorized parking of oil tankers around the project site for which legal process was initiated.
The Management of the Bank has informed us that, as per discussion with KDPL, the constructed portion of KASB Altitude as of
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January 22, 2015 comprises of two basements, ground floor and nine floors. The Bank has not appointed an independent
surveyor/contractor to assess the completion status of the project.
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We understand that the Bank has made advance payment of Rs 721.9 million for the project. Due to the above, vide letter dated
June 14, 2012, the SBP imposed certain conditions on payment of the remaining amount. These conditions included that KDPL
allocate four constructed floors to the Bank in place of the four floors initially allocated by them. However, KDPL did not agree to
this reallocation.
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The Bank’s Management has informed us that KDPL requires additional funding of approximately Rs 1.5 billion in order to
complete the project. However, we understand that except for the Bank, no other person has booked any floor, or portion of a floor,
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in KASB Altitude. We have also not been provided with the financial statements of KDPL.
The owner of KDPL, Mr. Arif Ali Shah Bukhari (“AASB”), proposed a restructuring plan in 2013 under which the existing advance
was to be converted to a four-year term finance facility. In addition, the Bank would provide a new loan for four years of Rs 200
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million to AASB which would allow him to settle his liability with Bank of Punjab (“BoP”), obtain title documents of KASB Altitude
(mortgaged with BoP) and mortgage the property with the Bank. Further, the Bank would release property in Malir mortgaged
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against running finance facility provided to AASB to enable him to obtain loans from other sources to complete the project. The
Bank submitted this plan to SBP on June 21, 2013 for approval. However, SBP has not given approval to this restructuring plan.
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The Management of the Bank, based on discussions with the external auditor, made a provision of Rs 361 million against this
advance in 2012.
In view of the above and taking into consideration that the floors purchased by the Bank have not been constructed, the project is
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Area of
KASB Altitude faced with funding issues and KDPL has not responded to requests sent by the Bank in 2014 for updates on development work of
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(cont’d) KASB Altitude, we recommend that provision should also be made against the remaining amount of Rs 360.9 million.
Surplus on The land and buildings owned by the Bank were revalued in 2014 and the impact of revaluation of these fixed assets was recorded
revaluation of in the interim financial statements for the period ended September 30, 2014. During our review of the working for calculation of
buildings surplus arising on revaluation of fixed assets, we noted that the surplus on revaluation of buildings was computed with reference to
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the book value of buildings without taking into consideration the book value of leasehold improvements/renovations.
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In connection with the above, Management provided us with a list of renovations made to buildings on freehold land and leasehold
land as at November 30, 2014. The net book value of these renovations amounted to Rs 63.3 million.
In addition to the above, we noted that incremental depreciation relating to surplus on revaluation of fixed assets was not recorded
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by the Bank for October 2014 and November 2014.
The total impact, net of tax, of the above adjustments works out to Rs 43.4 million.
Merrill Intangible KASB Capital Ltd. was merged into the Bank in 2008. This company had entered into a cooperation agreement with Merrill Lynch
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(Asia Pacific) Ltd. (“Merrill”) in respect of investment banking activities in Pakistan. The Bank had identified and recorded this
relationship as an indefinite life ‘foreign affiliate relationship’ intangible asset with a value of Rs 89.3 million in 2008.
We have been informed that Merrill submitted a 30-day written notice of termination of the above agreement on December 1,
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2014. Consequently, the agreement was terminated on December 31, 2014. In view of the above, we consider that the ‘foreign
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affiliate relationship’ intangible asset is impaired and recommend provision of Rs 89.3 million against the carrying value of this
intangible asset.
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OR
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Area of
Physical count of Based on Discussions with Management, we understand that the last physical count of fixed assets was performed in 2010. We
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fixed assets have been informed that FAMCO Associates (Pvt.) Ltd. was appointed to perform, interalia, a physical count and tagging of fixed
assets as at September 30, 2013 and to make a reconciliation to the fixed assets register as at October 31, 2014. However, as per
Management of the Bank, the exercise has not been completed.
We have been informed that the Bank sold certain assets in 2014. However, these could not be tagged to the fixed assets register
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and the cash received by the Bank of Rs 2.3 million was recorded in ‘Other liabilities’.
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In the absence of proper tagging and regular physical count of assets, there is a risk of assets being overstated.
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Ownership and saleability of freehold and leasehold land and
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building and non-banking assets acquired in satisfaction of claims
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Area of
Ownership and As per the management accounts for the period of eleven months ended November 30, 2014, the net book value of freehold land,
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saleability of leasehold land and buildings and non-banking assets acquired in satisfaction of claims amounted, in aggregate, to Rs 2,569.4
freehold and million.
leasehold land and The Management has provided us with legal opinions of M. Ishaq Ali & Co. in respect of the ownership and saleability of each of
building and non- these properties. In these legal opinions, the lawyer has highlighted certain missing documents which they consider necessary for
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banking assets establishing ownership and/or saleability of the properties. The Management has informed us that they are in the process of
acquired in arranging these documents after which they will request the lawyer to provide revised legal opinions for each property.
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satisfaction of
claims In this regard, we have requested Management of the Bank to share the revised legal opinions in respect of the properties with the
professional valuer, Maricon Consultants (Pvt.) Ltd., so that their impact on market value and forced sale value of the relevant
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property, if any, is determined. The Management has agreed to do the same once the lawyer provides the revised legal opinions
Revisions, if any, made by Maricon Consultants (Pvt.) Ltd., consequent to the above exercise, may result in an adjustment to the
carrying value of the operating fixed assets and/or non-banking assets acquired in satisfaction of claims.
The information available on properties, including a list of the missing documents to be arranged by the Bank and market value
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and FSV determined by Maricon Consultants (Pvt.) Ltd. is summarised on the following three pages for all properties.
However, pending receipt of the revised legal opinions and valuation reports, the following adjustment has been considered in
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respect of non-banking assets acquired in satisfaction of claims:

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• ‘Hub, Baluchistan’: The lawyer has highlighted that registered title documents in favour of the Bank are not available. As the
validity of Bank’s title to the property can not be established in the absence of these title documents, we have recommended a
provision against the book value of this property of Rs 211.6 million.
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• ‘Gemini Plaza’: The lawyer has specified that approximately 50 shops in Gemini Plaza are not owned by the Bank. In view of the
potential difficulty associated with recovery of carrying value of this property through sale due to the matter highlighted by the
lawyer, we have recommended provision equivalent to 50% of the book value of the property of Rs 468.5 million.
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OR
(cont’d)
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Freehold land and building
Rupees in m illion Book Valuation report
Property Address value Date Market value FSV Rem arks
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Property documents to be arranged by the Bank for review of lawyer:
Circular Road Basement, Ground, 1st, 2nd floors, Survey 35.1 25- Aug- 14 35.1 30.8 - Fresh non- encumbrance certificate.
Lahore SE 38 R/77, Circular road, Lahore - PT- 1 along with change of name from Platinum Commercial Bank Ltd. to the Bank
and PT- 10
- Deed of amendment/admission to be executed in favour of the Bank.
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KASB House Commercial Plot No.14 & 14- C Known as 190.2 25- Aug- 14 190.5 171.5 - Fresh non- encumbrance certificate;
KASB House, Main Gulberg, Lahore - Up- to- date property tax and NOC to sell from concerned Patwari Office.
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- PT- 1 along with change of name from IHFL to the Bank and PT 10.
- Commercialization letter of LDA dated April 1, 1998.
- Placement letter/transfer letter from LDA in favour of the Bank.
Islamabad 20 plots situated at DHA, Islamabad 80.0 25- Aug- 14 80.0 68.0 - No demand certificates.
Plots
Jodia Bazar
Karachi
Plot No. NP- 10/44, Main Daryalal street,
Jodia Bazar Karachi
UN 47.1 15- Aug- 14 47.2 41.5 - search certificates from July 26, 2010 to date.
- mutation/fresh extract form.
- NOC to sell from the concerned Mukhtiarkar office.
Gul Tower Room No. 301- 302/401- 402/407/410 Gul 14.2 18- Aug- 14 14.3 12.1 - Up- to- date search certificates.
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Tower I.I.Chundrigar road, Karachi - PT- 1 along with change of name from Network Leasing Corporation Limited and PT-
10.
- Deed of amendment/admission to be retrieved.
Preedy Street Shop No 1 & 2, Ground & 1st Floors, Preedy 71.9 11- Aug- 14 72.5 61.6 - 'Up- to- date search certificates.
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Karachi street Saddar, Karachi

Tota l 438.5 439.6 385.5
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Note: Book value of renovations is not included in the above book value.

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OR
(cont’d)
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Leasehold land and building
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Capital Plaza Donolly Road 2nd + 3rd + 6th Floor 138.9 11- Aug- 14 140.3 119.2 - search certificates from June 4, 2005 to date.
Business and I.I Chundrigar Road, Ground, Mezzanine, 1st 446.6 18- Aug- 14 450.3 382.7 - search certificates from June 1, 1999 to date.
Finance and 2nd floor - deed of amendment/admission.
Centre
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Sahil Commercial 2/3, Block- 3, Shahrah- e- Saadi, 66.5 18- Aug- 14 67.0 56.9 - search certificates from September 29, 2009 to date.
Prominade Kehkashan Clifton, Karachi (Ground +
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Mezzanine Floor) Sahil Prominade
Progressive Room No. 315- 318 Progressive Plaza Plot No 56.4 11- Aug- 14 56.9 48.4 - search certificates from December 12, 2004 to date.
Plaza 5 Street No Cl 10 Civil Lines Quarters - PT- 1 along with change of name from IHFL to the Bank and PT- 10.
Beaumont Road, Karachi - Deed of amendment/ admission to be executed in respect of change of name.
Gulshan- e-
Iqbal Branch
Karachi
Ground Floor with Mezzanine floor, Plot No
SB- 36, KDA scheme 24, Karachi UN 90.9 15- Aug- 14 91.7 77.9 - search certificates from October 5, 1998 to date.
- PT- 1 along with change of name from Platinum Commercial Bank Ltd. to the Bank
and PT- 10.
- Deed of amendment/ admission to be executed in respect of change of name.
Ittehad Plot no.6- C / 8- C 1 & II Phase II E ext 105.2 11- Aug- 14 105.5 89.7 - search certificates from June 10, 2014 to date.
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Property - no demand certificate and NOC to sell.
- in respect of plot 8- C/1, transfer order from D.H.A. in favour of the Bank.
SITE Branch Ground Floor / Mezzanine Floor on plot no, 50.3 18- Aug- 14 50.7 43.1 - search certificates from January 25, 2007 to date.
Karachi B/9- B/1, S.I.T.E., Karachi
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Ahmer Arcade Office M- 1 Mezzanine floor on plot no. 2/172- 24.1 11- Aug- 14 24.3 20.7 - search certificates from January 1, 2012 to date.
U, Survey no. 35- P/1, Ahmer Arcade, Main
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Tariq Road.
Tota l 978.9 986.7 838.6
Note: Book value of renovations is not included in the above book value.
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Non-banking assets acquired in satisfaction of claims
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Hub, Industrial Land Survey No.87/1 & 83/1 Baroot 211.6 11- Aug- 14 250.8 200.6 - fresh non- encumbrance certificate.
Balochistan Hub - registered title documents in favour of the Bank.
Gemini Plaza Gemini Plaza, Mobile Market, Saddar 468.5 As per valuation report dated December Gemini Plaza comprises of a plot, shops built on the plot and first floor. As per the
5, 2014, market value and FSV of the lawyer, the Bank is lawful owner of the property and all the shops except those shops
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property amounted to Rs 627.3 million which are in the name of shopkeepers and have been sub- leased by the Bank in
and Rs 501.9 million, respectively. favour of shopkeepers. As per the legal opinion, the number of these shops are
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However, from the lawyer's remarks, we approximately 50.
understand that approximately 50 shops
are not owned by the Bank. We have not
been provided with the valuation report
Syeda Syeda Chambers, Gulshan- e- Iqbal, Karachi

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of the land and building, excluding the
shops not owned by the Bank.
18- Aug- 14 29.7 23.8 - search certificates from January 19, 2010 to date.
Chambers
Eden Various Commercial Plots (open plots) 195.0 11- Aug- 14 201.0 160.8 - fresh non- encumbrance certificates.
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Broadway situated at Eden Broadway - fard for sell in respect of the properties.
- in respect of one plot, complete copy of sale deed in favour of the Bank.
Alhamra 30 apartments at Al- Hamra Residency, 3 km 15- Aug- 14 106.4 90.5 - non- encumbrance certificate.
Residency from Thokar Niaz Baig, Raiwand Road, - PT- 1.
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Lahore - up- to- date paid- up challan.

192.0
Kasur Ferozpur Road, Mustafabad Lalyani District, 11- Aug- 14 106.3 95.6 - fresh non- encumbrance certificate.
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Kasur - upto date property tax.

- fard for sell in respect of the property.
Tota l 1, 0 8 8 . 7 694.2 5 7 1. 3
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Other assets
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Area of
Goodwill Goodwill of Rs 698.3 million was recorded by the Bank on its amalgamation with KASB Capital Ltd. in 2008. Goodwill arising on
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acquisition was attributed to the significant benefits expected to arise from the amalgamation. As per the financial statements of
the Bank for the year ended December 31, 2009, Management of the Bank allocated the entire amount of goodwill to its Corporate
Finance - Investment Banking Group (“IBG”) segment.
As a result of annual impairment test reviews of the IBG cash generating unit, Management of the Bank recorded total impairment
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against the above goodwill of Rs 449.9 million till December 31, 2013. Accordingly, the carrying value of goodwill (net of
impairment) as at November 30, 2014 amounted to Rs 248.4 million.
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Based on Discussions with Management of the Bank, we understand that:
• Merrill has terminated its cooperation agreement with the Bank. The Bank earned income of Rs 10.3 million from Merrill-
•
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related mandates in 11M 2014.
At present, the Bank does not have any mandates. We have been informed that IBG is only allowed to work on private sector
deals. Prior permission of SBP is required for other deals.
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In view of the above, we recommend provision against the carrying value of goodwill (net of impairment) of Rs 248.4 million.
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Other assets
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Area of
Receivable from An amount of Rs 21.1 million is appearing as receivable from Iranian Venezuelan Bi-national Bank (“IVBB”). As per Management
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Iranian Venezuelan Information, this amount was recorded on March 26, 2013. The Management of the Bank has informed us that information in
Bi-national Bank respect of this receivable will not be provided. Based on our discussions with SBP, we understand that:
• Amir Rice Traders, a customer of the Bank, exported rice to its Iranian customer.
• IVBB was the banker for Amir Rice Trader’s customer. The export proceeds were to be routed through IVBB.
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• IVBB requested that the amount be adjusted from its account maintained with the Bank.
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• However, SBP did not allow the Bank to adjust this account as IVBB is an OFAC sanctioned entity.
• The Bank made the payment to Amir Rice Traders on the instructions of SBP.
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As per the general ledger, an amount of EUR 172,913 is appearing in an account of IVBB maintained with the Bank. However, we
have not been provided the bank statement and bank reconciliation statement of the IVBB account as at November 30, 2014.
Receivable from The Bank paid salaries and benefits of Rs 17.9 million to the CEO of KASB Invest (Pvt.) Ltd. for the period from June 2009 to
KASB Invest (Pvt.) December 2010. We understand that the Bank has sent multiple requests to the company for payment of this amount. However, no
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Ltd. response has been received from KASB Invest (Pvt.) Ltd.
Taking into consideration the period of time for which this balance has been outstanding and that KASB Invest (Pvt.) Ltd. has not
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responded to the notices of the Bank, we have recommended provision of Rs 17.9 million against the receivable.
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Mobilisation A mobilisation advance of Rs 10 million was paid to BBCL (Pvt.) Ltd. in 2010 for interior drawing and designing charges of data
advance to architect center planned at 'Ittehad Property’. Based on Discussions with Management of the Bank, we understand that BBCL (Pvt.) Ltd. did
not provide the requested services. The Bank sent notices to the company for repayment of advance, however, no response was
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received.
Taking into consideration the period of time for which this balance has been outstanding and that BBCL (Pvt.) Ltd. has not
responded to the notices of the Bank, we have recommended provision of Rs 10 million against this mobilisation advance.
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Other assets
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Area of
Receivables of International Housing Finance Ltd. was amalgamated with and into the Bank in 2006. Consequently, the Bank recorded certain
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International receivables amounting, in aggregate, to Rs 4.4 million.
Housing Finance Taking into consideration the period of time for which these receivables have been outstanding, we have recommended provision
Ltd. of Rs 4.4 million against these receivables.
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Legal expenses Professional fee of Rs 3 million was paid to M/s Nafees Siddiqi Law Associates in respect of the recovery case filed against Gulistan
receivable from Group. The Management of the Bank recorded this amount as a receivable and intends to recover it from Gulistan Group on
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Gulistan Group successful completion of the legal proceedings.
We are of the view that these legal expenses should be charged-off to the profit and loss account.
Fraud-related
receivable
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The receivable of Rs 2.6 million relates to two instances where pay orders were issued fraudulently through call centre using
confidential information of customers. Subsequently, the customers denied that they had requested issuance of pay orders and
appealed to the Banking Mohtasib who decided in favour of the customers. Consequently, the Bank paid the amount claimed by
these customers.
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The Bank filed an insurance claim in respect of the fraud. However, it was denied on the basis that the call, based on which the pay
orders were issued, was not made from the customers’ contact numbers registered with the Bank.
We have been given to understand that the Bank is continuing efforts for recovery and has lodged FIRs. The Federal Investigation
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Agency is currently investigating this case. In view of the above factors and considering the uncertainty associated with the
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receivable, we recommend that provision should be made against the receivable of Rs 2.6 million.
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Other assets
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Area of
Advance legal fee in In December 2009, an ‘inter-creditor agreement’ was signed by all banks, which had an exposure to the Dewan Group. In this
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respect of Dewan regard, a steering committee was formed to handle the legal and recovery process. The Bank made an advance payment of Rs 3.8
Group million for legal fee in accordance with this agreement. The case is still in court.
Taking into consideration the period of time for which the advance has been outstanding, we are of the view that the advance
should be charged-off to the profit and loss account.
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Documentation The Bank granted a facility to Transcon Textile (Pvt.) Ltd. in 2000. However, the customer failed to repay the liability.
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charges Consequently, the Bank filed execution proceedings in banking court in Faisalabad and requested the auction of three properties
mortgaged with the Bank. The Bank paid an amount of Rs 1 million in 2013 in respect of court auctioneer charges, stamp duty,
registration fee and other charges.
Other receivables
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We are of the view that these documentation charges should be charged-off to the profit and loss account.
The Management of the Bank charged-off certain old outstanding balances amounting, in aggregate, to Rs 9.8 million to the profit
charged to profit and loss in December 2014. These consist of:
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and loss in • various receivables relating to different branches of the Bank amounting, in aggregate, to Rs 5.1 million;
December 2014
• advance of Rs 1.5 million given to Mohsin Tayebaly & Co. in September 2011 for professional services relating to ‘minimum
capital requirement enhancement’.
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• advance payments amounting, in aggregate, to Rs 3.2 million made to Ernst & Young Ford Rhodes Sidat Hyder during the
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period from June 2014 to September 2014 for assistance in restructuring. These “one-off” services were provided by the firm
prior to November 30, 2014.
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Accordingly, we have also incorporated the above adjustment in the net assets of the Bank as at November 30, 2014.
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Other liabilities
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Area of
Old accruals In December 2014, the Management of the Bank reversed certain accruals which had been outstanding for a considerable amount
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reversed in of time. These consist of various professional charges amounting, in aggregate, to Rs 7.9 million and directors’ remuneration
December 2014 amounting to Rs 4.8 million.
Accordingly, we have also incorporated the above adjustment in the net assets of the Bank as at November 30, 2014.
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Cash at Bank
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Accounts We have not received bank statements in respect of three Iran-based bank accounts of the Bank. We were informed that these bank
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maintained with statements would not be available/provided for the purposes of due diligence. Based on discussion with SBP, we understand that
Iranian banks these accounts relate to banks which are on the OFAC sanction list.
Balance as per
General bank statem ent as
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Bank nam e Account no. Currency ledger per Bank records
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Iranian Venezuelan Bi- National Bank, Iran 3020320190001 EUR 11,289 11,289
Iranian Venezuelan Bi- National Bank, Iran Not available EUR (172,913) (172,913)
Eghtesad Novin Bank, Iran 147- 750- 3788796- 1 EUR 12,036 12,036
Bank accounts
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Consequently, in the absence of information, we are unable to comment on the balance in these bank accounts.
The Bank has also not provided us with bank statements of:
maintained with • two accounts maintained with MCB Bank Ltd., one in Corporate PNSC branch and one in Global Transaction Branch Banking
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MCB Bank Ltd. And M. R. Kayani Road branch. The total balance in these accounts, as per Bank’s general ledger, is Rs 500,000. The Management of
Allied Bank Ltd. the Bank has informed us that MCB Bank Ltd. has refused to provide the bank statements for these accounts.
• one account maintained with Allied Bank Ltd. The balance in the account as per the Bank’s general ledger is Rs 4,725.
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Consequently, in the absence of information, we are unable to comment on the balance in these bank accounts.
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Taxation
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Area of
Income tax We have not been provided with the year-wise position of ‘provision’ and ‘payments’ of income tax from which we were unable to
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reconcile the amount of income tax payable as appearing in the Balance Sheet as at November 30, 2014.
Based on review of Management Information, we recommend additional provision of Rs 1.8 million on account of minimum tax
amounting to Rs 0.3 million, Rs 0.7 million and Rs 0.8 million for tax years 2013, 2014 and 2015, respectively.
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Tax on dividend The provision in respect of tax recorded in the management accounts as at November 30, 2014, in respect of tax year 2015, does
income not include tax payable of Rs 21 million in respect of dividend income . Accordingly, we have incorporated the above adjustment in
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the net assets of the Bank as at November 30, 2014.
Withholding tax We requested information to review the withholding tax compliance which is regularly monitored by tax authorities for banks.
Based on a review of the information provided by the Bank and on the basis of estimate (where details were not provided), we
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recommend provision of Rs 108.6 million. The break-up of this additional provision is summarised below:
Rupe e s in million
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Profit on debt – exempt payments 11.4 N- 1
Profit on debt – unreconciled difference 61.6 N- 2
Salary – overtime payments 1.4 N- 3
Salary – orders for tax years 2011 and 2012 16.2 N- 4
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Other expenses – reconciliations not provided (adjustment

suggested on the basis of estimate) 18.0 N- 5
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10 8 . 6
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Taxation
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Area of
Withholding tax N-1: Under section 151 of the Income Tax Ordinance, 2001, banks are required to withhold tax at the time of payment of ‘profit on
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(cont’d) debt’ except where the profit on debt is exempt from tax. During the monitoring proceedings, in cases where withholding was not
made, banks have to prove that the ‘profit on debt’ was exempt from tax. It is our experience that approximately 10% of the
evidence is not available with banks. Consequently, tax not withheld is recovered from banks. Since we have only been provided
reconciliation of tax year 2012 (out of reconciliations requested for tax years 2010 to 2015) on the basis of which expected tax
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default is Rs 1.9 million [Rs 193.017 million (exempt profit) x 10% (expected default) x 10% (rate of tax)]. Total estimated exposure
in this regard amounts to Rs 11.4 million [Rs 1.9 million x 6 tax years].
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N-2: On the basis of our review of reconciliations (for tax years 2008, 2009 and 2013) of profit on debt as per financial statements
and profit on debt on which tax was deducted and deposited, we noted that there were unreconciled differences of Rs 6.87 million
and Rs 30.105 million in the reconciliations for tax year 2008 and tax year 2009, respectively. The average difference works out to
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Rs 12.325 million [(Rs 6.870 million + Rs 30.105 million)/ 3)]. We, therefore, expect exposure of Rs 12.325 million for tax years
2010, 2011, 2012, 2014 and 2015. In view of the above, we recommend adjustment of Rs 61.625 million [Rs 12.325 million x 5 tax
years].
N-3: The Bank has not withheld tax on overtime payments. The total amount of overtime payments included in reconciliations of
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tax year 2013 and 2014 is Rs 6.046 million. We are of the view that there may be tax exposure of Rs 0.453 million [Rs 6.046 million
x 7.5% (average rate of salary tax)]. Since reconciliations for tax years 2010, 2011, 2012 and 2015 have not been provided, we have
extrapolated the expected exposure for these years which amounts to Rs 1.360 million [Rs 0.453 million÷ 2 x 6].
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N-4: We have been informed that no provision has been made in the books of accounts for the demand raised of Rs 6.362 million
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and Rs 9.851 million through order for tax years 2011 and 2012 , respectively, on account of short deduction of tax on salary
payment. We therefore recommend adjustment of aggregate amount of Rs 16.213 million (Rs 6.362 million + Rs 9.851 million).
N-5: We have not been provided with the reconciliation of expenses (other than ‘salary’ and ‘profit on debt’). Therefore exposure, if
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any, cannot be ascertained. We estimate that there could be exposure of Rs 3 million on account of short deduction of withholding
tax. We would, therefore, suggest an adjustment of Rs 18 million [Rs 3 million x 6 years] on account of non-withholding of tax at
the time of payment.
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Taxation
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Area of
Provincial Sales Tax We reviewed the Provincial Sales Tax (“PST”) and Federal Excise Duty (“FED”) returns submitted to assess exposure for short
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and Federal Excise payment of FED and PST. On the basis of our review we identified exposure of Rs 107.4 million. The break-up of this exposure is
Duty given below:
Rupe e s in million
PST on services exempt under FED and Sindh but not in Punjab and KPK law 6.7 N- 6
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Short payment of FED and PST on services 13.9 N- 7
Non proration of input tax 25.9 N- 8
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Sales tax on sale of fixed assets 31.7 N- 9
Short withholding of sales tax on advertisement services 29.2 N- 10
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N-6: We noted that the Bank has not paid sales tax on income from following services in Sindh, Punjab and Khyber Pakhtunkhwa,
total of which is Rs 42.109 million, whereas such services are taxable services under the Sindh Sales Tax Act, 2011,Punjab Sales Tax
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Act, 2012 and KPK Sales Tax Act, 2013 (“PST laws”).
Sindh Sales Punjab Sales KPK Sales

Nature of incom e FED Tax Act Tax Act Tax Act
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Services of utility bill collection Exempt Exempt Taxable Taxable

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Umrah & Hajj Services Exempt Exempt Taxable Taxable

Cheque book issuance Exempt Exempt Taxable Taxable
Cheque return Exempt Taxable Taxable Taxable
Musharka Financing Exempt Exempt Taxable Taxable
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Modarba Financing Exempt Exempt Taxable Taxable
Therefore, we have recommended a provision for the sales tax not paid which amounts to Rs 6.737 million (Rs 42.109 million x
16%).
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Taxation
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Area of
Provincial Sales Tax N-7: The Bank has not paid sales tax on certain services on the basis that these services are specifically not taxable under PST laws.
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and Federal Excise We are aware of the decision of Sindh High Court (“SHC”) reported as 2014 PTD 284 wherein, while discussing the taxability of
Duty (cont’d) services under the Federal Excise Act 2005, it was held that where description of services is provided under the law for taxability,
tax cannot be levied on services not specifically mentioned. The aforesaid interpretation of SHC has however not attained finality at
Supreme Court of Pakistan level. We, therefore, on prudent basis suggest adjustment of 50% of the exposure, which amounts to Rs
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13.932 million [Rs 27.863 million (total exposure) x 50%].
N-8: Rule 26 of the Sales Tax Rules, 2006 requires apportionment of input tax between income on which sales tax is payable and
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income which is exempt from sales tax. Since FED and PST is not payable on interest income, the Bank was required to apportion
input tax. However, the Bank claimed total input tax from November 2009 till December 2011, which amounts to Rs 26.026
million. The Bank subsequently started proration of input tax; 0.5% of input tax was claimed in respect of services on which
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FED/PST was payable. In view of the above, we understand that the Bank claimed excess input tax of Rs 25.895 million for the
period from November 2009 to December 2011 (Rs 26.026 x 99.5%) which is recoverable as per law.
N-9: We noted that the Bank has not charged sales tax on sale of fixed assets and tax authorities have passed order for the period
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from January 2011 to December 2011 wherein demand of Rs 16.577 million was raised on this account. On similar grounds, we
have estimated sales tax of Rs 63.491 million on the total sales proceeds from sale of fixed assets recorded in the financial
statements for the years 2010 to 2013 which amounts to Rs 386.78 million. On the basis of prudence, we suggest adjustment of
50% of exposure which works out to Rs 31.745 million [Rs 63.491 million x 50%].
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N-10: We noted that tax authorities have passed order in respect of short deduction of withholding sales tax on advertisement
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services for the period from January 2011 to December 2011 wherein demand of Rs 11.902 million was raised and is pending before
Commissioner Inland Revenue (Appeals). Total advertisement expense recorded in financial statements for the years 2010 to 2014
amounts to Rs 223.914 million, on which withholding was required of Rs 35.826 million. However, tax withheld as per PST returns
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and Sales Tax and Federal Excise returns submitted by the Bank amounts to Rs 6.636 million. Therefore, on the basis of prudence,
we suggest adjustment of Rs 29.190 million [Rs 35.826 million – Rs 6.636 million].
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Adjustments to net assets of KASB Securities as at November 30, 2014
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As at November 30, 2014: KSL's investm ent in SVL

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Rupe e s in million Low High

• the carrying value of KSL’s investment in 14.76 million class ‘A’
shares of NHEPL amounted to Rs 31.6 million. Investment of KSL in SVL 488.6 488.6
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Ne t a sse ts of S V L
• SVL, a 100% subsidiary of KSL, held 10.24 million class ‘A’ shares
Investment in plots of Noor Developers (Pvt.) Ltd. - 375.0
and 10 million class ‘B’ shares in NHEPL, with an aggregate book Investment in NHEPL - -
value of Rs 101.2 million.
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Remaining net assets 2.3 2.3

2.3 377.3
Based on discussion on pages 19 and 20, we have adjusted the carrying Adjustme nt in va lue of KS L's inve stme nt in S V L 486.3 111. 3
value of investment in NHEPL by KSL and SVL.
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Investment property
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Area of
Investment in plots As per Discussions with Management, we understand that Mr. Arif Ali Shah Bukhari (‘’AASB’’), a customer of KSL, had a long
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of Noor Developers outstanding brokerage-related debt of Rs 384.7 million as at December 31, 2009. In this regard, on November 10, 2010:
(Pvt.) Ltd. • the company entered into a settlement agreement with AASB, and waived an amount of Rs 110 million. AASB agreed to pay the
remaining amount.
• Structured Ventures (Pvt.) Ltd. (“SVL”), a 100% owned subsidiary of KSL, entered into a sale agreement with Noor Developers
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(Pvt.) Ltd. (“NDPL”), a company owned by AASB, for purchase of 375 residential plots (each measuring 80 square yards) for
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consideration of Rs 300 million. In addition, under the sale agreement, SVL also paid development charges of Rs 75 million. We
would like to point out that legal opinion on NDPL’s valid title to the 375 residential plots has not been provided.
Consequently, AASB paid dues of Rs 274.7 million. NDPL issued provisional allocation certificates to SVL in respect of the 375
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plots on September 5, 2011. We are not aware of the reason for the delay in provision of certificates.
The Management has provided us with the legal opinion of Ahmed & Qazi dated March 18, 2014. As per the legal opinion:
• the above provisional allocation certificates are an ‘Allotment Order’ and a property held on the basis of Allotment Order can be
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sold and purchased.
• NDPL is required to execute sub-leases for the plots in favour of SVL after the development work is completed. As per
Management Information, we understand that the development work can start after the layout plan is approved by the
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Cantonment Board, Korangi. In this regard, NDPL had filed the revised layout plan with Cantonment Board on June 10, 2010.
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However, the plan has not been approved. In this connection, the lawyers have recommended that if NDPL is unable to execute
separate sub-leases for each plot, SVL should pursue NDPL to execute and register a sub-lease in respect of the total area of the
375 plots so that a right of SVL is created in respect of this area.
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• If early execution of a sub-lease is not possible, then SVL should ask NDPL/its owner (Mr. Arif Ali Shah Bukhari) to issue shares
in NDPL to SVL, equivalent to the value of these 375 plots.
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Investment property
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Area of
Investment in plots The Management of SVL requested updates on the progress of approvals in relation to the proposed development plan and
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of Noor Developers timeframe by which the project was expected to be commercially launched from NDPL on June 26, 2014 and December 17, 2014.
(Pvt.) Ltd. However, no response was received from NDPL.
(cont’d) The Management has also provided us with the valuation report of Sadruddin Associates dated December 27, 2014 in respect of
one of the residential plots. As per the valuation report, the market value and forced sale value of the plot is Rs 1.6 million and Rs
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1.28 million, respectively. However, in his remarks, the valuer has noted that they have not ‘sighted nor searched’ the original
title/ownership documents of the plot. The Management contends that based on the above valuation, the aggregate market value
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and forced sale value of the 375 plots works out to Rs 600 million and Rs 480 million, respectively. We would like to highlight that
in the working for assessment of impairment of the Bank’s investment in KSL for the year ended December 31, 2013, the
Management had also adopted the carrying value of the investment in above plots as the estimate of value and the investment was
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not taken on the basis of value determined by professional valuer.
We have requested the Management to obtain a revised valuation of the aforesaid plots from the valuer which takes into
consideration the following factors:
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• the revised layout plan filed with the Cantonment Board in 2010 has not been approved till date and that, pending this
approval, the development work on the project has not started.
• NDPL has issued a provisional allocation certificate in respect of the above plots to SVL and that sub-lease in favour of SVL has
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not been executed.

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However, the revised valuation has not been provided to us.

In the absence of the revised valuation and taking into consideration the above factors, we have assumed the higher end of the
range of value for this investment to be equivalent to its carrying value of Rs 375 million while in the worst case scenario the
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investment may be fully impaired.

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Investments
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Area of
Investment in TFC KSL acquired 10,000 TFCs of PACE Pakistan Ltd. (“PACE”) in February 2008. The current outstanding face value of the TFCs is Rs
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of PACE Pakistan 4,994 and these TFCs were recorded at Rs 45.4 million. We understand that only a principal repayment per TFC of Rs 2, made in
Ltd. February 2011, has been received to date. KSL has made total provision of Rs 32.8 million against these TFCs during the period
from June 2011 to December 2012. We have not been provided with the basis for provision made against these TFCs.
As per Management Information:
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• a trade involving 2,000 PACE TFCs was made on March 7, 2014 at a per TFC price of Rs 15. On the basis of this price, the value
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of KSL’s investment in the PACE TFCs works out to Rs 7.5 million. Information on other trades in the TFC are not available.
• investors in the PACE TFC appointed RIAA Law as legal solicitors to prepare draft of restructuring term sheet on February 9,
2015. Information on the restructuring terms has not been provided by Management.
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• the TFCs are secured by (i) hypothecated assets consisting of fixed assets, excluding land and building, and (ii) Memorandum of
Deposit of Title Deeds in respect of immovable properties of PACE Pakistan Ltd. and PACE Super Mall (Pvt.) Ltd. We have not
been provided with the valuation reports and legal opinion(s) in respect of the above collateral.
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In view of the above, we have recommended provision of Rs 5.1 million against the net carrying value of KSL’s investment in TFCs
of PACE Pakistan Ltd.
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Investments
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Area of
Investment in Al- Al-Jomaih Power Ltd. (“AJP”) was incorporated as a limited liability company on August 25, 2005 in the Cayman Islands. As per
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Jomaih Power Ltd. its latest available reviewed financial statements for the year ended December 31, 2013, the principal business of AJP is acquiring
shares of KES Power Ltd. and exercising rights attached thereto.
As per Management Information, KSL acquired 3,000 shares of AJP on June 13, 2007 for a purchase consideration of Rs 151.2
million. In addition, we have been informed by the Management of KSL that, in 2010, AJP declared a dividend of which KSL’s
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share amounted to Rs 33 million. However, KSL requested AJP to reinvest this dividend and issue further shares of AJP to KSL.
Consequently, a further 370 shares in AJP were issued to KSL. As per a confirmation provided by AJP on January 19, 2015, KSL
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held 3,370 shares in AJP as at December 31, 2014 which represents 1.55% of total issued shares of AJP. We would like to highlight
that we have not been provided with information on the classes of shares of AJP and the rights relating thereto.
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Since 2011, the investment of KSL in shares of AJP has been “marked-up” on the basis of break-up value per share of AJP
appearing in the latest available reviewed financial statements. As per the latest available reviewed financial statements of AJP, for
the year ended December 31, 2013, net assets amounted to USD 192.6 million and the break-up value per share of the company
worked out to USD 886.5 per share. Based on the above break-up value and exchange rate of Rs 101.8828/USD (as at November
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28, 2014) the value of KSL’s investment in AJP amounts to Rs 304.4 million. However, as per the management accounts of KSL for
11M 2014, the carrying value of KSL’s investment in AJP amounted to Rs 306.2 million.
The Management has also provided us with a working for the effective holding of KSL in K-Electric Ltd. due to its shareholding in
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AJP. This is summarised on the following page:

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Investments
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Area of
Investment in Al- S ha re holding pe rc e nta ge Comme nts
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Jomaih Power Ltd. KSL's 1.55% The shareholding percentage was traced from confirmations obtained by KSL from AJP as at December 31, 2014 and December 31,
(cont’d) investment in 2013.
AJP The total assets of AJP of USD 194.6 million mainly consist of ‘Partnership Investments’ of USD 193.2 million. As per reviewed financial
statements of AJP for the year ended December 31, 2012, the 'Partnership Investments' are carried at fair value. We would like to highlight
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that we have not been provided with a break- up of ‘Partnership Investments’. In addition, the underlying working / information used for
determining the fair value of these investments is also not available. We have also not been provided with information on shareholders of
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AJP including arrangements, if any, between shareholders of AJP, any restrictions on sale of shares of AJP, tag along/drag along
rights/right of first refusal etc.
AJP's 28.56% The shareholding percentage was traced from confirmation obtained by KSL from AJP as at December 31, 2013.
investment in We have not been provided with financial statements of KES Power Ltd. and shareholding of AJP in KES Power Ltd. as at November 30,
KES Power
Ltd. UN
2014. We have also not been provided with information on any arrangements between:
- the shareholders of KES Power Ltd., including any restrictions on sale of shares of KES Power Ltd., tag along/drag along rights/right of
first refusal etc.
- KES Power Ltd. and the Government of Pakistan (which holds 24.36% shareholding in K- Electric Ltd.)
KES Power 69.20% The shareholding percentage was traced from the financial statements of K- Electric Ltd. for the year ended June 30, 2014. Total shares
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Ltd.'s issued by K- Electric Ltd.were 27,615,194,246.
investment in
KEL
0.306%
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The market value of K-Electric Ltd. was Rs 7.63 per share as at November 28, 2014. As per information available on
www.ksestocks.com, during the period of three months from September 1, 2014 to November 30, 2014, the price of K-Electric Ltd.
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ranged between Rs 7.15 per share to Rs 8.57 per share with average volume of 4.98 million shares.
As per information obtained from website www. tribune.com.pk, we understand that approximately 774.6 million shares of K-
Electric Ltd. were sold by KES Power Ltd. on February 3, 2015 at the price of Rs 8.5 per share.
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Investments
OR
T
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Area of
Investment in Al- However, we noted that in the working for assessment of impairment of the Bank’s investment in KSL for the year ended
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Jomaih Power Ltd. December 31, 2013, the Management had also adopted the carrying value of the investment in AJP as the estimate of value and the
(cont’d) investment was not valued on the basis of effective holding in K-Electric Ltd.
Based on the above information, the factors considered in respect of the investment in AJP included the following:
• There is limited information available on AJP. We have not been provided with the audited financial statements of AJP. The last
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reviewed financial statements provided to us relate to the year ended December 31, 2013.
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• Based on the break-up value as per the reviewed financial statements for the year ended December 31, 2013 and exchange rate
of Rs 101.8828/ USD (as at November 28, 2014), the value of KSL’s investment in AJP amounts to Rs 304.4 million. However,
the carrying value of this investment appearing in the Management accounts of KSL for 11M 2014 is Rs 306.2 million.
•
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The net assets approach (where appropriate) represents a “controlling interest” level of value. As KSL’s investment in AJP
• As disclosed in AJP’s reviewed financial statements for the year ended December 31, 2012, the investments are carried at fair
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value. However, the value of investments disclosed in the financial statements are significantly lower than the implied value
determined on the basis of AJP’s effective holding in K-Electric Ltd. Although, we do not have information on these
investments, including the working and basis used for determining their fair value, it appears that this fair value estimate
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accounts for a discount due to the nature of the investment.

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• Based on the above, the investment made by KSL in AJP should also incorporate appropriate discounts.
involved, we have retained the carrying value of investment in AJP.
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Investments
OR
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Area of
Investment in the As at November 30, 2014, KSL holds 19,858,649 shares in the Bank. We understand that under BPRD Circular No. 4 dated May
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Bank 22, 2008 issued by SBP, these shares have been blocked by the CDC. No activity, including pledge and withdrawal, in these shares
is allowed without prior written permission of SBP.
As per Discussions with Management of KSL, we understand that KSL had written a letter to SBP requesting authorisation for sale
of shares of the Bank. In its response, dated February 11, 2015, SBP did not accede to the request and specified that, under the
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terms of the moratorium imposed on the Bank, SBP is in the process of finalising scheme of reconstruction/amalgamation in
respect of the Bank.
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As per information on www.ksestocks.com, shares of the Bank were traded on 117 days during the period of six months from June
1, 2014 to November 30, 2014 with an average volume of 453,910 shares. As per the company’s website, free float of the Bank as at
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December 31, 2014 was 23.6 million shares. Market price per share of the Bank ranged between Rs 1.29 per share to Rs 1.84 per
share during the six-month period. As at November 30, 2014, market price of shares of the Bank was Rs 1.48 per share.
In view of the restriction on sale of shares of the Bank, limited trading in the Bank’s shares and considering the financial position of
the Bank, we recommend reversal of surplus on revaluation of ‘available for sale’ investment of Rs 7.6 million and provision against
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KSL’s investment in the Bank of Rs 21.8 million.

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Trade debts
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Area of
Trade debts As at November 30, 2014, the KSE-related trade debts of the company amounted to Rs 514.2 million. This included trade debts of
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Rs 145.1 million which had not been cleared by January 31, 2015. Based on a review of the outstanding trade debts, we noted that:
• Rs 42.9 million was receivable from Prudential Stock Funds Ltd. The company had made total provision of Rs 25.2 million
against this receivable. As per Discussions with Management of KSL, we understand that the customer had been in litigation for
the last few years due to which sub-account of the customer maintained with KSL is blocked. As at November 30, 2014, the sub-
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account contained securities with a market value of Rs 46.2 million Details of the case, legal opinion in respect of the case and
the basis for not making provision against the remaining amount of Rs 17.7 million has not been provided by Management of
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KSL.
• provision has not been made for trade debts of Rs 3 million against which no collateral is held by the company.
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In view of the above, we have recommended provision of Rs 20.7 million against trade debts.
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Profit and loss
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Area of
Termination of As discussed earlier, the Bank had a cooperation agreement with Merrill in respect of investment banking activities in Pakistan.
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contract with KSL leveraged this relationship in its brokerage business. As per Management Information, brokerage revenue resulting from
Merrill trading by Merrill constituted 18.8% and 13.7% of total equity brokerage revenue for 2014 and 2013, respectively.
Merrill terminated its relationship with the Bank and related entities, effective December 31, 2014.
In view of the above, the future brokerage revenue of KSL may be significantly impacted.
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Taxation
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Area of
Income tax We have not been provided with the year-wise position of ‘provision’ and ‘payments’ of income tax from which we were unable to
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reconcile the amount of income tax payable as appearing in the Balance Sheet as at November 30, 2014.
In tax year 2009, an order under section 122 (5A) of the Income Tax Ordinance, 2001 (“Ordinance”) was passed wherein taxation
officer disallowed various operating expenses paid in cash and in violation of limits prescribed under section 21(l) of the
Ordinance. The disallowed expenses comprised 3.22% of the operating expenses. On the prudent assumption that similar
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disallowances may also be made by the tax authorities in respect of tax years 2010 to 2015, additional provision of Rs 24.6 million
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is recommended.
Based on review of Management Information, we identified that for tax years 2010 to 2014, KSL has not apportioned finance cost
to dividend income and capital gain. The rationale for non-allocation of finance cost is not justifiable. Consequently, we
Withholding income
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recommend adjustment of Rs 16.6 million by allocating finance cost to dividend income and capital gain in the ratio of receipts.
We have been provided with reconciliation of ‘other than salary’ expenses as per financial statements and amount s which were
tax subject to deduction of tax for tax years 2013 and 2014. The reconciliations show reconciling items of Rs 253 million and Rs 308
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million in the name of ‘adjustments’. Explanation / basis of these ‘adjustments’ have not provided. Consequently, exposure, if any,
cannot be reasonably determined. However, based on our estimate, and experience in other cases, an adjustment of Rs 3 million
[Rs 0.5 million x 6 tax years] is recommended.
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Sales Tax on From tax years 2009 to 2014, it is observed that KSL has not charged sales tax on disposal of fixed assets. As per section 3 of the
Disposal of Fixed Sales Tax Act, 1990 (“STA”), sales tax should be charged on disposal of fixed assets. In our view, KSL is exposed to potential sales
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Assets tax demand of Rs 2.8 million, computed at the rate of 6% on sales proceeds of Rs 17.4 million on disposal of fixed assets from
January 2009 to November 2014 along with Default Surcharge thereon. Consequently, we recommend an aggregate adjustment of
Rs 3 million in this regard.
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Taxation
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Area of
Withholding Sales KSL is not in compliance with the requirement of the Sales Tax Withholding Rules as it has not withheld and deposited sales tax of
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Tax Rs 5 million on services. Therefore, we recommend provision of Rs 11.8 million (including effect of default surcharge of Rs 1.8
million and 100%penalty of principle amount i.e. Rs 5 million).
Loans to employees Under section 13(7) of the Ordinance if an employee is provided with a loan at a rate lower than the prescribed benchmark rate and
the loan amount exceeds Rs 500,000, the profit on debt computed on the difference between prescribed benchmark rate and the
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rate on which loan is given is required to be added to employee’s taxable salary. Where such amount is not added to employee’s
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taxable income, the tax department has a practice of making addition to employer’s taxable income on account of deemed interest
income. We have noted that KSL has neither included the subsidised profit-on-debt in employees’ taxable income nor incorporated
the effect in its income during tax years 2009 to 2012.
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In view of the above, we recommend a provision of Rs 0.3 million.
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Adjustments to net assets of My Solutions as at November 30, 2014
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Rupees in m illion
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Ne t a sse ts a s a t Nove mbe r 3 0 , 2 0 14 (a s pe r ma na ge me nt a c c ounts) 52.2
Adjustme nts
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Income tax (2.2)
Advance tax - net (2.7)
Ta xa tion
Deferred Tax (18.0)
Sales tax (28.0)
(5 0 . 9 )
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Ne t a sse ts a fte r a djustme nts a s a t Nove mbe r 3 0 , 2 0 14 1. 3
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IBM business
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Area of
IBM business MSC and IBM World Trade Corporation (“IBM WTC”) entered into an agreement on October 10, 2013under which MSC was
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allowed to re-market certain IBM products and services in Pakistan. The term of the agreement was one year and it expired on
October 9, 2014. We have not been provided an extension letter/agreement in respect of this business.
In addition, we have been informed that all purchases from IBM WTC are required to be made on cash basis. In order to meet the
funding requirements, the company entered into a loan agreement with Mr. Muzzaffar Ali Shah Bukhari on July 21, 2014. Under
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the terms of the agreement:
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• the company could borrow upto Rs 40 million.
• mark-up at 3M KIBOR + 4% is payable on the loan on quarterly basis.
• loan is repayable on the 90th day from date of disbursement unless extended by Mr. Muzzaffar Ali Shah Bukhari, at his
discretion.
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MSC recorded sales of Rs 45.7 million during the period from July 2014 to November 2014. These consisted mainly of:
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Rupe e s in million
Sui Southern Gas Company Ltd. Nov- 14 16.0 Payment received on January 12, 2015.
We have been informed that understand that payment from Pakistan Navy is
Pakistan Navy Jul- 14 23.5 pending completion of certain requirements of the sale contract.
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As per Management Information, the total import/purchase cost of hardware and software, in respect of total sales made during
11M 2014, amounted to Rs 38.6 million.
In addition, we understand that, from March 2014, the company started to hire sales staff specifically for the IBM-related business.
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Gross salary, including benefits, relating to this staff during 11M 2014 was Rs 8.3 million. In December 2014, the aggregate
monthly cost of 9 IBM sales staff was Rs 1.2 million.
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IBM business
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Area of
IBM business Consequently, the IBM-related business incurred a loss of Rs 3.6 million in 11M 2014.
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(cont’d) As per Management Information, the company has lost or deferred a number of projects due to non-availability of funding. These
include:
IBM busine ss
Rs in million 11M 2 0 14 • orders from Central Depository Company of Pakistan Ltd, National Bank of Pakistan Ltd. and Karachi International Container
Terminal Ltd. with an aggregate value of USD 1,339,000. These orders were lost.
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Sales 45.7
Cost (38.6)
• two projects of Sui Northern Gas Pipelines Ltd. with an aggregate value of USD 2,650,000. We understand that MSC had placed
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Documentation
charges (0.3) earnest money of Rs 5.5 million with the company. However, these orders were also lost.
6.8
• three other projects with an aggregate value of USD 683,000. These have been deferred uptil first quarter of 2015. However, as
Staff cost (8.3)
per Discussions with Management, no progress has been made on these projects to date.
Finance charges (2.1)
(3.6)
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We have not been provided with supporting documents in respect of the above projects.
As per Management Information, the only funding available to the company is the loan from Mr. Muzzaffar Ali Shah Bukhari and
the funds generated from the company’s eUBS and networking services. However, the margins of the combined eUBS and
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networking services are limited.

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eUBS, Networking and consultancy services
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Area of
eUBS and eUBS is a centralized bill payment system owned by the e UBS a nd Ne tworking se rvic e s
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Rupe e s in million 11M 2 0 14 HY 2 0 13 2 0 13 *
Networking services Bank. Under the system, subscribed utility companies
can allow their customers the facility to pay their bills Internet connectivity and telecommunication services 12.4 7.2 21.7
Connectivity cost (9.7) (3.7) (15.0)
through a web-based application at the Bank and other
eUBS income 9.7 5.1 8.3
eUBS member institutions as well as through other Margin 12.4 8.6 15.0
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electronic means. Member institutions include other Administrative expenses (9.5) (10.7) (10.5)
bank s that use eUBS and have accounts with the Bank. 2.9 (2 . 1) 4.5
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* Financial year of MSC was on a July to June basis prior to June 30, 2013.
As per Discussions with Management, MSC provides co- Note: Cost of sales staff of IBM business has been adjusted from the administrative expenses
ordination, reconciliation and collection services for for 11M 2014. Consultancy income and expense has also been excluded from the above table.
eUBS services provided by the Bank. It collects a ‘per Source: Management Information
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bill’ charge from the utility companies and transfers a certain proportion, as defined in the agreement, to the Bank and certain
other parties. Share of MSC in eUBS income was Rs 9.7 million during 11M 2014.
The company also provides networking and internet services, infrastructure support services and technical expertise
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(“Networking” services), as required, to the Bank, KSL, KFL and NHEPL. As per Discussions with Management, we understand
that the company provides these services at cost plus margin of 20% to the Bank and KFL and at cost plus fee of Rs 1.8 million to
KSL. Net income from Networking services during 11M 2014 was Rs 2.7 million.
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Consultancy MSC entered into a service agreement with KASB Modaraba on July 1, 2013, under which MSC was to provide administrative staff
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to the Modaraba. As per the agreement, KASB Modaraba agreed to pay MSC service charge of 9%, inclusive of 6% withholding tax,
on gross invoice amount. The gross invoice amount included gross salary, perquisites, overtime and all statutory payments.
Income for 11M 2014 amounted to Rs 2.9 million while salaries and wages of the related staff provided to the Modaraba amounted
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to Rs 2.1 million. The Management has not provided us with the reason for income being more than 109% of cost of related staff.
The agreement was due to expire on June 30, 2016. However, Management of MSC has informed us that KASB Modaraba
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terminated the agreement in February 2015. We have not been provided with the termination notice.
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Taxation
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Area of
Income tax In tax year 2015, MSC has sold some imported equipment which constitute commercial import and are taxable under Final Tax
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Regime under section 148 and 169 of the Ordinance, unless ‘opt out’ option is exercised under clause 41A of Part IV of Second
Schedule to the Ordinance. The exercise of the ‘opt out’ option is allowed subject to the condition that tax liability upto 5% of value
of commercial imports is admitted and discharged.
In view of the above, we recommend that an additional tax liability of Rs 2.2 million [Rs 44 million x 5%] is recorded.
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Advance tax - net MSC has booked tax refundable of Rs 14.3 million in the management accounts for 11M 2014. We have not been provided with the
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year-wise position of ‘provision’ and ‘payments’ of income tax from which we could have reconciled the amount of income tax
refundable as appearing in the Balance Sheet as at November 30, 2014. In addition, we have also not been provided with returns of
income / assessment order for tax years prior to tax year 2008. Consequently, we were unable to verify the status of tax refunds
prior to tax year 2008. UN
The tax refunds supported by assessment records/return of income aggregate to Rs 11.6 million. Therefore, we recommend an
adjustment of Rs 2.7 million in tax refundable.
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Deferred Tax As at November 30, 2014, MSC has recorded deferred tax asset of Rs 22.8 million on depreciation losses of Rs 67.1 million at the
rate of 34%. Based on review of filed returns of income, we noted that only depreciation losses of Rs14.6 million are intact and
available for adjustment in future periods. Consequently, deferred tax asset of only Rs 4.8 million should be recognised at the 33%
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on depreciation losses of Rs 14.6 million. Hence, an adjustment of Rs 18 million is recommended.

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Sales Tax Under the Sindh Sales Tax on Services Act, 2011, MSC has been liable to charge and pay sindh sales tax (“SST”) to Sindh Revenue
Board (“SRB”) since July 2013. However, MSC has not yet obtained registration with SRB and has not charged SST on data
communication network services and consultancy services. Consequently, the company is exposed to a potential tax demand of Rs
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28 million for which provision is recommended.

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Adjustments to net assets of KASB Funds as at November 30, 2014
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As at November 30, 2014, the
carrying value of the Bank’s
investment in TFCs of Trust
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Investment Bank Ltd. amounted to
Rs 1.5 million.
As per the financial statements for
the half year ended December 31,
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2014, the investment bank had a
negative equity of Rs 1,159.3 million,
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its current liabilities exceed its
current assets by Rs 781.8 million
and overdue installments on
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and financial institutions and TFCs
As at November 30, 2014, the carrying value (net of provision) of the Bank’s investment in TFCs of Azgard Nine amounted, in aggregate, to Rs 1,141.7
Ltd. and Agritech Ltd. amounted to Rs 3.3 million and Rs 9.4 million, respectively. million. The company is also a
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defendant in various law suits.
Based on discussion on page 24, we have adjusted the outstanding carrying value (net of provision) of the TFCs of
Agritech Ltd. and Azgard Nine Ltd. In view of the above factors, we have
adjusted the carrying value of the
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Bank’s investment in TFCs of Trust

As at November 30, 2014, the carrying value (net of provision) of the Bank’s investment in 350,980 shares of
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Investment Bank Ltd.

Agritech Ltd. amounted to Rs 3.6 million. As per Discussions with Management, we understand that these shares
are held in trust by Faysal Bank Ltd. However, relevant confirmation from Faysal Bank Ltd., as at November 30,
2014, has not been provided.
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Based on discussion on page 25, we have adjusted the outstanding carrying value (net of provision) of these
shares.
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Intangible asset
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Area of
‘Management rights’ KFL acquired Crosby Asset Management (Pakistan) Ltd. in 2011. KFL applied the ‘purchase method’ to account for the acquisition.
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intangible asset As per IFRS 3 ‘Business Combinations’, identifiable assets acquired, including intangible assets, and liabilities and contingent
relating to Crosby liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. KFL identified and
Dragon Fund recorded the management rights of Crosby Dragon Fund, an ‘equity’ open-end mutual fund, as an indefinite life intangible asset at
a value of Rs 17.3 million.
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As a result of annual impairment test reviews of the intangible asset, KFL recorded impairment of Rs 8 million in 2012 and Rs 3
million in 2013. Accordingly, the carrying value of the intangible asset (net of impairment) as at November 30, 2014 amounted to
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Rs 6.3 million.
Based on Management Information, we understand that units representing approximately 91.8% of the net assets of Rs 153.8
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million of the fund were held by the Bank as at November 30, 2014. The proportion of the Bank’s investment in the fund has
remained above 87% during 2014.
31-Mar-14 30-Jun-14 30-Sep-14 31-Oct-14 30-Nov-14 31-Dec-14

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Investment of the Bank 162.7 133.7 131.8 135.2 141.2 146.4
Total net assets of the fund 184.5 152.7 148.7 152.7 153.8 158.9
88.2% 87.6% 88.6% 88.5% 91.8% 92.1%
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The above level of funds under management do not appear sufficient to support the carrying value of the intangible asset.
Accordingly, we have recommended provision against the carrying value (net of impairment) of the intangible asset.
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Loan to employee
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Area of
Loan to employee As per Discussions with Management, the company allows loan facility to employees in accordance with their terms of
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employment. However, these loans are allowed to the extent of the employee’s respective provident fund balance. Mark-up is
charged on the basis of 6-month KIBOR on loans above Rs 50,000 and 6-month KIBOR minus 2% on loans up to Rs 50,000.
As at November 30, 2014, there was an outstanding loan balance of Rs 3.94 million relating to Mr. Hussain Khoja. The provident
fund balance of the employee was Rs 0.05 million. We have not been provided the following information in respect of the above
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loan:
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• employment contract of Mr. Hussain Khoja.
• purpose of loan.
• reason for approval of loan above provident fund balance to Mr. Hussain Khoja.
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In view of the above, we recommend provision against the unsecured loan balance of Rs 3.9 million.
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Minimum equity requirement
OR
T
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Area of
Shortfall in The NBFC Rules and Regulations specify a minimum equity requirement for NBFCs. As per these requirements, the minimum
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minimum equity equity (free of losses) required for carrying out ‘Investment Advisory’ and ‘Asset Management Services’ as at November 30, 2014 is
requirment Rs 230 million. However, as at November 30, 2014, KFL had equity (free of losses) of Rs 199.9 million consisting of:
• equity of Rs 124.9 million; and
• sub-ordinated interest-free loan of Rs 75 million from Mr. Muzzaffar Ali Shah Bukhari. As per Management Information, the
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loan is required to be repaid within three years or as both parties may agree.
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Based on Discussions with Management of KFL, we understand that, in order to meet the shortfall in regulatory equity
requirement, KFL had initiated the process of amalgamation with Pak Oman Asset Management Company Ltd. In this regard, we
understand that all legal requirements, other than final approval of SECP, had been fulfilled. However, as per Discussions with
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Management, we understand that both companies mutually agreed to abandon the merger in February 2015.
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Funds under Management
OR
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Area of
Decline in funds The Funds under Management (“FuM”) in the five funds of KFL have declined significantly from Rs 2,775.3 million as at March 31,
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under management 2014 to Rs 1,334 million as at November 30, 2014. In addition, composition of related party FuMs has also increased from 53.5% as
at March 31, 2014 to 76.7% as at November 30, 2014.
Rupees in m illion 31-Mar-14 30-Jun-14 30-Sep-14 30-Nov-14
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KASB Bank Ltd. 945.5 848.1 852.4 884.4
KASB Funds Ltd. 97.5 113.0 106.1 107.7
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KASB Modarba - 57.2 28.3 28.6
KASB Invest (Pvt.) Ltd. - - 100.2 0.1
Directors and Employees 1.9 1.7 3.8 1.5
KASB Securities Ltd. 207.4 161.6 165.1 -
Other related parties
FuMs held by related parties
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FuMs held by other than related parties
232.2
1, 4 8 4 . 5
1,290.8
125.5
1, 3 0 7 . 1
1,390.9
-
1, 2 5 5 . 9
1,057.3
-
1, 0 2 2 . 3
311.7
Tota l FuMs 2,775.3 2,698.0 2 , 3 13 . 2 1, 3 3 4 . 0
Related party FuM as a% of total FuMs 53.5% 48.4% 54.3% 76.6%
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The decrease in FuMs will significantly impact future revenue of KFL.

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Cash at Bank
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Area of
Bank accounts The balance maintained with banks as per management accounts for the 11M 2014 amounts to Rs 11.48 million whereas the total of
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the balances maintained with banks as per the break-up provided by Management amounts to Rs 11.61 million. KFL has not
provided a reconciliation of the above two balances. KFL has also not provided us with:
• bank statements of six accounts maintained with Standard Chartered Bank (Pakistan) Ltd., Citi Bank N.A. – Pakistan branches,
Dawood Islamic Bank Ltd., Al Baraka Bank Ltd, Meezan Bank Ltd., and National Bank of Pakistan Ltd. The total balance in
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these accounts as at November 30, 2014, as per the break-up of bank balances provided by Management is Rs 24,194.
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• bank statements of four accounts maintained with the Bank. The total balance of these accounts as per the break-up provided by
Management amounts to Rs 33,524. We have also been unable to trace the balances of these accounts from the Bank’s
customer-wise deposit portfolio.
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Consequently, in the absence of information, we are unable to comment on the balance in the above bank accounts.
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Taxation
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Area of
Deferred tax asset – KFL has declared aggregate business losses of Rs 75.152 million in the returns of income for tax years 2008 to 2014, in view of
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net which minimum tax liability (“MTL”) has been provided as per the latest tax position. However, no deferred tax asset should be
recorded on ‘business losses’ as financial projections are not available to assess the realisability of such losses against projected
business income. We have not been provided the break-up of deferred tax asset as at November 30, 2014. However, as per the
break-up of deferred tax asset as at December 31, 2013, the company had recorded deferred tax asset of Rs 31.543 million on
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business losses of Rs 73.655 million.
Deferred tax asset should only be recorded on depreciation losses of Rs 4.96 million (Rs 15.035 million x 33%). We therefore,
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recommend an adjustment of Rs 26.6 million [Rs 31.543 million - Rs. 4.96 million].
Withholding income We have not been provided reconciliation between ‘salary’ expenses and ‘other than salary’ expenses as per financial statements
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and amount on which taxes were deducted and deposited. Consequently, exposure, if any, cannot be reasonably determined.
However, based on our estimate and experience in similar cases, we suggest adjustment of Rs 3 million [Rs 0.5 million x 6 years].
Withholding sales KFL is not in compliance with the requirement of the Sales Tax Withholding Rules as it has not withheld and deposited sales tax
tax agent of Rs 0.6 million on services. Therefore, we recommend provision of Rs 1.3 million (including effect of default surcharge of
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Rs 0.1 million and 100% penalty on principal amount of Rs 0.6 million).

Sales tax on disposal From tax years 2009 to 2014, it is observed that KFL has not charged sales tax on disposal of fixed assets. As per section 3 of the
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of fixed assets STA, sales tax should be charged on disposal of fixed assets. In our view, KFL is exposed to potential sales tax demand of Rs 0.7
million, computed at the rate of 6% on sales proceeds of Rs 4.6 million on disposal of fixed assets from January 2009 to November
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2014 along with default surcharge thereon. Consequently, we recommend an aggregate adjustment of Rs 1 million in this regard.
Alternate corporate In tax year 2014, tax liability was computed on the basis of ‘Corporate Tax’ instead of ‘Alternate Corporate Tax’ (“ACT”) as defined
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tax under Section 113C (1) of the Ordinance. Based on our analysis, the normal tax liability for tax year 2014 should be based on ACT as
tax charge under ACT is Rs 2.86 million, which is higher compared to the amount of Rs 1.683 million under Corporate Tax. In view
of the above, we recommend an additional provision of Rs 1.2 million.
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KASB Bank KASB Bank 67
OR
6 Loans and advances 68
7 Investments 135
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8 Operating fixed assets 162
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9 Lending to financial institutions 170
10 Cash and balances with banks 172
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11 Other assets 180
12 Deposits and other accounts 188
13 Borrowings 195
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14 Bills payable 198
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15 Other liabilities 199
16 Profit and loss analysis 203
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17
18
Taxation
Deferred taxation
216
233
19 Related party transactions and balances 236
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20 Contingencies and commitments 240

21 Capital adequacy ratio 241
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6 Loans and advances Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Loans and advances portfolio of the Bank is classified into Non-Consumer,
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Consumer and staff (including ex-staff)
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Loans and advances The loans and advaces portfolio of the Bank is classified as follow s:
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Rupees in m illion
Branch banking Facility provided to individuals secured by way of 100% cash margin.
Perform ing No. of accounts Non-funded Funded Corporate Facility limit of more than Rs 100 million and turnover of the borrower is higher than
Non- Consume r Rs 750 million.
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Branch banking 103 - 409 Financial At present, the only funded facility is provided to KASB Securities Limited.While
Corporate 71 2,668 11,725 institutions Non- funded facility includes letter of guarantee's provided to various financial
Financial institutions 1 5,682 150 instiutions.
Middle market 115 4,057 4,678 Middle market Facility limit of more than Rs 50 million and turnover of the borrower is higher than
SME 72 416 522 Rs 300 million.
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Agriculture 88 196 SME small Number of employees of the borrower are upto 21 and its annual turnover is upto
ISB leasing 19 - 41 Rs 75 million. Maximum exposure allowed against a borrower is Rs 15 million.
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SAMD 9 - 278 SME medium Number of employees of the borrower are between 21 to 250 and its annual
478 12 , 8 2 3 17 , 9 9 9 turnover is between Rs 75 million to Rs 400 million. Maximum exposure allowed
Consume r 1, 0 15 527 against a borrower is Rs 100 million.
S ta ff loa ns 725 659 Agriculture Financing provided for working capital and agricultural inputs. Limits allocated as
Tota l
Outstanding
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Provision
19 , 18 5
ISB leasing
SAMD
per land holding.
This represents fleet financing and machine leasing portfolio.
These represent accounts which have been declassified by the Bank and
transferred to the performing portfolio as at November 30, 2014.
Non-perform ing principal held Net Consumer Consumer loans include secured loans and mortgage (Ghar asaan, Karobar
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asaan) as well as unsecured loans (Cash asaan, Education asaan).
Non- Consumer 9,541 (7,766) 1,775
Staff loans The Bank provides house loans, auto loans and personal loans to its staff.
Consumer 1,186 (833) 353
Ex- staff loans 39 (9) 30 Source: Management Information
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Tota l 10 , 7 6 6 (8 , 6 0 8 ) 2 , 15 8
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Tota l loa ns a nd a dva nc e s portfolio 2 1, 3 4 3

Minor differences due to rounding.

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Loans and advances portfolio of the Bank is classified into three segments
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Consumer
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Rupees in m illion As at Novem ber 30,2014
Revolving, unsecured facility. Limit is dependent on the income and economic Num ber of Outstanding
Ca sh a sa a n
condition of each customer. Perform ing accounts principal
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Educ a tion a sa a n Unsecured facility. Limit is dependent on the income and economic condition of Consume r
each customer. Cash asaan 556 47
Education asaan 349 1
G ha r a sa a n Mortgage facility secured by the customer’s residential property. Limit is Ghar asaan 82 138
dependent on the income and economic condition of each customer. Karobar asaan 28 341
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Ka roba r a sa a n Secured running finance facility for SMEs. The maximum limit of facility is
Tota l 1, 0 15 527
equivalent to 70% of the value of collateral.
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Outstanding Provision
Non-perform ing principal held Net
Consume r 1, 18 6 (8 3 3 ) 353
Staff
S ta ff home loa ns
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Secured facility at 6% mark- up. The maximum limit of a loan is Rs 10 million and is
based on a 40% debt burden ratio. Tenor of each loan is up to 20 years.
S ta ff a uto loa ns Mark- up is charged at the rate of 6% to 14%. The amount of loan granted
Num ber of Outstanding
depends on the grade of the employee.
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Perform ing accounts principal
S ta ff pe rsona l loa ns Mark- up is charged at a fixed rate of 10%. The amount of loan granted depends
on the grade of the employee. S ta ff loa ns
Staff ho me lo ans 194 541
Source: Management Information,
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Staff auto lo ans 162 93

Staff perso nal lo ans 369 25
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Tota l 725 659

Outstanding
Non-perform ing principal Provision Net
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Ex- sta ff loa ns 39 (9 ) 30

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We have performed a review of selected customers to estimate the amount of
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additional provision required in respect of the loans and advances portfolio
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Total outstanding exposure as at November
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30, 2014
Customers in respect of which we
Segment Number Basis of selection and work performed
carried out a credit review
of Funded Non-funded Total
accounts
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Rupees in million
We performed a credit review in respect of certain customers. The basis of selection is given below:
• All customers with outstanding funded exposure of Rs100 million or more as at November 30,
2014. The basis of selection for the remaining customers i.e. customers with outstanding
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funded exposure of less than Rs100 million is given below:
• All customers classified by the Bank in the “watchlist” category;
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• All restructured/ rescheduled accounts identified by the Bank;
• All customers in the “Non-Consumer” category appearing in the Bank’s ageing analysis Number of Outstanding exposure as at
report as at November 30, 2014 with outstanding funded exposure of more than Rs 10 accounts November 30, 2014
million and less than Rs 100 million;
• Customers with an ORR rating of 5, 6 and 7 and outstanding funded exposure of Rs 25 Funded Non-funded
Performing Non
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•
million or more;
Customers selected based on our experience of other banks as well as prior experience 100
with the Bank;
Customers with “nil” funded exposure but outstanding non-funded exposure of more than
16,160
Rupees in million
10,876
– Consumer 478 17,999 12,823 30,822 Rs 500 million. Please refer Appendix 4.
portfolio
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In respect of the selected customers:
• We reviewed repayments appearing in the customers’ ledger accounts.

• We reviewed the relevant eCIB reports.
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• We reviewed the financial statements of borrowers (other than individuals), where available
with the Bank.
• We made inquiries from Bank’s management of the history of restructuring/ rescheduling/
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modification in terms.
• We discussed with Bank’s management the performance of account and its views on the
likelihood of default.
• We reviewed security/collateral held by the Bank against exposures. However, we only
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reviewed the valuation reports/ pledge reports (in respect of the valuation of security/ collateral)
and the legal opinions (for establishing the validity of mortgage) in respect of customers where
additional provision is recommended.
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30, 2014
Customers in respect of which we carried out a
Segment Number Basis of selection and work performed
credit review
of Funded Non-funded Total
accounts
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Rupees in million
Based on the above procedures, we identified certain accounts where additional

provision was recommended on a subjective basis.
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In addition to the above accounts, there were certain accounts where the borrower
Number of Outstanding exposure as at
had made payments in the past, however, recently either there were certain delays in
Performing Non the payment of principal and mark-up or the Bank extended the due date for payment.
accounts November 30, 2014
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– Consumer 478 17,999 12,823 30,822 We discussed these accounts with the Bank’s management which was of the view Funded Non-funded
portfolio that the performance of these customers had been satisfactory in the past and at Rupees in million
present, they were experiencing issues mainly due to non-availability of additional 100 16,160 10,876
financing from the Bank consequent to the restrictions imposed by the moratorium.
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exposures. The list of these customers is given in Annexure 3.
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30, 2014
Segment Non- Basis of selection and work performed
Number of Funded Total
funded
accounts
Rupees in million
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We selected customers with outstanding exposure of Rs 10 million or more and reviewed their repayments from the customers’ ledger accounts.
Performing
1,015 527 - 527 The outstanding exposure of these customers amounted, in aggregate, to Rs 332.07 million as at November 30, 2014. We have also carried out
Consumer portfolio
a roll-rate analysis to identify the amount of additional provision which may be required against this portfolio.
We were provided with an employee-wise break-up of staff loans which included name of the employee, nature of the loan, principal outstanding
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as at November 30, 2014 and, in case of Staff home loans, market value and forced sale value of the property mortgaged, name of the valuer
who carried out the valuation of the mortgaged property and the date of valuation. As per Management Information, the valuation of the
mortgaged property was carried out at the time of disbursement of loan to the employee. As per the above information provided to us, the market
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value of mortgaged properties in respect of all loans was higher than the amount of outstanding principal as at November 30, 2014. We did not
review the valuation reports and the legal opinions in respect of the mortgaged properties. As per Management Information, during the period
Staff loans 725 659 - 659 form the date of imposition of moratorium till January 23, 2015, 42 employees who had availed the staff loan facility, have resigned. The
aggregate amount of loan outstanding in respect of these employees amounted to Rs 32.97 million as at November 30, 2014. As per
UN Management Information, some of these employees are moving to other banks and accordingly their loans are being taken up by their new
employer. The aggregate amount of loans outstanding in respect of these employees amounted to Rs 21.56 million as at November 30, 2014. In
respect of the remaining employees (who have resigned), the outstanding loan has either been fully adjusted against their gratuity fund and
provident fund balances or the amount remaining after adjustment of the gratuity fund and provident fund balances will be transferred to the
consumer portfolio and the relevant rate of interest will be charged on these loans.
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Non-performing loan portfolio in "Non-Consumer" category:
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As at Novem ber 30, 2014 Accounts review ed
Benefit of FSV Benefit of FSV
Non- Num ber
Num ber of availed/ availed/
performing accounts Principal Provision of Principal Provision Basis of selection
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relaxation in relaxation in
loans accounts
provision provision
- - - - - - - - - - - - - - - - - - - - - - - - R upe e s in m illio n - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - R upe e s in m illio n - - - - - - - - - - - - - - - - - - - - - - - -
N o n- C o ns um e r
OA EM 3 10 10 - 3 10 10 -
Substandard - - - - - - - - A ll acco unts in these catego ries were selected.
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Do ubtful 3 13 13 - 3 13 13 -
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We selected acco unts where benefit o f FSV availed in respect o f land, building, plant &
Lo ss 157 9,518 1,752 7,766 36 6,039 1,643 4,396 machinery, sto cks o r liquid assets was Rs 7 millio n o r mo re. In additio n, all lo ans
relating to the Gulistan gro up, Dewan Cement Limited, Dewan Faro o q M o to r Limited
and Dewan Salman Fibre Limited were selected.
T o tal 16 3 9 ,5 4 1 1,7 7 5
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Work performed:
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Where available, we reviewed the legal opinion, mortgage deeds, memorandum of deposit of title deeds, SECP charge registration certificates (in case of companies), CDC
statements (in case of shares pledged) to assess the security/collateral. In addition, we reviewed the valuation reports, pledge reports etc. in respect of valuation of
security/collateral. We also checked that the valuers used by the Bank for carrying out these valuations are on the panel of SBP. We also made inquiries from Management on
the status of litigation (if any).
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As at Novem ber 30, 2014 Accounts review ed
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Num ber of Principal Benefit of Num ber of Principal Benefit of
Non-perform ing loans
accounts outstanding FSV (availed) Provision accounts outstanding FSV (availed) Provision Basis of selection
- - - - - - - - - - - - - - - - - - - - - - - - R upe e s in m illio n - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - R upe e s in m illio n - - - - - - - - - - - - - - - - - - - - - - - -
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C o ns um e r
OA EM 16 37 35 - 3 21 18 0.28
Substandard 25 70 70 - 3 59 59 -
Do ubtful 10 16 16 - 1 6 6 0.34 A ll parties with FSV benefit amo unting
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Lo ss: to Rs 4 millio n and abo ve were selected.
FSV benefit available 57 450 238 212 18 404 209 195
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General pro visio n 8
FSV benefit no t available 3,434 613 - 613
3 ,5 4 2 1,18 6 359 833 25 490 292 19 6
Work performed:
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Where available, we reviewed the legal opinion, mortgage deeds, memorandum of deposit of title deeds, redemption deed (in case of takeover of loan from other banks), to
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assess the security/collateral. In addition, we reviewed the valuation reports etc. in respect of valuation of security/collateral. We also made inquiries from Management on the
status of litigation (if any).
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(cont’d)
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Additional provision recommended against performing loans in Non-Consumer portfolio
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Rupees in m illion - - - - - - O utsta nding- - - - - - Be ne fit of P rinc ipa l ne t
se c urity / of be ne fit of Ma rk- up inc ome
Non- c olla te ra l se c urity / re ve rsa l to Re c omme nde d
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No. Na me Funde d* funde d Tota l c onside re d c olla te ra l suspe nse a c c ount* provision
1 Mr. Shaukat Fayaz Ahmed Tarin- restructured 837.0 - 837.0 - 837.0 19.4 209.3
2 Mr. Azmat Shahzad Ahmed Tarin- restructured 505.0 - 505.0 - 505.0 11.7 126.3
3 Quetta Textile Mills Limited 200.0 - 200.0 - 200.0 4.4 50.0
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4 New Horizon Exploration and Production Limited 14.9 97.8 112.7 112.3 0.4 0.3 0.4
5 Century Publications (Private) Limited 40.0 - 40.0 88.0 - 1.4 -
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5 Lucky Star Steel Mills Ltd.- (restructuring in process) 405.6 2.1 407.7 62.5 345.2 22.5 86.3
6 Lakhani Traders- restructured 28.5 - 28.5 52.0 - 5.9 -
7 Towellers Ltd.- restructured 36.1 - 36.1 - 36.1 - 6.9
8 Nova International 119.1 - 119.1 83.7 35.4 4.4 17.7
9
10
11
Eden Builders (Pvt.) Ltd.- restructured
Colony Mills Ltd.
Abdur Rafique - restructured
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49.7
115.6
-
-
4.0 20.3
49.7
115.6
-
-
-
20.3
49.7
115.6 -
0.5
2.6
20.3
49.7
13.2
12 Arif Ali Shah Bukhari** - 20.5 20.5 - 20.5 - 20.5
13 Haji Ghani- restructured 59.2 - 59.2 - 59.2 0.9 3.8
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14 Dewan Muhammad Yousuf - restructured 143.5 - 143.5 - 143.5 - 22.4
15 Macca Sugar Mills Pvt. Ltd 40.0 - 40.0 16.3 23.7 0.9 11.9
16 Moon CNG Station 2.4 2.8 5.2 45.6 - - -
17 Majeed CNG Filling Station - 4.0 4.0 22.9 - - -
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18 Duraid Qureshi - restructured 47.8 - 47.8 - 47.8 0.9 3.7

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19 New Asia Woolen Mills 31.7 - 31.7 59.7 - 3.0 -

2,692.4 13 1. 2 2,823.6 543.0 2,439.4 78.8 642.4
* Payments received up to February 8, 2015 in respect of principal were adjusted from the outstanding exposure as at November 30, 2014 for the purpose of calculation of provision. In addition, payments
received up to February 8, 2015 in respect of mark-up were also adjusted for the purpose of calculation of mark-up reversal to suspense account.
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** Expired guarantee of Rs 17.27 million was excluded from the outstanding non-funded exposure.

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Provision of Rs 642.4 million has been recommended in respect of performing
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Non-Consumer loans. In addition, mark-up accrued on these loans of Rs 78.8
million is proposed to be reversed to suspense account
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Mr. Shaukat Fayaz Ahmed Tarin and Mr. Azmat Shahzad Ahmed Tarin As at November 30, 2014
Benefit of Recommended
ORR Mark-up Outstanding- Outstanding- Limit non- collateral provision
Facility Brief description of security Limit funded Total exposure
rating rate funded non-funded funded
--------------------------------------------------------------Rupees in million------------------------------------------------------------
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Mortgage of personal assets and pledge
Demand finance 5 837 - 930 - 837 - 209.3
5.5% of shares
Demand finance 5 Mortgage of personal assets 505 - 532 - 505 - 126.3
Source: Management Information, Discussions with Management
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Restructuring arrangement: The Bank entered into a restructuring arrangement
Background: Demand finances of Rs 930 million and Rs 561.5 million were
on December 31, 2012. Some of the key terms of this arrangement are summarised
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disbursed on March 1, 2008 and July 8, 2008, respectively, at the rate of 3-months
below:
KIBOR + 3%. We understand that the purpose of these loans was to finance the
acquisition of shares of Silk Bank Ltd. The amount was payable on December 31, • Principal to be settled through a bullet payment on or before December 31, 2015.
2011. However, according to Management, modifications were made to the terms of • Cumulative outstanding mark-up till June 30, 2012, amounting to Rs 234,182,662,
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these loans. The loans were classified as 'substandard' as at December 30, 2012 on the
basis that overdue mark-up amounting, in aggregate, to Rs 234,182,662 (till June 30,
to be paid as follows:
• Rs 150,000,000 to be paid on or before January 15, 2013.
2012) was not paid by the borrowers. • Balance amount of Rs 84,182,662 to be paid on or before March 31, 2013.
• Mark-up for the period from July 1, 2012 to September 30, 2012 amounting to Rs
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56,353,365 on the basis of 3-months KIBOR + 3%, to be paid on June 30, 2013.
The Mark-up for the period from October 1, 2012 till the date of repayment of the
principal (i.e. December 31, 2015) to be calculated at the rate of 5.5% and paid as
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follows:
• mark-up for the period from October 1, 2012 to June 30, 2013 to be paid on
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June 30, 2013.

• mark-up for the period from July 1, 2013 to June 30, 2014 to be paid on June
30, 2014.
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• mark-up for the period from July 1, 2014 to June 30, 2015 to be paid on June
30, 2015.
• mark-up for the period from July 1, 2015 to December 31, 2015 to be paid on
December 31, 2015.
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• Mr. Shaukat Tarin and Mr. Azmat Tarin would complete all documentation in Security structure:
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respect of properties mortgaged with the Bank. The particulars of these properties
• Mr. Shaukat Tarin pledged 82 million shares of Silk Bank Ltd.
are summarised in the table on the following page.
• Certain properties have been mortgaged in favour of the Bank in respect of Mr.
• After the finalisation of the restructuring arrangement, KASB Bank requested the
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Azmat Tarin’s loan.
SBP for a temporary relaxation from application of the Prudential Regulations in
respect of provision against outstanding exposure of Mr. Shaukat Tarin and Mr. The following shares were pledged with the Bank by Mr. Shaukat Tarin:
Azmat Tarin. The SBP, vide its letter dated May 28, 2013, allowed the Bank to
classify the exposure as “regular” subject to the recovery of 10% of outstanding Scrip Number Rate as at Total value Average volume
principal and all mark-up accrued up to June 30, 2013 by July 01, 2013. The Bank
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of shares November 30, (Rupees) per day during
had received Rs 149.15 million on account of principal and Rs 117.651 million in 2014 the period*
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respect of mark-up (up to June 30, 2013) by July 01, 2013. Accordingly, the Bank (Rupees)
reclassified the exposure from 'substandard' to 'regular' and also reversed the Silk Bank Ltd. (Pledged) 82,000,000 2.06 168,920,000 1,326,147
provision of Rs 258.49 million held thereagainst. Source: Management Information, Public Information
• Repayments: We noted that mark-up of Rs 74.169 million due on June 30, 2014
•
was received by the Bank as follows:
Rs 73.830 million on June 30, 2014;
UN *Average trading volume per day for the period from January 1, 2014 till November 30, 2014
• We have been provided with the wealth statement of Mr. Shaukat Tarin for tax year
2013. As per this wealth statement, total assets of Mr. Shaukat Tarin amount to Rs
• Rs 0.211 million on July 17, 2014; and 3,631 million and his liabilities amount to Rs 5,721 million.
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• Rs 0.128 million on September 26, 2014.

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The particulars of properties mortgaged with the Bank, in respect of exposure relating to Mr. Azmat Tarin, are summarised below:
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Name Property Status and remarks
Mr. Shaukat Tarin As per legal opinion issued by Chattha, Khan and Raza ,
dated September 29, 2010, the Bank should obtain
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Valuation certain documents from the borrower in respect of all
Rupees in m illion FSV report date Valuer Nam e these properties in order for the Bank to accept these
properties as collateral. However, as per Management
A partment-13 in Karako ram enclave, Secto r F-11/1P hase II, Islamabad. 18.45 information, the following documents mentioned in this
A partment-14 in Karako ram enclave, Secto r F-11/1P hase II, Islamabad. 18.45 legal opinion were not available with the Bank:
1) Copy of drawing of approved building plan.
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A partment-5-M in Karako ram enclave, Secto r F-11/1P hase II, Islamabad. 18.45 2) Lease/sub-lease deed in favour of Mr. Shaukat
Engineering P akistan
A partment-5-N in Karako ram enclave, Secto r F-11/1P hase II, Islamabad. 18.45 Tarin.
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29-M ar-12 Internatio nal (P vt) 3) Fresh certified copy of Lease/sub-lease deed in
A partment-S in Karako ram enclave, Secto r F-11/1P hase II, Islamabad. 18.45 Limited. favour of Mr. Shaukat Tarin.
A partment-4-S in Karako ram enclave, Secto r F-11/1P hase II, Islamabad. 18.00 4) Fresh Non-Encumbrance Certificate (“NEC”) from
A partment-T in Karako ram enclave, Secto r F-11/1P hase II, Islamabad. 18.45 concerned sub-registrar.
5) Copy of Completion Certificates.
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A partment-4-T in Karako ram enclave, Secto r F-11/1P hase II, Islamabad. 18.00

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Name Property Status and remarks
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Mrs. Farah Naz Tarin As per legal opinion issued by Chattha, Khan and Raza,
dated August 3, 2010, the Bank should obtain certain
documents from the borrower in respect of the apartment in
order for the Bank to accept this property as collateral.
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However, as per Management information, the following
documents mentioned in this legal opinion were not available
Valuation with the Bank;
Rupees in m illion FSV report date Valuer nam e 1) Copy of drawing of approved building plan.
2) Lease/sub-lease deed in favour of Mrs. Farah Naz
•A partment no 5-L Karako ram enclave, Secto r F-11/1, Islamabad. 17.10 A pril 2,2013 Tarin.
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3) Fresh certified copy of Lease/sub-lease deed in favour
•P lo t no 15-B , Survey no . 187/4, lo cated at A sad Jan Ro ad, Laho re Cantt. 32.85 A pril 2,2013
Harvester Services. of Mrs Farah Naz Tarin.
•B ungalo w no . 2, survey no .187/2, lo cated at Sarwar Ro ad, Laho re Cantt. 41.60 A pril 2, 2013
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4) Fresh NEC from concerned sub-registrar.
•P lo t no . 15, Survey no .187, Sarwar ro ad, Laho re Cantt. 99.39 M arch 28, 2013 5) Copy of Completion Certificate.
As per the legal opinion issued by Chattha Khan and Raza
dated July 7, 2008, the Bank should obtain certain
documents from the borrower in respect of the properties in
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collateral. However, as per Management information, the
following documents mentioned in this legal opinion were not
available with the Bank;
2) Permission to Mortgage (“PTM”) from MEO Lahore
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Cantt.
Major Saeed Ahmed As per legal opinion issued by Chatta Khan and Raza, dated
June 21, 2011, the Bank should obtain certain documents
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from the borrower in order for the Bank to accept this

property as collateral. However, as per Management
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information the following documents mentioned in the legal

Valuation opinion were not available with the Bank;
Rupees in million FSV report date Valuer name 2) Lease/sub-lease deed in favor of Major Saeed Ahmed.
3) Fresh certified copy of Lease/sub-lease deed in favor
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Apartment no 5-B, fifth floor, Karakoram enclave, F-11/ 1, Islamabad 17.10 2-Apr-13 Harvester Services of Major Saeed Ahmed.
5) Copy of Completion Certificate.
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Name Property Status and Remarks
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Naseer Ahmed Malik As per legal opinion issued by Tariq Law Associates, dated October 16,
2008, the Bank should obtain certain documents from the borrower in order
for the Bank to accept these properties as collateral. However, as per
Management information the following documents mentioned in this legal
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opinion were not available with the Bank;
2) Lease/sub-lease deed in favour of Mr. Naseer Ahmed.
3) Fresh certified copy of Lease/sub-lease deed in favour of Mr. Naseer
Ahmed.
Valuation 4) Fresh NEC from concerned sub-registrar.
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Rupees in m illion FSV report date Valuer nam e 5) Copy of Completion Certificate.
In addition to the above, the following documents were not available
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A partment no . 1- J first flo o r Islamabad. 17.10 as per the legal opinion:
Apartment no. 10/I
A partment no . 10/I lo wer gro und flo o r Karako ram enclave, Secto r F-11/1, Islamabad. 9.90
1) Irrevocable General Power of Attorney favouring the Bank.
A partment no . 5-I lo wer gro und flo o r Karako ram enclave, Secto r F-11/1, Islamabad. 16.20 2-A pr-13 Harvester Services 2) Affidavit of the mortgagor.
A partment no . 10/II lo wer gro und flo o r Karako ram enclave, Secto r F-11/1, Islamabad. 9.90 3) Agreement to create mortgage .
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A partment no . 4/II lo wer gro und flo o r Karako ram enclave, Secto r F-11/1, Islamabad. 9.90
Apartment no. 5-I
1)
2)
3)
Irrevocable General Power of Attorney favouring the Bank.
Affidavit of the mortgagor.
PTM in favour of the Bank.
Apartment no. 10/II
1) Affidavit of the mortgagor.
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2) Agreement to create mortgage
3) Fresh MODTD.
Apartment no. 4/ll
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2) Agreement to create mortgage.

3) Fresh MODTD.
4) PTM in favour of the Bank.
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Sardar Burhan-ud-din As per legal opinion issued by Chattha, Khan and Raza, dated September
29, 2010, in respect of this property the Bank should obtain certain
documents from the borrower in order for the Bank to accept this property as
Valuation
collateral. However, as per Management Information the following documents
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Property FSV report date Valuer name mentioned in this legal opinion were not available with the Bank;
R upe e s in millio n 1) Agreement to create mortgage.
2) Irrevocable General Power of Attorney favouring the Bank.
Agriculture land measuring 27 kanals 8 marlas situated at Bedian ro ad, Laho re Cantt. 38.78 20-M ar-13 M arico n Co nsultants
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Confidential Information for the sole benefit and use of AFF’s Client. March 16, 2015
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Recommendation: • In this connection, we considered classification of this exposure to “substandard” in
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respect of which provision of 25% is required to be made under the Prudential
• As per the Prudential Regulations issued by the State Bank of Pakistan, subjective
Regulations. In addition, we carried out an analysis based on the present value of
evaluation of performing and non-performing credit portfolio shall be made for
expected cash flows discounted at the original effective interest rate on the
risk assessment and, where considered necessary, any account including the
assumption, for the purpose of this exercise, that the loans will be restructured on
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performing account will be classified, and the category of classification determined
the same terms as the previous restructuring. Based on this analysis, the amount of
on the basis of time based criteria shall be further downgraded. Such evaluation
provision works out to Rs 348.95 million which is marginally higher than the
shall be carried out on the basis of credit worthiness of the borrower, its cash flow,
provision determined at the rate of 25% on the subjective classification of the
operation in the account, adequacy of the security, inclusive of its realizable value
exposure to “substandard”. After consideration of the above, we have proposed
and documentation covering the advances.
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provision of Rs 335.6 million against the Bank’s exposure to these customers.
• In view of previous repayment history and wealth as per 2013 wealth statement
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and considering the present security structure of loans to Mr. Shaukat Tarin and
Mr. Azmat Tarin, there is a possibility that loans may not be settled in cash on the
due date. The representative of the borrowers has also informally indicated to the
Bank that borrowers may consider providing certain properties for settlement of
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the loans due to financial difficulties faced by the borrowers. However, Bank has
not received a formal proposal in this regard. Considering the above, there is a
possibility that these loans may either have to be restructured or the Bank may be
provided certain assets in settlement of the loans which may require additional
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time and cost to liquidate.
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.
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Quetta Textile Mills Ltd. (“QTML”) As at November 30, 2014
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ORR Mark-up Outstanding- Outstanding- Limit -non- Total Benefit of Recommended
Facility Brief description of security Limit –funded
rating rate funded non-funded funded exposure collateral provision
--------------------------------------------------------Rupees in million--------------------------------------------------------
Joint pari passu charge over stock
Running finance 7 3MK+3% 200 - 200 - 200 - 50
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and receivables.
Purpose of loan: To finance working capital requirements. Financial information:
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Terms: Pricing of the facility is based on 3-months KIBOR + 3 %. Mark-up is payable
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Financial indicators
on quarterly basis.
FY 2014 1QY2015
Repayments:
Current ratio 0.93 1.80
Mark-up payments during the year are given below: Debt to equity 0.31 0.31
Due date of mark-up Amount of mark-up

Rupees in million
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Interest co ver
Operating cashflo ws
1.36 1.00
- - - - R upe e s in m illio n- - - -
(183.81) (106.00)
December 31, 2013 6.25 March 31, 2014 P ro fit after tax 70.70 0.89
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March 31, 2014 6.44 July 9, 2014
June 30, 2014 6.56 October 10, 2014 Source: Public Information, AFF Analysis
September 30, 2014 6.62 January 2, 2015
Sales and net profit after tax for quarter ended September 30, 2014 have declined
Source: Management Information significantly compared to the corresponding quarter in FY 2014.
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As reflected in the above table, the last three mark-up payments were made by the As per the financial statements for the year ended June 30, 2014, export sales
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borrower after 90 days from the due date. However, the Bank did not classify the loan constituted approximately 55% of total sales. In addition, as per the Chief Executive
as “non-performing”. We also noted that the last payment of principal, amounting to Reviews included in the annual report for FY 2014 and report for the quarter ended
Rs 70 million, was received on June 27, 2013 and there has been no movement in the September 30, 2014, the profitability of the company had been negatively impacted by
outstanding principal balance since July 2, 2013. As per eCIB report as at November the following:
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30, 2014, an amount of Rs 16.9 million is outstanding for more than 90 days. We • Decline in prices of yarn and fabrics.
understand that QTML has restructured its loans with other financial institutions 5
times during the last five years. • Slowdown in demand for cotton yarn in international market, particularly China
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and availability of cheap yarn from India.
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• Appreciation of Rupee against USD. Security structure:
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• Higher fuel and electricity cost. Facility Security
• Shortage of gas and electricity. • Pari Passu charge of Rs 266.67 million over companies
Running finance
present and future current assets
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The company’s production facility is located at SITE Lahore. Based on discussion with Source: Management Information
Bank’s Management, we understand that QTML was unable to complete numerous
export orders on time due to electricity outages. As a result, the company lost Collateral:
important customers. • Pari Passu charge of Rs 266.67 million over companies present and future current
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As per Bank’s Management, the company was unable to operate at full capacity assets.
because of gas/power shortage. Consequently, cash generated from operations • Personal guarantee of Mr. Tariq Iqbal, Mr Tauqir Tariq, Mr Asim Khalid and Mr
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declined significantly and the company could not adjust the running finance facility. Umer Khalid.
• Ranking hypothecation charge over fixed assets for Rs 267 million.
In addition, we were given to understand that QTML was unable to adequately utilize
its FBP limits with the Bank due to non-competitive rates. This resulted in reduced Recommendation:
discounting
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turnover in the running finance account due to reduced flow of funds from bill
As per the Prudential Regulations issued by the State Bank of Pakistan, subjective
We were also informed by the Bank’s Management that QTML is in the process of evaluation of performing and non-performing credit portfolio shall be made for
establishing a separate grid station for the production facility. However, we have not risk assessment and, where considered necessary, any account including the
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been provided with any information in respect of the source of funding envisaged by performing account will be classified, and the category of classification determined
the company for establishing this grid station and the expected time of its completion. on the basis of time based criteria shall be further downgraded. Such evaluation
shall be carried out on the basis of credit worthiness of the borrower, its cash flow,
The customer was placed on Bank’s watchlist due to its financial condition. operation in the account, adequacy of the security, inclusive of its realizable value
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and documentation covering the advances.

The financial statements for the year ended June 30, 2014 were audited by Mushtaq
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• We have proposed a provision of Rs 50 million against the Bank’s exposure to

and Co. , Chartered Accountants.
QTML on the basis of the following:
The Board of Directors of the company hold approximately 33% shareholding in the • no repayments in respect of principal since June 27, 2013.
company. • significant delays in the payment of mark-up.
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• weak financial performance of the company.

• significant debt burden on the company.
We are aware that another bank in Pakistan has classified its exposure against QTML
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as “non-performing”.
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NHEPL As at November 30, 2014
Limit -
ORR Mark-up Outstanding- Outstanding- Limit – Total Benefit of Recommended
Facility Brief description of security non-
rating rate funded non-funded funded exposure collateral Provision
funded
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-----------------------------------------Rupees in million-----------------------------------------
Running finance 5 14.89 - 14.89 - 14.89
3MK+2.5% Mortgage over property 112.26 0.4
Letter of guarantee 5 - 97.81 - 97.81 97.81
Repayments:
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Purpose of loan: To finance working capital requirements.
Mark-up payments during the year are summarised below:
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Terms: Mark-up payable on quarterly basis for running finance facility at 3-months
KIBOR + 2.5%.
We were informed by the Bank’s management that NHEPL approached the Bank in Due date of mark-up Amount of mark-up Date of payment
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2013 for sale of its collateralized property located in Clifton to reduce outstanding
balance of the running finance facility. This property was sold in FY 2014 for Rs 80.1
million and the proceeds were utilised for adjustment of outstanding balance of the
December 31, 2013
March 31, 2014
Rupees in million
2.69
2.78
March 13, 2014
June 16, 2014 (converted to principal)
running finance facility. The outstanding principal at the time of sale was Rs 89.5 June 30, 2014 2.45 September 29, 2014
million. Documentation and legal charges of Rs 2.75 million incurred by the Bank for September 30, 2014 0.48 December 31, 2014
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the disposal of property were also included in the principal balance. In addition, Source: Management Information
outstanding mark-up as at March 31, 2014 was also debited to the running finance
account. Letter of guarantee: The Bank has also issued a letter of guarantee (“LG”) to
NHEPL for Rs 97.807 million. This relates to exploration contracts and the guarantee
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For information on financial condition of NHEPL, please refer section 7 of this report. is in favour of the Government of Pakistan.
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Benefit calculation:
Outstanding
exposure
Benefit for Net Total benefit Oustanding net of FSV
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first year FSV benefit available exposure benefit Provision

--------------Rupees in m illion--------------
Land 75% 149.68 112.26 112.26 112.70 0.44 0.44

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Security structure:
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Facility Security
Mortgage over plot of land measuring 1,871 sq.yds. bearing survey no. GRE-461
Garden East Quarters, Karachi. The property has market value of Rs 187.1 million
Running finance
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and FSV of Rs 149.68 million as per valuation report dated August 4, 2014 prepared
by Sadruddin Associates.
Recommendation:
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evaluation of performing and non-performing credit portfolio shall be made for risk
assessment and, where considered necessary, any account including the performing
account will be classified, and the category of classification determined on the basis of
time based criteria shall be further downgraded. Such evaluation shall be carried out
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on the basis of credit worthiness of the borrower, its cash flow, operation in the
account, adequacy of the security, inclusive of its realizable value and documentation
covering the advances.
We have proposed provision of Rs 0.4 million against the Bank’s exposure to NHEPL
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due to the weak financial condition of NHEPL. Please refer section 7 for more
information on the financial condition of NHEPL.
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Century Publications (Private) Ltd. ("CPPL")
UR
ORR Mark-up Outstanding- Outstanding- Limit - Limit-non- Total Benefit of Recommended
Facility rating rate Brief description of security funded non-funded funded funded exposure collateral provision
--------------------------------Rupees in million -------------------------------
Running 5 3MK+2.5% 1st pari passu charge of Rs 67 million over present and future 18 - 20 - 18
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finance current assets of the company including stocks and receivables
with 25% margin covering running finance and acceptance.
87.95 -
Overdue 5 3MK+2.5% 20% cash margin, lien over import document and token 22 - 30 - 22
acceptance registered mortgage (“TRM”) of Rs 0.1 million and equitable
mortgage over industrial property located at Gulberg, Lahore.
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• Background: CPPL is engaged in the business of publishing. The company • CPPL has made regular payments against the outstanding principal of the running
publishes newspapers including the Daily Express and periodicals. It is a member of finance facility. Last such payment was made on September 22, 2014 and amounted
Lakson Group of companies. to Rs 12.4 million.
• Purpose of loan: To finance working capital requirements.
• Purpose of Usance : To import news print material.
UN • A 180-day Usance letter of credit of Rs 21.785 million was due on October 20, 2014.
This was not settled by the company on the due date. Consequently, the Bank
converted it into an “overdue acceptance”. The letter of credit (“LC”) was issued for
• Terms: Running finance facility has a limit of Rs 20 million and is priced at 3 - import of news print. No payment has been made by the customer in respect of
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months KIBOR + 2.5%. Mark-up on this facility is payable on quarterly basis. overdue acceptance till February 8, 2015.
• Repayments: Mark-up payments in respect of the running finance facility are
summarised below:
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Due date of Am ount of Date of

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m ark-up m ark-up paym ent

R upe e s in m illio n
31-Dec-13 0.51 15-Jan-14
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31-M ar-14 0.52 20-M ay-14

30-Jun-14 0.53 18-Jul-14
30-Sep-14 0.56 31-Dec-14

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Financial information: Collateral:
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TRM of Rs 0.1 million and equitable mortgage over industrial property located at 48
Financial indicators N-Industrial area Gulberg, Lahore owned by Matrix Press Private Ltd. (a group
FY 2013 concern). The property has a market value of Rs 159.76 million and FSV of Rs 138.58
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Current ratio 1.46 million (land and building of Rs 103.06 million and machinery of Rs 35.52 million) as
Interest co ver (1.30) per valuation report of Al-Hadi Financial and Legal Consultant dated June 28, 2012.
Operating cashflo ws (156.65)
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Equity (534.20)
Principal net
P ro fit after tax (105.73)
Benefit for Net Total benefit Principal of FSV
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Source: Management Information, AFF Analysis first year FSV benefit available oustanding benefit Provision
-------------------Rupees in m illion-------------------
As per the Bank’s management, the company has incurred losses in previous years. Land and building 75% 103.06 77.30
87.95 40.00
However, the exposure is adequately secured through collateral. In addition, the M achinery 30% 35.52 10.65 - -
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Group has provided a subordinated loan to cover the negative equity of the company.
The management’s assessment of the ability of the customer to repay the loan is the
Group’s financial position and goodwill of the name i.e. “Express Group".
Recommendation:
We have proposed that this exposure should be classified as “non-performing” due to
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Security structure: the non-settlement of “over-due acceptance” and the weak financial condition of the
company. However, provision has not been recommended considering the support of
Facility Security the Group and the benefit of collateral available to the Bank.
• Pari passu charge of Rs 67 million over companies’ present and future current
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Running finance
assets.
•
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Lien over import documents.

Overdue acceptance • 20% cash margin on LC.
• Accepted bill of exchange backed by a valid trust receipt.
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Lucky Star Steel Mills Ltd. (“LSML”) As at November 30, 2014
UR
ORR Mark-up Outstanding- Outstanding- Limit – Limit-non- Total Benefit of Recommended
Facility rating rate Brief description of security funded non-funded funded funded exposure collateral provision*
--------------------------------Rupees in million --------------------------------
Finance against imported merchandise 6 3MK+3% Pledge of stocks 314 - 314 - 314
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Cash finance 6 3MK+3% Pledge of stocks 96.5 - 100 - 96.5 62.53 86.3
Letter of credit - sight foreign 6 Lien over import documents - 2.1 - 451 2.1
*Payments received up to February 8, 2015 were adjusted from the outstanding exposure as at November 30, 2014 for the purpose
of calculation of provision.
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Finance against imported merchandise (“FIM”): Cash finance:
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FIM was obtained for import of stocks. The facility is secured by pledge of stocks (such as This was a 120-day facility provided at 3-months KIBOR + 3% on April 30, 2014
galvanized steel, zinc, pre-painted steel and other allied products) at custom bonded against pledge of stocks (such as galvanized steel, zinc, pre-painted steel and other
warehouse under control of Bank’s approved muccaddam. allied products) of Rs 125 million (20% margin) at custom bonded warehouse under
All FIMs have a duration of 180 days.
We noted that FIM amounting to Rs 201.995 million had become due by February 8,
UN control of Bank’s approved mucaddam. Against this facility, the company obtained
finances amounting, in aggregate, to Rs 100 million till May 30, 2014. However, total
payments made up to February 8, 2015 amounted to Rs 3.5 million.
2015. However, repayment in respect of FIM was not made by the customer.
Repayments:
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The status of payments of mark-up against the cash finance facility is given below:
Due date of mark-up Amount of mark-up Date of payment

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Rupees in million
June 30, 2014 1.507 September 4, 2014
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September 30, 2014 3.275 Unpaid as at February 8, 2015.

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Letter of credit: Lien on import documents covering import of galvanized steel, Additional security:
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zinc, pre-painted steel and other allied products.
First pari passu hypothecation charge for Rs 305 million and ranking charge for Rs
Financial information: 200 million over stocks and book debts of the company.
Financial indicators
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Security structure:
FY 2013
Current ratio 1.50
Debt to equity 0.28 Facility Security
Interest cover 1.89 Pledge of stocks (such as galvanized steel, zinc, pre-painted steel and other
Finance against imported
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allied products) at custom bonded warehouse under control of Bank’s
R upees in millio n merchandise
approved mucaddam.
Operating cashflows (81.40) Pledge of stocks (such as galvanized steel, zinc, pre-painted steel and other
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Profit after tax 20.34 Cash finance allied products) of Rs 125 million (20% margin) at custom bonded warehouse
Source: Management Information, AFF Analysis under control of Bank’s approved mucaddam.
Lien on import documents covering import of galvanized steel, zinc,
Letter of credit - sight foreign
As per Management Information, LSML is a trader of steel products. The declining pre-painted steel and other allied products.
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international prices of steel has an adverse impact on the business of LSML as the
local steel prices have also declined in line with the international steel prices. In
addition, the local demand has also reduced as the local buyers are anticipating Collateral:
further decrease in steel prices and are not showing any buying interest. Accordingly,
as per Management information, LSML is not willing to sell its stock at current prices • TRM of Rs 0.1 million and equitable mortgage over house no. 46-A, measuring
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as this stock was imported/purchased at higher prices. 1026 square yards, 28th street, Phase V extension, DHA, Karachi. The property has
market value of Rs 92.62 million and FSV of Rs 83.37 million as per valuation
LSML informed the Bank about its inability to repay the cash finance and FIM report of Danish Enterprises dated February 6, 2013.
facilities and requested the Bank to reschedule/ restructure these facilities. We
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understand that the Bank’s country credit committee has provided an in-principle
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approval to the following restructuring terms: Benefit Principal net

for first Net Total benefit Principal of FSV
• outstanding principal to be paid over a period of 4 years in monthly instalments of year FSV benefit available oustanding benefit Provision
Rs 8,554,632. -------------------Rupees in m illion-------------------
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• mark-up on the outstanding balance of FIM and CF facilities will be charged at the 62.53 407.70 345.17 86.29
Land and building 75% 83.37 62.53
rate of 5% with effect from the date of approval of the restructuring proposal.
• However, payment in respect of mark-up will be made within one year after the Source: AFF Analysis
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settlement of the entire principal balance.
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Subsequent classification:
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Cash finance facility of LSML was classified as “substandard” by the Bank on
December 31, 2014 due to overdue mark-up of more then 90 days.
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Recommendation:
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on the basis of the following:

•
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We have proposed provision of Rs 86.3 million against the Bank’s exposure to LSML
Non-payment of overdue mark-up and subsequent classification of the cash

finance facility of LSML by the Bank.
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• Adverse market conditions impacting the business of LSML and uncertainty
regarding the improvement in these conditions.
• Relaxed restructuring terms under which the principal will be repaid over a period
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of 4 years. In addition, mark-up will be charged at a rate which is significantly

below the market rate and will only become due after payment of the entire
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principal balance.
• We have been given to understand by the Bank’s Management that there may be
difficulties associated with sale of stock pledged by LSML with the Bank as
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government duties has not been completely paid on the imported pledged stock.
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Lakhani Traders (“LT”) As at November 30, 2014
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ORR Mark-up Outstanding- Outstanding- Limit – Limit -non- Total Benefit of Recommended
----------------------------Rupees in million -------------------------------- Rupees in million
Demand finance 1 5 3MK+2.5% Mortgage of property 28.5 - 100 - 28.5 51.96 -
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*Payments received up to February 8, 2015 were adjusted from the outstanding exposure as at November 30, 2014 for the
However, despite the restructuring, the customer was unable to make regular
purpose of calculation of provision. payments and was classified by the Bank. In September 2013, a new restructuring
arrangement was reached. Recoveries made by the Bank till the date of restructuring
Purpose of the loan: To re-profile finance against trust receipt (“FATR”) and FIM are given below:
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facilities.
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Nature of Restructured Amount Outstanding as at Overdue installments as on September
Background: As per the credit memorandum dated September 3, 2013, in October facility amount received September 10, 2013 10, 2013
2005, sight LC of Rs 300 million with a sub-limit of Rs 150 million in respect of FIM ---------------------------Rupees in million---------------------------
was provided to LT. The LC facility was subsequently enhanced to Rs 500 million in Rs 8.34 million (overdue since July 15,
were priced at 3 months KIBOR + 2.5%. As per Bank’s management, the customer
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2008 with the sub-limit in respect of FIM enhanced to Rs 250 million. FIM and FATR
defaulted in respect of FATR, running finance (“RF”) and FIM facilities in early 2013.
Demand
finance 1
100 16.68 83.32
2013)
Rs 8.34 million (overdue since August 15,
2013)
Rs 6.67 million (overdue since June 30,
2013)
Restructuring: The overdue FATR, RF and FIM facilities were restructured and Demand Rs 10.67 million (overdue since July 31,
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128 14.67 113.33
converted to two demand finance facilities on March 26, 2013: finance 2 2013)
Rs10.67 million (overdue since August 31,
2013)
Am ount due
as on Restructured Repaym ent Expiry/ Rs 12.98 million (over due since April 30,
Mark-up 33.59 20.61 12.98
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26.03.2013 am ount facility Repaym ent term s due date Pricing

2013)
-----Rupees in m illion----- Source: Management Information
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FA TR 60.56 P ayment in 12 equal mo nthly

Demand installments o f Rs 8.333 millio n
RF 39.92 100.00 A pril 15, 2014 3M K+2.5%
finance 1 each co mmencing fro m M ay 15,
T o tal 100.48
2013
P ayment in 12 equal mo nthly
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Demand installments o f Rs 10.666 millio n

FIM 127.70 128.00 A pril 30, 2014 3M K+2.5%
finance 2 each co mmencing fro m M ay 30,
2013
M ark-up 33.59 33.59 A pril 30, 2013

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Some of the key terms of this restructuring are given below: Repayment status against Demand finance 1 after the second restructuring is given
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below:
Overdue
m ark-up Overdue Principal Principal Mark-up
Mark-up due after
received up outstanding received up
(originally m ark-up ( Nature of Restructured restructuring up
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to as at to Mark-up due
Dem and Dem and payable on April 2013 to facility principal to November 30,
November November November
2014
finance 1 finance 2 April 30, 2013) June 2013) 30, 2014 30,2014 30, 2014
-------------------Rupees in million-------------------
M aturity Octo ber 31, 2014 December 31, 2013 December 31, 2013 P ayable upfro nt
Demand
Teno r 14 mo nths 4 mo nths 4 mo nths - 83.32 42.16 28.532* 7.36 3.64 3.72
finance 1
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Rs 0.5 millio n fro m Source: Management Information
September 2013 to
DF I: Rs 2.888
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December 2013, Rs *principal has been reduced to Rs 28.532 million as at February 8, 2015.
28.83 millio n per 3.244 millio n per millio n
8.132 millio n per
mo nth principal mo nth principal DF II: Rs 3.744
mo nth principal
millio n
fro m January 2014 We noted that since the second restructuring, out of the outstanding amount of Rs
Installment
M ark-up payment frequency
P ricing
to Octo ber 2014.
Quarterly
3M K +2.5%
December 31, 2013
3M K +2.5%
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-
-
-
83.32 million, only Rs 54.8 million has been repaid till February 8, 2014. The company
has continuously failed to comply with the restructuring terms. Mark-up was also not
serviced regularly.
Outstanding Rs 83.32 millio n Rs 113.33 millio n Rs 12.98 millio n Rs 6.632 millio n
Bank’s analysis:
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As per Bank’s management, LT has been facing severe liquidity issues in the last
couple of years.
The Demand finance 2 facility was settled on March 31, 2014 and the mark-up for the The eCIB report shows an amount of Rs 26.738 million past due by 90 days as at
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period from April 2013 to June 2013 was settled on April 14, 2014. The previous over November 30, 2014.
due mark-up of Rs 12.98 million was fully repaid on April 11, 2014.
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LT was classified by the Bank as “doubtful” on December 31, 2014 due to overdue
mark-up of more then 90 days.
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Security structure: Subsequent classification:
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Following are the securities provided against the facility: Cash finance facility of LT was classified as “doubtful” by the Bank on December 31,
2014 due to overdue mark-up of more then 90 days.
Facility Security
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Recommendation:
-Hypothecation over stocks and receivables of Rs 134 million with
25% security margin. As per the Prudential Regulations issued by the State Bank of Pakistan, subjective
-Equitable mortgage over residential property in Clifton at plot no F-
Demand finance 1
73/1 Block No 7, Scheme No 5, Kahkashan, measuring 983.33
square yards and owned by Mrs Salma Lakhani. This property has a assessment and, where considered necessary, any account including the performing
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market value of Rs 86.603 million and a FSV of Rs 69.282 million as
per valuation report of Iqbal A Nanjee and Company (Pvt) Ltd. dated time based criteria shall be further downgraded. Such evaluation shall be carried out
February 27, 2013.
DE
Source: Management Information account, adequacy of the security, inclusive of its realizable value and documentation
Collateral:
Personal guarantee of Mr Amin Lakhani, Mrs Salma Lakhani and Mr Noor
Muhammad Lakhani.
UN We have proposed that the Bank’s exposure against LT should be classified as “non-
performing” as the borrower is not complying with the terms of restructuring.
However, provision has not been recommended considering the benefit of collateral
Benefit calculation: available to the Bank.
ED
Benefit FSV as per Total Principal

for first valuation Net benefit Principal net of FSV
year report benefit available oustanding benefit Provision
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LA
Land and building 75% 69.28 51.96 51.96 41.00 - -

SP
DI
93
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DE
OR
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Towellers Ltd (“TL”) As at November 30, 2014
UR
---------------------------------------Rupees in million------------------------------------------
Export refinance 1st joint pari passu hypo charge over fixed
CO
10 16 - 270 - 16 -
scheme-own 0% assets (land & building, plant & machinery) 6.9
Demand finance 10 Ranking hypo charge on fixed assets 21.04 - 39.32 - 21.04 -

*Payments received up to February 8, 2015 were adjusted from the outstanding exposure as at November 30, 2014 for the • No mark-up will be applicable to the facility in future.
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purpose of calculation of provision.
Second restructuring:
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Purpose of the facilities: To meet working capital needs. As per Management Information, the company had been negotiating with potential
Background: The borrowing relationship with the bank started in June 2007 when buyers to sell Toweller village in order to reduce its liabilities. Led by Standard
long term facilities of Rs 180 million and ERF facility of Rs 70 million were approved Chartered Bank the lenders concluded a scheme of settlement under which the
company sold the above property. An amount of Rs 179.959 million was received by
UN
against ranking charge of Rs 240 million over fixed assets of the company and ranking
hypothecation of over Rs 94 million over current assets. In 2008, facilities of RF of Rs
100 million, ERF of Rs 170 million and LTF of Rs 168 million were enhanced against
the Bank consequent to this settlement.
After this transaction, a second restructuring arrangement was made in June 2013.
pari-passu charges on curent and fixed assets. In 2010, facilities were further Some of the key terms of this restructuring are given below:
enhanced to Rs 452 million by allowing limits of Rs 270 million in ERF, Rs 57.5
ED
million in TF, Rs 25 million in RF, Rs 50 million in LC and Rs 50 million in FBP. Amount due a s Upfront Write - Re ma ining
on Ma y 3 1, 2 0 13 c a sh off ba la nc e Re pa yme nt te rms
As at December 31, 2010, account was classified as “loss” due to non payment.
--------------------Rupees in m illion--------------------
Outstanding balance at that time was Rs 362.070 million.
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298.00 179.96 74.08 43.96 Equal mo nthly installment o f Rs 880,950 at

The first restructuring was undertaken on April 30, 2012. Some of the key terms of
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0% mark-up.
this restructuring are given below:
• the outstanding principal of Rs 359.995 million and the outstanding mark-up of Rs
25.302 million to be merged and converted to demand finance facility.
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• demand finance facility will be payable over a period of 7 years in 84 monthly

installments.
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94
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Repayments: Security Structure:
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We noted that payments amounting, in aggregate, to Rs 7.05 million were received by • First joint pari pasu hypo charge over fixed assets (land & building, plant &
the Bank during FY 2014 and up to February 8, 2015. machinery).
CO
The eCIB report as at November 30, 2014 highlighted past due 365 days of Rs 454.672 • Ranking hypo charge on fixed assets.
million. The account was restructured 12 times in the past 5 years.
• Mortgage over properties (However, as per Management Information, legal
Financial information: opinion in respect of these properties is not available.
Financial indicators Recommendation:
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3Q 2014 FY2013
Current ratio 0.83 0.76
DE
Debt to equity 0.58 0.61
Interest co ver 4.22 2.23
Operating cashflo ws
P ro fit after tax
(5.34)
73.87
UN
101.68
35.10
Source: Public Information, AFF Analysis
In this connection, we considered classification of this exposure to “substandard” in

ED
As per the directors’ report, the reasons for negative cash flows include increase in respect of which provision of 25% is required to be made under the Prudential
cotton yarn prices, increase in freight rates by 50%, increase in fuel, gas, water and Regulations, In addition, we carried out an analysis based on the present value of
electricity charges and increase in prices of dyes and chemicals by 50%. expected cash flows discounted at the original effective interest rate. In this regard, the
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amount of provision works out to Rs 6.9 million which is lower than the provision
determined at the rate of 25% on the subjective classification of the exposure to
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“substandard”. After consideration of the above, we have proposed the lower provision
of Rs 6.9 million against the Bank’s exposure to this customer.
SP
DI
95
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DE
OR
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NOVA International (“NI”) As at November 30, 2014
UR
ORR Mark- Outstanding- Outstanding- Limit – Limit -non- Benefit of Recommended
Facility rating up rate Brief description of security funded non-funded funded funded Total exposure collateral provision*
-------------------------------------Rupees in million--------------------------------------
1st pari passu charge over present &
CO
Running finance 5 6MK+3% future current assets and mortgage of 19 - 23 - 19
property
SBP rate
SBP E.R.F preshipment II 5 Mortgage of property 92.5 - 92.5 - 92.5 83.7 17.7
+1%
Finance against foreign bills 5 Lien over import documents 9.3 - 9.3 - 9.3
Overdue acceptance 5 Lien over import documents 5.6 - 5.6 - 5.6
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Payment against document 5 Lien over import documents 1.95 - 1.95 - 1.95
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Source: Management Information, Discussions with Management Date at w hich
*Payments received up to February 8, 2015 were adjusted from the outstanding exposure as at November 30, 2014 for the Date of Am ount of exposure w ould be
purpose of calculation of provision. Facility disbursem ent principal classified as loss Date of paym ent
P a ym e nt a ga ins t
29-Oct-14 1.95 27-A pr-15 No t yet due
Purpose of running finance : To facilitate working capital requirement.

Purpose of SBP export refinance–pre shipment II: To facilitate procurement
UN do c um e nt s
O v e r due a c c e pt a nc e
18-A ug-14
8-Sep-14
1.90
0.99
14-Feb-15
7-M ar-15
Rs 0.33 millio n have been
received. The remaining
amo unt hasn’ t been paid
No t yet due
of raw material. 9-Oct-14 1.18 7-A pr-15 No t yet due

16-Oct-14 1.90 14-A pr-15 No t yet due
Terms:
ED
Mark-up repayments in respect of running finance are given below:
SBP export refinance-pre shipment II: SBP rate + 1% payable by 180 days.
Date when mark-up was
Repayments: Repayment in respect of SBP export refinance-pre shipment II, during Due date of mark-up Amount of mark-up paid in full
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FY 2014, is given below: Rupees in million

31-Dec-13 0.61 28-Jan-14
LA
Date of Am ount of Due date of Date of 30-Mar-14 0.64 25-Apr-14

disbursem ent principal principal paym ent 30-Jun-14 0.59 19-Sep-14
Outstanding up to February 8,
Rupees in m illion 30-Sep-14
0.50 2015.
SP
17-M ar-14 92.50 13-Sep-14 1-Sep-14 Source: Management Information

10-Sep-14 92.50 9-M ar-15 No t yet due Finance against foreign bills amounting to Rs 9.3 million has subsequently been
Source: Management Information settled. Overdue acceptance and payment against documents amounting to Rs 5.6
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million and Rs 1.95 million, respectively, are outstanding till February 8, 2015.
96
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OR
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Financial information: Benefit calculation:
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Financial indicators Principal net
FY 2013 Benefit for Net Total benefit Principal of FSV
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first year FSV benefit available oustanding* benefit Provision
Current ratio 1.33
Debt to equity 0.03 Land 75% 57.52 43.14
Interest co ver 1.15 B uilding 75% 47.73 35.79 83.70 119.10 35.40 17.70
R upe e s in m illio n M achinery 30% 15.91 4.77
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P ro fit after tax 0.91
*net of foreign bills of Rs 9.3 million which have been cleared subsequent to November 30, 2014 .
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Source: Management Information, AFF Analysis Source: Management Information, AFF Analysis
As per Bank’s management, this account is considered highly risky as the Bank is the Subsequent classification:
sole banker of NI. Due to imposition of moratorium on the Bank, NI was not able to Running finance facility of NI was classified by the Bank as “substandard” on
UN
get its foreign bills discounted with the Bank which adversely impacted cash flows of
the company. As per Bank’s management, the non-availability of foreign bills
discounting facility and the inability to get inland LC (which was being utilized for
Recommendation:
procurement of raw material) has adversely impacted NI’s working capital cycle and As per the Prudential Regulations issued by the State Bank of Pakistan, subjective
ED
liquidity. Further, as per Bank’s management, the increased liquidity requirements are evaluation of performing and non-performing credit portfolio shall be made for risk
currently not being met by any other financial institution which has impacted NI’s assessment and, where considered necessary, any account including the performing
ability to service its debt on a timely basis. account will be classified, and the category of classification determined on the basis of
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Security structure:
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Facility Security account, adequacy of the security, inclusive of its realizable value and documentation
-Lien o ver do cuments
Finance against fo reign bill
Overdue acceptance Facto ry o f No va Internatio nal lo cated in secto r 7-A Ko rangi Industrial A rea We have proposed provision of Rs 17.7 million against the Bank’s exposure to NI
SP
P ayment against do cument has been mo rtgaged against the facilities. A s per the valuatio n repo rt o f taking into consideration the classification by the Bank of the running finance facility,
SB P E.R.F preshipment II Harvester Services (P vt) Limited, dated A pril 20, 2013, the FSV amo unts to non-payment of an overdue acceptance and impact on repayment capacity of the
Rs 121.153 millio n.
Running finance company due to non-availability of funding.
DI
97
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OR
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Eden Builders (Pvt.) Ltd. (“EBL”) As at November 30, 2014
UR
Facility Brief description of security Limit -funded
rating rate funded non-funded funded exposure collateral provision*
Secured through exclusive mortgage
Running finance 6 1Mk+3.5% 20.36 - 32 - 20.36
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of property
- 20.3
Letters of guarantee 6 - 4 - 4 4
of property
Source: Management Information, Discussions with Management grace period of 4 months. Installment of principal would commence from May 31,
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*Payments received up to February 8, 2015 were adjusted from the outstanding exposure as at November 30, 2014 for the 2014 and will end on June 30, 2015 whereas mark-up will be paid quarterly with no
purpose of calculation of provision. e of calculation of provision.
grace period.
DE
Purpose of guarantee: Guarantee of Rs 4 million issued in favour of Askari Bank Repayments:
for corporate credit cards provided to EBL. During our review, we noted that the customer makes late payments in respect of both
Background:
As per Bank’s management, the relationship with EBL commenced in April 2008
UN principal and mark-up.
Due date Am ount Due date Am ount

when running finance facility of Rs 32 million was extended to the company for
of of Principal Date Of of m ark- of m ark- Mark-up Date of
marketing and advertising of their new projects. As per Bank’s management, EBL was
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principal principal paid paym ent up up paid paym ent
regular in servicing mark-up as well as principal payments until 2011 when payments
-----Rupees in m illion-----
were delayed because of the cash flow constraints faced by the company. The account
31-M ay-14 2.035 2.035 20-A ug-14 31-Dec-13 0.929 0.929 3-Feb-14
was transferred to Special Assets Management division of the Bank due to non-
30-Jun-14 23-Sep-14 31-M ar-14 13-Jun-14
payment on March 31, 2012. In December 2013, the running finance was restructured 2.035 2.035 0.955 0.955
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30-Jul-14 27-Oct-14 30-Jun-14 30-Sep-14

and converted to demand finance with the following terms. At the time of this 2.035 2.035 0.972 0.972
LA
restructuring, outstanding principal amounted to Rs 28.49 million. 30-A ug-14 2.035 2.035 28-No v-14 30-Sep-14 0.945 0.945 26-Dec-14
30-Sep-14 2.035 2.035 26-Dec-14 31-Dec-14 0.756 - Unpaid
Pricing: 3MK + 3.5%. 30-Oct-14 2.035 2.035 21-Jan-15
Tenor: 18 months 30-No v-14 2.035 Outstanding as at February 8, 2015.

SP
31-Dec-14 2.035 Outstanding as at February 8, 2015.

Grace period: 4 months. 31-Jan-15 2.035 Outstanding as at February 8, 2015.
Repayment: In 14 equal monthly installments of Rs 2.035 million commencing after Source: Management Information
DI
98
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OR
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Financial information: Recommendation :
UR
Financial indicators As per the Prudential Regulations issued by the State Bank of Pakistan, subjective
FY 2013 evaluation of performing and non-performing credit portfolio shall be made for risk
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Current ratio 2.34
Debt to equity 0.01
Interest co ver 2.26
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P ro fit after tax 8.11
We have proposed provision of Rs 20.3 million on the basis that the customer is not
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complying with the terms of restructuring and, in case of default, the Bank may not be
Security structure: able to sell the property due to issues specified in the site report.
• Token registered mortgage of Rs 0.1 million along with equitable mortgage of We are aware that another bank has classified its exposure against EBL as “non-
UN
property located at Khanpur, Lahore. As per the valuation report dated May 17, 2013
of K.G Traders (Pvt) Ltd., FSV of the property amounts to Rs 309.196 million.
performing”.
However, as per the site report dated December 3, 2013, a total of 347 houses have
been constructed on the land mortgaged with the Bank and there is no free space left.
ED
As per this site report, all houses are occupied with residents.
• Personal guarantee of sponsor directors.
Y
LA
SP
DI
99
R
DE
OR
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Colony Mills Ltd. (“CML”) As at November 30, 2014
UR
-----------------------------Rupees in million --------------------------------
Secured through ranking charge over
Running finance 5 3MK+2.5% 49.66 - 50 - 49.66 - 49.66
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current assets.
Source: Management Information, Discussions with Management Repayments:

Purpose :To finance working capital requirements.
Terms: 3MK+2.5%. Mark-up payable on a quarterly basis. Due date of Am ount of
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m ark-up m ark-up Date of paym ent
CML, which is a spinning unit, and Colony Industries (Private) Ltd. (CIL), which is a ----Rupees in m illion----
DE
weaving unit, merged into Colony Textile Mills Limited (CTL) with effect from July 1, 31-Dec-13 1.49 31-M ar-14
2013. The Bank has the following exposures against CML and CIL. 31-M ar-14 1.54 3-Jul-14
30-Jun-14 1.57 9-Dec-14
Facility
UN
Classification Outstanding
Provision
held
30-Sep-14 1.59 Outstanding till February 8, 2015
---------Rupees in m illion--------- Source: Management Information

We noted that last payment in respect of principal against the running finance facility
ED
Demand finance 366.86 328.99
Co lo ny Industries
Running finance Lo ss 50.00 50.00 was made by CML on September 28, 2010. As per Bank’s Management, since CIL was
(P rivate) Limited
Term finance 269.03 269.03 classified in June 2012, a trust deficit has developed between Bank and CML and CML
Co lo ny M ills Limited Running finance Regular 49.66 - has stopped turnover in the running finance facility.
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T o tal 7 3 5 .5 5 6 4 8 .0 2
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Therefore, subsequent to the merger, consolidated exposure against CTL amounted to

Rs 735.55 million out of which Rs 685.89 million was classified as “loss” and the
remaining Rs 49.66 million was classified as “regular”.
SP
DI
100
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DE
OR
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Financial information: Security structure:
UR
Financial indicators • Pari passu charge of Rs 133 million over current assets of the company.
Three m onths • Personal guarantee of Mr. Fareed M Sheikh.
ended Septem ber
CML was classified by the bank as “substandard” on December 31, 2014 due to
CO
FY 2014 30, 2014
Current ratio 0.82 0.81 overdue mark-up.
Debt to equity 0.50 0.51
Interest co ver 0.77 0.59 Recommendation:
- - - - R upe e s in m illio n- - - -
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Operating cashflo ws 1,628.19 302.08
P ro fit after tax (234.28) (150.77)
DE
Source: Public Information, AFF Analysis assessment and, where considered necessary, any account including the performing
As per first quarterly report of FY 2015, CTL has curtailed production as raw material time based criteria shall be further downgraded. Such evaluation shall be carried out
prices were high and textile prices and demand were sluggish. Further, as per this on the basis of credit worthiness of the borrower, its cash flow, operation in the
report, dumping of textile products by Indian and Chinese manufacturers also
impacted the company. In addition, the shortage of gas and electricity along with
UN account, adequacy of the security, inclusive of its realizable value and documentation
increase in tariffs, poor law and order situation and inflationary trend in general price
level have had an adverse impact on the business. We have proposed provision of Rs 49.66 million on the basis of the following:
ED
• other facilities are already classified as “Loss”.
eCIB of CML as at November 30, 2014 highlights past due 90 days of Rs 509.538 • Payment has not been made by the customer against principal for a number of
million and past due 360 days of Rs 1,118.245 million. years.
• financial performance of CTL is weak.
Y
LA
Running finance facility of CML was classified as “substandard” by the Bank on

SP
DI
101
R
DE
OR
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Abdur Rafiq (“AR”) As at November 30, 2014
UR
ORR Mark-up Outstanding- Outstanding- Limit-non- Total Benefit of Recommended
Facility Brief description of security Limit–funded
Rating rate funded non-funded funded exposure collateral provision*
-------------------------------------------------------Rupees in million -------------------------------------------------------
Demand finance 10 1MK+1% Pledge of shares 120.36 - 169.92 - 120.36 - 13.2
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As per Bank’s Management, AR and TP filed a suit against the Bank on May 25, 2009
purpose of calculation of provision. and obtained a stay order against settlement of their deposits against Dandot Cement
Company Ltd.’s loan. To resolve the dispute, a settlement was reached between the
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Bank and AR on February 14, 2013. The amounts owed to the Bank at the time of
Background:
settlement were as follows:
DE
AR availed running finance facility from the Bank in 2007. The purpose of the running
finance facility was to invest in liquid securities. The limit of the facility was Rs 170 Principal Mark-up Am ount Classification
million. The facility was priced at 3-month KIBOR +3.5% and was secured against -------------Rupees in m illion-------------
pledge of shares. As per Bank’s Management, AR defaulted on March 31, 2009 when Gharibwal Cement 227.48 136.51 364.00 Lo ss
mark-up due of Rs 5.28 million was not paid and subsequently the account was UN
classified as “loss”. As per Bank’s Management, the borrower defaulted due to the
stock market crisis of 2008. It is pertinent to mention that the Bank had also extended
Dando t Cement
A bdur Rafique
290.00
169.92
23.09
23.09
313.09
193.01
Lo ss
Lo ss

finance facilities to Dandot Cement Company Ltd. which were secured against lien
ED
over Abdur Rafiq “AR” and Tauseef Peracha's “TP” deposits held with the Bank. Both Terms of settlements were:
AR and TP were directors and shareholders of Dandot Cement Company Ltd. at that
time i.e. May 25, 2007. As per Bank’s Management, subsequent to the sale of their • withdrawal of cases by AR and TP against the Bank and grant of no-objection to
shareholding and change of management in Dandot Cement Company Ltd. on June the Bank in respect of utilization of their deposits for partial adjustment against
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01, 2007, AR and TP requested for settlement of their deposits against liabilities of facilities provided to Gharibwal Cement limited.
Gharibwal Cement Ltd., a company in which they were directors and majority
LA
• loan facility provided to AR would be restructured.

shareholders, instead of Dandot Cement Company Limited. This request was not
accepted by the Bank.
SP
DI
102
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OR
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Consequently, the running finance to AR was restructured and converted to a demand Security structure:
UR
finance facility. Some of the key terms of the restructuring are given below:
Price on Market value as Average
• the tenor of the term finance facility shall be 6 years from initiation. Num ber of Novem ber at Novem ber 30, volum e per
Particulars shares 30, 2014 2014 day*
CO
• the facility shall be priced at 1-month KIBOR + 1%.
----------Rupees----------
• principal shall be repayable in 72 equal monthly instalments of Rs 2.36 million Gharibwal Cement Limited 25,217,630 17.25 435,004,118 41,429
each with repayments commencing from March 2013.
*Average volume per day for the period from January 1, 2014 to November 30, 2014
• accrued mark-up on the facility for the overall term i.e. 6 years from the date of
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initiation up to maturity date, shall be payable in the seventh year in 12 equal Source: Management Information, AFF Analysis, Public Information
monthly instalments.
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Recommendation:
• the facility shall be secured against pledge of 25.217 million shares of Gharibwal
Cement Limited. As per the Prudential Regulations issued by the State Bank of Pakistan, subjective
Repayments:
•
UN
Since restructuring, 21 principal repayments amounting, in aggregate, to Rs 49.56
million have been paid by the borrower. Mark-up accrued as at November 30, 2014
amounts to Rs 20.049 million.
ED

In this connection, we considered classification of this exposure to “substandard” in
respect of which provision of 25% is required to be made under the Prudential
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Regulations. In addition, we carried out an analysis based on the present value of

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expected cash flows discounted at the original effective interest rate. In this regard,
the amount of provision works out to Rs 13.2 million which is lower than the provision
determined at the rate of 25% on the subjective classification of the exposure to
“substandard”. After consideration of the above, we have proposed the lower provision
SP
of Rs 13.2 million against the Bank’s exposure to this customer.

DI
103
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DE
OR
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Arif Ali Shah Bukhari (“AASB”) As at November 30, 2014
UR
ORR Outstanding- Outstanding- Limit – Limit -non- Total Benefit of Recommended
Facility rating Brief description of security funded non-funded funded funded exposure** collateral provision*
--------------------------------------------------Rupees in million--------------------------------------------------
Letters of guarantee No security - 37.8 - 38.3 20.53 - 20.53
CO
*Expired guarantee of Rs 17.27 million was excluded for the purpose of calculation of provision.
The funded exposure of the Bank to AASB, amounting to Rs 248.477 million, is
Purpose: Guarantee of 1% demand note for KASB Altitude and KASB Sky View’s
classified as “loss”.
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Constructions.
Recommendation:
DE
Beneficiary: The LG was issued in favour of Karachi Building Control Authority
“KBCA” As per the Prudential Regulations issued by the State Bank of Pakistan, subjective
Observations: Two of the letters of guarantee have expired. These letters were last
UN
renewed on March 31, 2010. The expired guarantees are being reported in the loan
portfolio because the original instrument has not been returned by the beneficiary
(KBCA). Expired guarantees amount to Rs 17.27 million.
The break-up of outstanding guarantees is given below: account, adequacy of the security, inclusive of its realizable value and documentation
ED
Rupees in m illion
Karachi B uilding Co ntro l A utho rity 19-Dec-07 31-Dec-13 8.63 We have proposed provision of Rs 20.53 million against the non-funded exposure of
Karachi B uilding Co ntro l A utho rity 25-Feb-10 31-Dec-13 8.64 the Bank to AASB in view of classification of the total outstanding funded exposure by
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Karachi B uilding Co ntro l A utho rity 22-Jul-09 31-Dec-15 20.54 the Bank as “loss”.
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SP
DI
104
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DE
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Haji Ghani As at November 30, 2014
UR
-------------------------------------------------------Rupees in million-------------------------------------------------------
Demand finance 6 7.5% Pledge of shares 69.1 - 118.5 - 69.1 - 3.8
CO
*Payments received up to February 8, 2015 were adjusted from the outstanding exposure as at November 30, 2014 for the The break-up of shares pledged by Haji Ghani with the Bank, as per the CDC
statement dated November 30, 2014, is given below:
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Background:
As per Bank’s Management, the customer was initially granted a running finance Market value Market value Average per
DE
per share as at as at day volume
facility. In March 2012, the Bank entered into a restructuring arrangement with Haji Number of
Description November 30, November 30, during the
Ghani and the running finance facility was converted to a demand finance of Rs shares
2014 2014 period
158.439 million. Under the terms of restructuring, the demand finance was repayable (Rupees) (Rupees)
7.5% from June 30, 2012 to March 31, 2016.

UN
in 16 quarterly instalments of Rs 9.9 million each along with mark-up at the rate of Hum Network Ltd. (“HNL”)*
Javedan Corporation Ltd.
Al-Abbas Sugar Mills Ltd.
2,500,000
1,500,000
350,000
14.54
26.26
141.58
36,350,000
39,390,000
49,553,000
7,433,629
69,183
5,846
We noted that the customer was making payments in accordance with the
restructuring agreement. Source: Management Information, AFF Analysis, Public Information
ED
The repayments made during the year are summarised below: *250,000 shares of HNL were initially pledged with the Bank. Subsequent to a share split in the ratio of 10
shares for each share outstanding, the number of shares of HNL pledged with the Bank increased to
Due date of principal Amount of Amount of mark- 2,500,000. Average trading volume per day for the period from November 20, 2014 (share split date) till
Date of payment November 30, 2014 has been used for the analysis.
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and mark-up principal due up

Average trading volume per day in respect of Javedan Corporation Limited and Al-Abbas Sugar
-----Rupees in million----- Mills Limited relates to the period from January 1, 2014 to November 30, 2014
LA
March 26, 2014, March 27, 2014 and

December 31, 2013 9.905 2.04
March 28, 2014 The facility is classified under the “watch list” category.
March 31, 2014 9.905 1.82 June 20, 2014
June 30, 2014 9.905 1.64 September 12, 2014
SP
September 30, 2014 9.905 1.46 December 24, 2014

DI
105
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Recommendation:
UR
assessment and, where considered necessary, any account including the performing account
CO
will be classified, and the category of classification determined on the basis of time based
criteria shall be further downgraded. Such evaluation shall be carried out on the basis of
credit worthiness of the borrower, its cash flow, operation in the account, adequacy of the
security, inclusive of its realizable value and documentation covering the advances.
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In this connection, we considered classification of this exposure to “substandard” in respect
of which provision of 25% is required to be made under the Prudential Regulation. In
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addition, we carried out an analysis based on the present value of expected cash flows
discounted at the original effective interest rate. In this regard, the amount of provision
works out to Rs 3.8 million which is lower than the provision determined at the rate of 25%
on the subjective classification of the exposure to “substandard”. After consideration of the
UN
above, we have proposed the lower provision of Rs 3.8 million against the Bank’s exposure
to this customer.
Y ED
LA
SP
DI
106
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DE
OR
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Dewan Muhammad Yousuf As at November 30, 2014
UR
ORR Mark-up Outstanding- Outstanding- Limit - Limit -non- Total Benefit of Recommended
Facility Brief description of security
rating rate funded non-funded funded funded exposure collateral provision*
------------------------------------------Rupees in million ------------------------------------------
Running finance 10 0% Pledge of shares 159 - 159 - 159 - 22.4
CO
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Background: As per information provided by the Bank, Mr Dewan was • 25th installment of Rs 8.509 million.
provided a running finance facility on June 28, 2007 with a limit of Rs 500
• bank would not charge interest on the outstanding principal;
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million and pricing based on 3-Months KIBOR + 3.5%. The purpose of the loan
was to make investments in stocks, mutual funds and commodities. The facility • bank would write-off the interest amount of Rs 16.243 million; and
was for a term of one year and was secured against pledge of shares of Dewan
• bank would release the pledged shares after receipt of Rs 388.385 million.
group companies. As per information provided by Bank’s Management, Mr
Dewan defaulted on December 31, 2008. The outstanding principal at this time
UN
was Rs 406.57 million. Subsequently, the facility was classified and the Bank filed
The eCIB report as at November 30, 2014, in respect of Mr Dewan, highlighted a
balance of Rs 130 million which is over due by over 90 days .
a suit against Mr Dewan for recovery of the outstanding balance. The Bank also
sold some of the pledged shares for Rs 18.174 million and adjusted the proceeds
ED
against the outstanding principal. Mr Dewan wrote a letter to the Bank on

November 10, 2010 for restructuring of the facility. Thereafter, both parties
entered into an out of court settlement agreement. According to this agreement:
Y
• Mr Dewan was required to pay Rs 388.509 million as full and final settlement
LA
of liabilities as follows:
• Rs 20 million as down payment on or before December 31, 2010;
SP
• balance amount of Rs 368.509 million in 25 quarterly instalments starting

from June 2011 as follows:
• 24 equal quarterly instalments of Rs 15 million each starting from June
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2011; and
107
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DE
OR
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The break-up of shares pledged by Mr Dewan with the Bank, as per CDC statement dated November 30, 2014 is given below:
UR
Market value per
Market value as
Number of share as at Average trading
Description at November 30,
CO
shares November 30, volume per day*
2014
2014
Dewan Cement Limited 29,087,633 7.39 214,957,608 1,870,538
Dewan Farooq Motors Limited 1,533,893 8.63 13,237,497 2,300,917
Dewan Khalid Textile Mills Limited 1,262,740 10.48 13,233,515 2,958
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Dewan Mushtaq Textile Mills Limited 510,385 7.6 3,878,926 2,098
Dewan Salman Fibre Limited 8,916,076 1.85 16,494,741 799,047
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Dewan Sugar Mills Limited 4,667,711 3.9 18,204,073 87,989
Dewan Textile Mills Limited 3,516,595 9.29 32,669,168 12,712
Source: Management Information, AFF Analysis, Public Information
UN
*This represents average trading volume per day during the period from January 1, 2014 till November 30, 2014.
Recommendation:
ED
As per the Prudential Regulations issued by the State Bank of Pakistan, subjective evaluation of performing and non-performing credit portfolio shall be made for
risk assessment and, where considered necessary, any account including the performing account will be classified, and the category of classification determined on
the basis of time based criteria shall be further downgraded. Such evaluation shall be carried out on the basis of credit worthiness of the borrower, its cash flow,
operation in the account, adequacy of the security, inclusive of its realizable value and documentation covering the advances.
Y
In this connection, we considered classification of this exposure to “substandard” in respect of which provision of 25% is required to be made under the Prudential
LA
Regulation. In addition, we, carried out an analysis based on the present value of expected cash flows discounted at the original effective interest rate. In this regard,
the amount of provision works out to Rs 22.4 million which is lower than the provision determined at the rate of 25% on the subjective classification of the exposure
to “substandard”. After consideration of the above, we have proposed the lower provision of Rs 22.4 million against the Bank’s exposure to this customer.
SP
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108
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OR
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MACCA SUGAR MILLS PVT. LTD (“MSMP”) As at November 30, 2014
UR
Rupees in
million
CO
Pari passu charge secured through
Cash finance 5 3MK+3% exclusive sharing of security (pledge 40 - 50 - 40 16.31 11.9
of sugar bags and pari passu charge).
Source: Management Information, Discussions with Management Financial information:

Purpose of cash finance: For procurement of sugar cane to be converted into
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refined sugar. Financial indicators
FY 2013
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Repayments: Current ratio 1.09
Debt to equity 0.03
D at e o f A mo unt o f M ark- up due D at e o f Interest cover 1.19
disbursal principal
R upees in
millio n
D ue dat e D at e o f payment UN dat e A mo unt
R upees
in millio n
payment
Operating cashflow s
Profit after tax
----Rupees in m illion----
(90.67)
6.50
Rs 10 million paid on April 2, 2014.
ED
The remaining amount is still
28-Feb-14 26.00 27-Aug-14 outstanding as at February 8, 2015
4-M ar-14 7.50 31-Aug-14 Outstanding as at February 8, 2015 Bank’s analysis:

6-M ar-14 5.20 2-Sep-14 Outstanding as at February 8, 2015 31-M ar-14 0.50 30-Apr-14 As per Bank’s Management, the company is working with the Bank since 2009.
Y
7-M ar-14 5.20 3-Sep-14 Outstanding as at February 8, 2015 30-Jun-14 1.32 22-Sep-14 “MSMP” is a part of Macca Group which includes three sugar mills including Haq
LA
10-M ar-14 6.10 6-Sep-14 Outstanding as at February 8, 2015 30-Sep-14 1.33 3-Dec-14 Bahu Sugar Mills (Pvt.) Ltd. and Abdullah Shah Ghazi Sugar Mills Ltd.
Source: Management Information The Bank’s Management has informed us that MSMP is facing difficulties in
managing its cash flows as new financing has not been made available by the
SP
Bank. As per Management Information, the customer will not be able to repay the
outstanding amount as it is the peak sugarcane crushing season which requires
additional funding to operate.
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109
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Security structure:
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Pledge of sugar bags with 25% margin held at factory premises under exclusive
control of Bank’s approved Macaddam. Pari passu charge over current assets for
Rs 67 million.
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P rinc ipa l
Be ne fit for V a lue a s pe r Ne t Tota l be ne fit P rinc ipa l ne t of FS V
first ye a r stoc k re port be ne fit a va ila ble outsta nding be ne fit P rovision
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P ledge o f
16.31 40.00 23.69 11.85
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sto ck 40% 40.77 16.31
Source: Management Information, AFF Analysis,
Cash finance facility of MSMP was classified as “substandard” by the Bank on
December 31, 2014 due to overdue principal of more then 90 days.
UN
Recommendation:
ED
evaluation of performing and non-performing credit portfolio shall be made for
risk assessment and, where considered necessary, any account including the
Y
performing account will be classified, and the category of classification

determined on the basis of time based criteria shall be further downgraded. Such
LA
evaluation shall be carried out on the basis of credit worthiness of the borrower,
its cash flow, operation in the account, adequacy of the security, inclusive of its
realizable value and documentation covering the advances.
SP
We have proposed a provision of Rs 11.9 million against this customer as its cash
finance is already overdue by more than 180 days.
DI
110
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DE
OR
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MOON CNG STATION (“MCS”) As at November 30, 2014
UR
ORR Mark-up Outstanding- Outstanding- Limit - non- Total Benefit of Recommended
Facility Brief description of security Limit - funded
Letters of guarantee 5 - Secured through exclusive mortgage - 3.95 - 3.95 2.8 -
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45.63
Demand finance 5 19% of property 2.38 - 2.8 - 2.38 -
Purpose of Letters of Guarantee: In lieu of security deposit for gas Collateral:
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connection provided by SNGPL.
• TRM of Rs 1 million and equitable mortgage of Moon CNG stations, land and
Background: building measuring 2 kanal 18 marlas 1 sarsai. The property has a market
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value of Rs 71.578 million and FSV of Rs 60.841 million as per valuation
Guarantee claim of SNGPL was encashed which amounted to Rs 2.8 million.
report dated January 23, 2015.
MCS had cash collateral of Rs 0.42 million which was adjusted when the
guarantee claim was encashed and the remaining amount of Rs 2.38 million was Benefit calculation:
treated as a demand finance.
UN
As per Management Information, MCS had a dispute with SNGPL over billing of
Rupees
in m illion
Benefit
for first
Value as
per stock Net Total benefit Principal
Principal net
of FSV
year report* benefit available outstanding benefit Provision
sui gas used in its CNG station which resulted in a court case. The court granted
ED
La nd a nd
MCS a stay order. On vacation of the stay order, the Bank was required by building 75% 6 0 .8 4 4 5 .6 3
4 5 .6 3 2 .8 0 - -
SNGPL to encash the guarantee.

Source: Management Information, AFF Analysis,
Bank’s analysis:
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As per Bank’s Management, the CNG station is closed, however, the customer
LA
belongs to a rich family and have other businesses like sale/purchase of

new/used vehicles, rikshaws, property dealer etc. and therefore, will be able to
repay the amount.
SP
DI
111
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DE
OR
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Majeed CNG Filling Station (“MCFS”) As at November 30, 2014
UR
Facility Brief description of security Limit - funded
Letters of guarantee 4 - - 4 - 6.2 4 22.86 -
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of property
Purpose of Letters of Guarantee: In lieu of security deposit for gas Value as

connection provided by SNGPL.
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Benefit per Principal
Rupees in for first valuation Net Total benefit Principal net of FSV
As per Management Information, due to closure of business during peak winter
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million year report benefit available outstanding benefit Provision
season, customer decided to discontinue CNG filling business and requested
SNGPL to discontinue their gas connection. However, a dispute arose between Source: Management Information, AFF Analysis,
the parties.
SNGPL approached the Bank on December 20, 2012 with a request for
UN
encashment of guarantee. The customer filed a complaint against SNGPL and the
court issued a stay order against encashment of guarantee.
ED
As per the Risk department of the Bank, guarantee of MCFS has not been
encashed by the Bank as the case is pending in the court.
Security structure:
Y
Total cash margin held under lien is Rs 0.58 million.

LA
Collateral:
Registered mortgage of Rs 2.00 million and equitable mortgage of Majeed CNG
SP
Station (land & building). The property has market value of Rs 35.883 million
and FSV of Rs 30.484 million as per valuation report dated January 23, 2015.
DI
112
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DE
OR
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Duraid Qureshi As at November 30, 2014
UR
Outstan
Limit - Benefit
ORR Outstanding ding- Limit – Total Recommende
Facility Mark-up rate Brief description of security non- of
rating -funded non- funded exposure d provision
funded collateral
funded
CO
Rupees in
million
Demand finance 6 3% Pledge of shares 62 - 71 - - - 3.7
*Payments received up to February 8, 2015 were adjusted from the outstanding exposure as at November 30, 2014 for the . As per the terms of restructuring:
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purpose of calculation of provision.
Background: A running finance facility was provided to Mr Duraid in May 2008 to • The principal would be paid through monthly instalments of Rs 2.5 million each
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facilitate the acquisition of shares of Hum Network Limited (“HNL”) (previously Eye from January 2012 through assignment of salary of Mr Duraid and Mrs Sultana.
Television Network Limited (“ETNL”)). The facility had a limit of Rs 200 million, was Further, the annual bonuses would be used to reduce the principal.
priced at 1-month KIBOR + 2.0% and had an expiry of one month. The facility was • Token payment of Rs 30 million would be paid by Mr Duraid as adjustment of
secured against pledge of HNL shares. The facility was extended for a period of six
months from July 2008 to December 2008 at a rate of 6-months KIBOR +1%.
UN
Subsequently, the expiry date of the facility was extended to June 2009 and its limit
principal. This payment was to be made in equal instalments of Rs 10 million each
in December 2011, January 2012 and February 2012.
was reduced from Rs 200 million to Rs 174 million. The mark-up rate was revised to • mark-up to be charged for the year 2011.
3-months KIBOR + 2.25%. Security structure was also revised and hypothecation of
• Mark-up rate, with effect from January 2012, to be 3% on the outstanding loan,
ED
personal assets worth Rs 250 million was also obtained as security. The shares of
which will be payable on a bi-annual basis.
HNL became additional collateral. In addition, shares of Javedan
Corporation and Al Abbas Sugar Mills Limited were also obtained as collateral. In • 2,930,200 shares (29,302,000 after share split) of HNL will be pledged with the
June 2009, the facility was further renewed till December 2009. At this time, the Bank.
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outstanding amount was Rs 148.10 million. The facility was again renewed in
Repayments: We noted that Mr Duraid has made regular payments in accordance
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December 2009 till December 2010. However, in February 2010, the facility was
with the terms of the restructuring agreement. Mark-up has been serviced as follows:
enhanced from Rs 148.10 million to Rs 188.17 million at 3-months KIBOR +1%.
Due date of mark-up Amount of mark-up Date of payment
According to the Management, the customer regularly serviced mark-up till
SP
December 2010. Rupees in million

January 1, 2014 1.56 January 22, 2014
Mr Duraid entered into a restructuring arrangement with the Bank in 2011. Under the
June 30, 2014 1.21 September 10, 2014
arrangement, the short term running finance facility, amounting to Rs 187.77 million,
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was converted to along term loan with a maturity of 4.5 years.
113
R
DE
OR
T
No lien is marked in any account with the Bank, however, a letter of undertaking of Hum TV Network Limited is on record for transfer of installment from Mr Duraid’s salary.
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The break-up of shares pledged by Mr Duraid with the Bank as per the CDC statement dated November 30, 2014 is given below:
Market value per Average volume
Market value as at
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Description Number of shares share as at per day during the Status of pledge documentation
November 30, 2014
November 30, 2014 period*
Hum Network Limited (“HNL”) 29,302,000* 14.54 426,051,080 7,433,629 CDC pledgee report, shares appearing in pledgee account.
Javedan Corporation Limited - - - - Not appearing in the CDC pledgee report.
Al Abbas Sugar Mills Limited - - - - Not appearing in the CDC pledgee report.
R
DE
*2,930,200 shares of HNL were initially pledged with the Bank. Subsequent to a share split in the ratio of 10 shares for each share outstanding, the number of shares of HNL pledged with the Bank have increased to
29,302,000.
** This represents average trading volume per day during the period from January 1, 2014 till November 30, 2014.
Recommendation:
UN
As per the Prudential Regulations issued by the State Bank of Pakistan, subjective evaluation of performing and non-performing credit portfolio shall be made for risk
assessment and, where considered necessary, any account including the performing account will be classified, and the category of classification determined on the basis of time
ED
based criteria shall be further downgraded. Such evaluation shall be carried out on the basis of credit worthiness of the borrower, its cash flow, operation in the account,
adequacy of the security, inclusive of its realizable value and documentation covering the advances.
In this connection, we considered classification of this exposure to “substandard” in respect of which provision of 25% is required to be made under the Prudential Regulations.
Y
In addition, we carried out an analysis based on the present value of expected cash flows discounted at the original effective interest rate. In this regard, the amount of provision
works out to Rs 3.7 million which is lower than the provision determined at the rate of 25% on the subjective classification of the exposure to “substandard”. After consideration
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of the above, we have proposed the lower provision of Rs 3.7 million against the Bank’s exposure to this customer.
SP
DI
114
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DE
OR
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NEW ASIA WOOLEN MILLS (“NAWM”) As at November 30, 2014
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Limit -
ORR Outstanding- Outstanding- Limit - Total Benefit of Recommended
Facility Mark-up rate Brief description of security non-
rating funded non-funded funded exposure collateral provision
funded
Rupees in
-------------------------Rupees in million------------------------
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million
Secured through charge over fixed assets
Cash finance 5 50 50 - 50
6MK+3.75% (sharing of security) 59.67
-
Overdue -
5 22.06 150 - 22.06
acceptances
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DE
Purpose of cash finance: To finance working capital requirements. Payment history of acceptance is as follows:
Terms of cash finance: Tenor of 120 days and mark-up payable quarterly at
3MK+3%. Due date Am ount Date of paym ent
Rupees in m illion
Repayments:
Mark-up payments made during the year are given below:
UN 7-M ar-14
12-M ay-14
25-Jun-14
3.16
19.53
12.22
7-M ar-14
6-No v-14
14-Jan-15
8-Jul-14 12.91 1-Feb-15
ED
Due date of m ark-up Amount of m ark-up Date of paym ent
--Rupees in m illion--
30-Jun-14 1.01 23-Sep-14
30-Sep-14 1.66 11-No v-14
Y

As per Bank’s Management, the company is managing its cash flow and making
LA
Date of disbursal Amount Due date Date of paym ent repayments to those banks that are providing them with further trade facilities.
Reduced to Rs 31.696 millio n
SP
5-M ay-14 50 2-Sep-14 as at February 8, 2015

DI
115
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DE
OR
T
• As per Bank’s Management, the Bank expects regularisation of account upon
UR
restoration of facilities after the moratorium.
Security structure:
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Facility Security
Cash finance
• Pledge of goods.
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Overdue acceptance • Pledge over imported goods.
DE
Collateral:
•
UN
First exclusive charge of Rs 75 million over plant and machinery.
Cash finance facility of NAWM was classified as “substandard” by the Bank on

ED
December 31, 2014 due to overdue principal of more then 90 days.
Y
FSV as per Value as Principal

LA
Benefit for valuation per stock Net Total benefit Principal net of
first year report report benefit available outstanding benefit Provision
SP
M achinery 75% 52.50 - 39.38

60.36 31.69 - -
P ledge 40% - 52.47 20.99

DI
116
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DE
Additional provision of Rs 1,141.3 million and Rs 205.8 million is recommended against
OR
non-performing loans in the Non-Consumer portfolio and Consumer portfolio,
respectively
T
UR
Additional provision recommended against non-performing loans in the Non-Consumer portfolio
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Description recommended
Provision not made against Dewan Cement Limited, Dewan Salman Fibres Limited and Agritech Limited due to relaxation provided by SBP 252.9
Additional provision recommended against benefit availed in respect of shares pledged with the Bank for loans provided to Colony Industries (Private) Limited, Mansoor 284.0
Rashid and Salman Taseer.
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Additional provision recommended in respect of Abdullah Brothers, Malik and Sons and M Iqbal and Sons as the amount of FSV considered by the Bank, is incorrect. 5.2
Additional provision recommended in respect of benefit availed by the Bank on the basis of pledge stock report which is more than six months old, in respect of loan provided
18.0
DE
to AZM Chemical Company.
Additional provision recommended in respect of IKMA Builders and Developers and Arif Ali Shah Bukhari as the Bank has incorrectly availed FSV benefit in the absence of
58.4
documents mentioned in legal opinion.
Additional provision recommended in respect of benefit availed against specialised plant and machinery and related assets in respect of loans provided to Byco Petroleum
360.2
FSV benefit expiring in 2014.

UN
Pakistan Limited, Telecard Limited, Agritech Limited, Azgard Limited and Pakistan Telephone Cables Limited.
Benefit availed in respect of pledged stock and leased assets of Gulistan Group. 153.0
9.6
1, 14 1. 3
ED
Additional provision recommended against non-performing loans in the Consumer portfolio

Y
Description recom m ended

LA
As per Prudential Regulations for SME financing, a full- scope valuation is valid for 3 years from the date of last full- scope valuation. In addition, desktop valuations may only 205.8
be used to update provisions. If a full- scope valuation expires, a desktop valuation cannot be used to take benefit of FSV. The amount of benefit availed by the Bank in
respect of "Karobar Asaan" amounts to Rs 211.95 million as at November 30, 2014. However, we noted that FSV benefit of Rs 205.8 million is based on valuation reports which
are more than 3 years old as at November 30, 2014.
SP

DI
117
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DE
FSV benefit availed by the Bank relating to Non-Consumer portfolio is not available for
OR
payment of cash or stock dividend or bonus to employees. FSV benefit availed by the Bank
relating to Consumer portfolio is not available for payment of cash or stock dividend
T
As per Prudential Regulations for Corporate/Commercial Banking, FSV As per Prudential Regulations for Consumer financing, FSV benefit in
UR
benefit relating to land and building is not available after expiry of 5 years respect of mortgage of land and building is not available after expiry of 5
from the date of classification. In respect of pledged stock and plant and years from the date of classification. FSV benefit availed by the Bank against
machinery, FSV benefit is not available after expiry of 3 years from the date non-performing loans relating to ‘Ghar Asaan’ amounts to Rs 128.34
CO
of classification. million. The expiry of this benefit is given below:
FSV benefit availed by the Bank and relaxation of provisioning requirement
Consumer
against non-performing loans in the Non-Consumer portfolio amounts, in Year of expiry Amount of FSV benefit availed as at
aggregate, to Rs 1,775.21 million as at November 30, 2014.
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of FSV benefit November 30, 2014
(Rupees in million)
The expiry of the benefit of FSV of collateral availed by the Bank (other than 2015 25.07
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the benefit availed against which we have recommended a provision and 2016 25.71
benefit availed in respect of pledged shares and deposits under lien), is given 2017 and 77.56
beyond
below:
Year of expiry
Non-Consumer
Amount of FSV benefit availed as at
UN Total 128.34
Management Information, AFF Analysis
of FSV benefit November 30, 2014

(Rupees in million) Under the Prudential Regulations, the additional impact on profitability
ED
2015 87.41 arising from availing the benefit of FSV relating to Consumer portfolio is
2016 314.72 not available for payment of cash or stock dividend.
2017 and 201.66
beyond
Y
Total 603.79
LA
Under the Prudential Regulations, the additional impact on profitability

arising from availing the benefit of FSV relating to the Non-Consumer
SP
portfolio is not available for payment of cash or stock dividend or bonus to

employees.
DI
118
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DE
Additional provision amounting, in aggregate, to Rs 252.942 million has been recommended
OR
in respect of Dewan Cement Limited, Dewan Salman Fibres Limited and Agritech Limited.
This provision was not made by the Bank due to relaxation granted by SBP
T
Name of Category of Outstanding FSV benefit Provision held Remarks Additional provision
UR
customer classification principal (Rupees availed (Rupees in recommended
in million) million)
Dewan Cement Loss 250 - 165 SBP granted a relaxation to the Bank vide its letter number BSD/BRP-1/00205/2012, dated 85.000
Limited February 14, 2012, regarding provisioning against facilities provided to the Dewan Mushtaq
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Dewan Salman Loss 672.115 - 604.903 Group (“DMG”) companies. SBP allowed such treatment on the application of the Bank to 67.212
Fibres Limited restrict the provision against the DMG companies at the level of 60% of the outstanding
principal. However, in its above letter, SBP instructed the Bank to maintain provision against
the DMG companies at the level held by the Bank as at the aforementioned date and did not
allow reversal of provision. We recommend additional provision against the balance amount
against which provision has not been made by the Bank due to the above relaxation granted
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by SBP.
Agritech Limited Loss 399.999 19.423 279.846 SBP provided a relaxation to the Bank in respect of provision required to be held against 100.73
DE
Agritech Limited. In this regard, provision for the amount of principal less FSV benefit, if any,
was required to be made in the following manner:
• Up to June 30, 2014 – 65% of the required provision.
• Up to September 30, 2014 – 70% of the required provision.
• Up to December 31, 2014 – 75% of the required provision.
UN •
•
•
•
Up to March 31, 2015 – 80% of the required provision.
Up to June 30, 2015 – 85% of the required provision.
Up to September 30, 2015 – 90% of the required provision.
Up to December 31, 2015 – 100% of the required provision.
We recommend additional provision against the balance amount against which provision has
ED
not been made by the Bank due to the above relaxation provided by SBP.
252.942
Y

LA
SP
DI
119
R
DE
Additional provision amounting, in aggregate, to Rs 284.044 million has been
OR
recommended in respect of Colony Industries (Private) Limited, Mansoor
Rasheed and Salman Taseer
T
Name of Category of Outstanding Benefit Provision Details in respect of pledge of shares Remarks Additional
UR
customer classification principal availed in held Name of Number of Market Market Market provision /
(Rupees in respect of (Rupees in scrip shares value per value as value as at (reversal in
million) pledge of million) pledged share as at September provision)
shares at November 30, 2014 recommended
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(Rupees in November 30, 2014 (Rupees in (Rupees in
million) 30, 2014 (Rupees million) million)
in million)
Colony Loss 685.888 37.869 648.019 Colony 350,000 8.41 2.944 2.461 The average trading volume per day in KSE in respect of this (0.483)
Industries Sugar Mills scrip was 78,348 shares during the period from January 1, 2014
(Private) Limited to November 30, 2014. In addition, the scrip traded during 217
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Limited (This days out of 224 trading days in the aforementioned period.
company was
The amount of benefit availed by the Bank is based on the
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merged with
Colony Textile market rate as at September 30, 2014. We have adjusted the
Mills Limited) amount of benefit based on the market rate as at November 30,
2014.
Colony 7,124,400 4.69 33.413 35.408 As per Prudential Regulations, a person cannot take exposure 35.408
UN Textile Mills
Limited
against the shares issued by that person or its group
companies. We would like to highlight that Colony Industries
(Private) Limited was merged with Colony Textile Mills Limited
on May 28, 2014. Accordingly, shares of Colony Textile Mills
Limited cannot be an admissible security against this exposure.
In addition, Colony Textile Mills Limited was listed at Karachi
ED
Stock Exchange (“KSE”) after May 2014. As per KSE website,
trading in these shares started from July 23, 2014.The average
trading volume per day in KSE during the period from July 23,
2014 to November 30, 2014 in respect of this scrip was only
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83,287 shares.
Based on the above, we recommend a provision against the

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amount of benefit availed by the Bank in respect of these

shares.
SP
DI
120
R
DE
OR
Rasheed and Salman Taseer (cont’d)
T
Name of Category of Outstanding Benefit Provision Details in respect of pledge of shares Remarks Additional
UR
customer classification principal availed in held Name of Number of Market value Market value Market value provision /
(Rupees in respect of (Rupees in scrip shares per share as as at as at (Reversal in
million) pledge of million) pledged at November November 30, September provision)
shares 30, 2014 2014 (Rupees 30, 2014 recommended
(Rupees in (Rupees in
CO
in million) (Rupees in
million) million) million)
Mansoor Loss 149.996 105.915 44.081 Dandot 11,500,000 10.69 122.935 105.915 The average trading volume per day in KSE in respect 105.915
Rasheed Cement of this scrip was only 2,857 shares during the period
Company from January 1, 2014 to November 30, 2014. In
Limited addition, the scrip was only traded during 161 days out
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of 224 trading days in the aforementioned period.
The above indicates that this scrip is not actively traded.
DE
In addition, the financial statements of Dandot Cement
Company Limited for the year ended June 30, 2014 and
for the quarter ended September 30, 2014 depict a
weak financial position and performance. As per the
UN financial statements for the quarter ended September

30, 2014, the company has a negative equity and its
current liabilities exceed its current assets. Its external
auditors have also included an emphasis of matter
paragraph in their audit report on the financial
statements for the year ended June 30, 2014
ED
highlighting the aforesaid and other issues.
Based on the above, we recommend a provision

against the amount of benefit availed by the Bank in
respect of these shares.
Y
Salman Loss 199.4 165.375 34.025 First 30,193,500 2.26 68.237 66.608 The average trading volume per day in KSE in respect 66.608
Taseer Capital of this scrip was only 131,547 shares during the period
LA
Securities from January 1, 2014 to November 30, 2014 which

Corporati indicates that this scrip is thinly traded. Accordingly, we
on recommend a provision against the amount of benefit
Limited availed by the Bank in respect of these shares.
SP

DI
121
R
DE
OR
Rasheed and Salman Taseer (cont’d)
T
Name of Category of Outstanding Benefit Provision Details in respect of pledge of shares/units Remarks Additional
UR
customer classification principal availed in held Name of Number of Market Market Market provision /
(Rupees in respect of (Rupees in scrip shares/units value/NAV value/NAV value/NAV (reversal in
million) pledge of million) pledged per as at as at provision)
shares share/units November September recommended
(Rupees in (Rupees in
CO
as at 30, 2014 30, 2014
million) November (Rupees in (Rupees in million)
30, 2014 million) million)
Salman Media 322,500 2.65 0.854 0.764 The average trading volume per day in KSE was 786,808 (0.09)
Taseer Times shares during the period from January 1, 2014 to November
R
Limited 30, 2014. In addition, the scrip was traded during the entire
224 trading days in the aforementioned period. The amount
of benefit availed by the Bank is based on the market rate
DE
as at September 30, 2014. We have adjusted the amount of
benefit based on the market rate as at November 30, 2014.
First Capital 1,709,500 35.19 60.157 81.800 The average trading volume per day in KSE in respect of 81.800
Equities this scrip was only 11,261 shares during the period from
UN Limited January 1, 2014 to November 30, 2014. In addition, the
scrip was only traded during 2 days out of 224 trading days
in the aforementioned period.
The above indicates that this scrip is not actively traded.
Accordingly, we recommend a provision against the amount
of benefit availed by the Bank in respect of these shares.
ED
First Capital 1,784,500 11.9457 21.317 16.203 The amount of benefit availed by the Bank is based on the (5.114)
Mutual Fund net asset value per unit as at September 30, 2014. We have
adjusted the amount of benefit based on the net asset value
per unit as at November 30, 2014.
Y
284.044
LA
SP
DI
122
R
DE
OR
recommended as the amount of FSV considered by the Bank is incorrect
T
Name of Category and Outstanding Provision Benefit Details of security Remarks Benefit Additional
UR
customer year of principal held (Rupees availed based on provision
classification (Rupees in in million) (Rupees in lower FSV recommended
million) million) (Rupees in (Rupees in
million) million)
CO
Abdullah Loss 23.496 4.276 19.22 Commercial building FSV benefit availed by the Bank is based on the valuation report of Danish 16.33 2.890
Brothers measuring 158.50 square Enterprises dated January 21, 2012. Based on this report, the FSV of the
2011 yards. property is Rs 62.772 million. However, we noted that a valuation report of
Address: Plot no 13, survey Sadruddin Associates (Pvt) Limited dated March 20, 2014 was available with
sheet no NP-13, North Napier the Bank. As per their report, the FSV of the property amounted to Rs 52.270
R
Quarters Karachi. million.
Therefore, we recommend additional provision on the basis of lower FSV as
per the latest valuation report.
DE
We noted that search certificate recommended by Ghulam Ali and Co. in his
opinion dated March 10, 2013, on the property, has not been obtained by the
Bank. We have been given to understand by the Bank that it does not expect
the borrower to provide search certificate.
Malik & Sons Loss
2013
RF
4.999
-
UN
4.999 Land measuring bearing
Patwar Khewt # 829,Khatuni
1447 to 1448 ,Khasra #
1917,1908,1907,1906 and
FSV benefit availed by the Bank is based on the valuation report of Mughal
Associates dated February 11, 2011. Based on this report, the FSV of the
property is Rs 48.320 million. During our review, we noted that a desktop
valuation was carried out by Mughal Associates on March 6, 2014. As per
4.999 -
MA (Overdue 3.87 23.148 1905. this desktop valuation, FSV of the property amounted to Rs 45 million. 21.33 1.820
acceptance) Address:Situated at 22-KM Therefore, we recommend additional provision on the basis of lower FSV as
ED
27.018 ,Multan Road , had bast per the latest valuation report. FSV has been allocated between running
Mouza Chunge Punjgrian finance and matured acceptance facilities in the ratio of 21% and 79%,
Tehsil City & District ,Lahore. respectively. Bank has not provided us the basis for usage of these
percentages for allocation of the amount of benefit between the two facilities.
Y
M Iqbal & Substandard 1.00 - 1.00 Land measuring 3.63 marlas. FSV benefit is based on a valuation which was carried out by Projects (Pvt) - 0.500
Sons Address: Property no BVI- Limited on May 29, 2009. This valuation is more than 4 years old. As per
LA
2014 65/RH, situated at Block F Prudential Regulations, a valuation is only valid for a period of 3 years for the
Madni Road, District, Attock. purposes of FSV benefit. Accordingly, FSV benefit in respect of this exposure
cannot be availed. M Iqbal & Sons defaulted in the payment of mark-up as at
June 30, 2014 and this amount is outstanding as at December 31, 2014.
Accordingly, this account should be classified as “doubtful”.
SP
5.210

DI
123
R
DE
Additional provision of Rs 17.990 million has been recommended in respect of
OR
benefit availed by the Bank on the basis of pledge stock report which is more
than six months old
T
Name of Category and Outstanding Provision Benefit Details of pledged stock Remarks Additional
UR
customer year of principal held (Rupees availed provision
classification (Rupees in in million) (Rupees in recommended
million) million) (Rupees in
million)
CO
AZM Loss 38.195 20.20 17.99 Stocks of petrochemical materials (solvent C- The pledge stock report, based on which benefit was availed by the 17.990
Chemical 9). Bank, was issued by Danish Enterprises and Construction and is
Company 2012 Address: D-38, Ahsanabad industrial estate, dated May 7, 2011. As per Prudential Regulations, valuation report of
super highway, SITE, Karachi pledged goods should not be more than six months old.
The Bank has given us to understand that the customer is not
cooperating in getting the revised valuation done.
R
Accordingly, we recommend a provision against the amount of benefit
availed by the Bank in respect of this stock.
DE
17.990
UN
Y ED
LA
SP
DI
124
R
DE
OR
recommended as the Bank has incorrectly availed FSV benefit in absence of
documents mentioned in legal opinion
T
Name of Outstanding Provision held Benefit availed Details of securities in respect of which List of documents missing as per the legal Benefit availed Additional
UR
customer principal (Rupees in (Rupees in documents are missing as per legal opinion opinion against securities provision
(Rupees in million) million) in respect of recommended
million) which documents (Rupees in
are missing million)
(Rupees in
CO
million)
IKMA Builders 610.500 560.77 49.73 1) Godown measuring 2,250 square feet. 1) Permission to mortgage from Mukhtiarkar in favour 0.478 0.478
and Developers Address: Godown no 9-15, basement floor, Regal of the Bank.
Trade Square, Plot survey no 320/1 and 320/2, sheet
no AM-3, AM Quarters, Saddar, Karachi.
R
2) Residential property measuring 20 marlas. 1) Permission to mortgage from NFC Employees 2.302 2.302
DE
Address: House no 215, Avenue 2nd – sector North Cooperative Housing Society Limited in favour of the
East, NFC Employees Cooperative Housing Society Bank.
Limited. 2) Mortgage deed / Memorandum of deposit of title
deeds.
UN 3) Residential property measuring 20 marlas.

Address: House no 307, Avenue 2nd – sector North
West, NFC Employees Cooperative Housing Society
Limited, near Satto Khatta Lahore.
1) Mortgage deed / Memorandum of deposit of title
deeds.
2.214 2.214

Y ED
LA
SP
DI
125
R
DE
OR
documents mentioned in legal opinion (cont’ d)
T
Name of Outstanding Provision Benefit Details of securities in respect of which documents are List of documents missing as per the legal opinion Benefit availed Additional
UR
customer principal held (Rupees availed missing as per legal opinion against provision
(Rupees in in million) (Rupees in securities in recommended
million) million) respect of (Rupees in
which million)
documents
CO
are missing
(Rupees in
million)
IKMA Builders 610.500 560.77 49.73 4) Open plot measuring 20 marlas. Mortgage deed / Memorandum of deposit of title deeds. 0.974 0.974
and Address: House no 112, Avenue 3rd – sector North West,
R
Developers NFC Employees Cooperative Housing Society Limited, near
Satto Khatta Lahore.
DE
5) Residential property measuring 20 marlas. Mortgage deed / Memorandum of deposit of title deeds. 2.214 2.214
Address: House no 410, Avenue 1st – sector North West,
NFC Employees Cooperative Housing Society Limited, near
UN
6) Residential property measuring 20 marlas.
Address: House no 412, Avenue 1st – sector North West,
NFC Employees Cooperative Housing Society Limited, near
Mortgage deed / Memorandum of deposit of title deeds. 0.885 0.885
ED
7) Open land measuring 2 acres i.e. 9,680 square yards. Original gift deed in favour of Mr Ghulam Haider. 29.167 29.167
Address: Open land on plot bearing Naclass survey no 34, As per information provided by the Bank, Mr Ghulam Haider
Deh Dozan, Tappo Gujro, Sector 22-A KDA scheme no 33, is the owner of the property and has given general power of
Karachi. attorney in favour of Mr Faisal who is owner of IKMA
Builders and Developers. The property was transferred to
Y
Mr Ghulam Haider under a gift deed but original gift deed

was stolen on which FIR has been filed.
LA

SP
DI
126
R
DE
OR
documents mentioned in legal opinion (cont’ d)
T
Name of Category and Outstanding Provision Benefit Details of security Remarks Additional
UR
million)
CO
Arif Ali Shah Loss 248.477 157.48 20.156 1) Bungalow measuring 600 square yards. As per the legal opinion, permission to mortgage / no objection certificate 20.156
Bukhari Address: Plot no 173-U Block no.2 situated in from PECHS in favour of the Bank for creation of mortgage in respect of
2011 Pakistan Employees Co-operative Housing residential property is not available.
Society (“PECHS”) Karachi.
58.390
R
DE
UN
Y ED
LA
SP
DI
127
R
DE
OR
recommended in respect of benefit availed by the Bank against certain
specialised plant and machinery and related assets
T
UR
million)
CO
Telecard Loss 173.161 147.52 25.65 Type: Networking equipment The account was classified in 2012. However, the Bank has not 25.650
Limited Security Description: 1ST pari passu hypothecation charge filed suit against the customer.
2012 over present and future current assets. Due to specialised nature of machinery, we consider that the
Bank may not be able to realise the value of the collateral
through sale. Accordingly, we have recommended provision
against the amount of benefit availed by the Bank.
R
Byco Loss 182.143 - Plant and Plant and machinery (crude distillation unit, hydrotreater The account was classified in 2012. It has been rescheduled.
Petroleum machinery unit, reformer / plat former unit, liquid petroleum gas unit, This is a syndicated facility led by Habib Bank Limited. KASB
DE
Pakistan 2012 power generation unit, water treatment and steam Bank and other banks including National Bank, United Bank,
Limited 127.623 generation equipment, laboratory equipment, crude oil and Allied Bank, Standard Chartered Bank, Bank Alfalah, Askari 127.623
finished product storage tanks. Bank and Habib Metropolitan Bank are sharing the syndicated
facility.
Land and
UN
building
54.52
Charge amounting to Rs 7,670.67 million has been registered in
SECP. KASB’s share of this charge is Rs 600 million.
Due to the specialised nature of the assets, we consider that the

54.52
Bank may not be able to realise the value of the collateral

ED
Y

LA
SP
DI
128
R
DE
OR
specialised plant and machinery and related assets (cont’d)
T
UR
million)
CO
Agritech Loss Type: Land and building and plant and machinery. The customer has obtained syndicated facilities. The account
Limited Security Description: was partially classified in 2010 and 2011 and Bank is under
2010 99.999 71.23 2.897 Land and construction on area aggregating to 12,800 follow-up with lead bank to file suit against the customer. 2.897
(after applying (land and kanals and 11 marlas. Due to specialised nature of the assets, we consider that the
SBP building) Plant and machinery: Ammonia and urea plants etc. Bank may not be able to realise the value of the collateral
relaxation) through sale. Accordingly, we have recommended provision
R
2011 300.000 208.62 13.035 13.035
(after applying (land and
DE
SBP building)
relaxation)
3.491 3.491
(plant and
UN
machinery )
Azgard Loss Type: Land and building and plant and machinery. The customer has obtained syndicated facilities. The account
Limited Security Description: was partially classified in 2011 and 2013 and Bank is under
ED
2011 443.077 386.13 53.867 Land and construction on area aggregating to 1,240 follow-up with lead bank to file suit against the customer. 53.867
(land and kanals and 1 marla. Due to specialised nature of the assets, we consider that the
building) Bank may not be able to realise the value of the collateral
Y
3.08 against the amount of benefit availed by the Bank. 3.08

(plant and
machinery )
LA
2013 22.403 22.403

SP
DI
129
R
DE
OR
specialised plant and machinery and related assets (cont’d)
T
UR
million)
CO
Pakistan Loss 75.998 - 33.60 Type: Land and building and plant and machinery i.e. The account was classified in 2012. Pakistan Telephone Cables 75.998
Telephone (plant and electrical and mechanical equipment (bull bulk wire Limited has filed a suit for damages and rendition of accounts in the
Cables 2012 machinery) drawing, pairing/twining machines, uniting machines, High Court of Sindh on June 21, 2013 which is pending in the High
Limited robbin rewinder, fork lifters, power generators etc.) Court for hearing of leave to defend application. The Bank also filed
42.398 Security description: Main factory building a suit against the customer in October 2013 which is also pending
(land and Address: Survey No 27/3. Khatuni No 11/95, Khasra No for hearing of leave to defend application.
R
building) 27 MIN, Village (Mouza) Barut, Tehsil Hub, District Due to specialised nature of the assets, uncertainty regarding the
Lasbella, Baluchistan. condition of these assets and considering the customer is in
litigation with the Bank, the Bank may not be able to realise the
DE
value of collateral through sale. Accordingly, we have recommended
provision against the amount of benefit availed by the Bank.

UN 360.161
Y ED
LA
SP
DI
130
R
DE
OR
in respect of benefit availed against pledged stock and leased assets due to uncertainty
regarding condition of collateral and ongoing litigation with Gulistan Group
T
UR
million)
CO
Gulistan Loss 199.750 114.04 85.71 Pledged stock of 9,402 cotton As per information provided by the Bank, a lawsuit was filed against Gulistan Textile 85.710
Textile Mills bales. Mills Limited and Gulistan Spinning Mills Limited in January 2013. The customer filed
Limited 2012 leave to defend application and started to take different pleas (e.g. signing of unfilled
documents and incorrect statement of accounts) and contended that it should be
treated in accordance with Article 10-A of the Constitution of Pakistan (fair trial). As per
Bank’s Management, since then, the case is pending for hearing of leave to defend
R
application. However, no hearing of the case has been held yet.
In the meanwhile, the High Court referred all cases involving the question of Article 10-
DE
A to a single judge to decide the fate of borrower’s plea. 30 Banks are involved in this
proceeding. Hearing has been completed in December 2014 and now case is reserved
for judgment.
As per the information provided by the Bank, the mucaddum was not allowed to visit
and prepare stock report. Consequently, the Bank filed application to the High Court for
UN appointment of a Nazir to inspect the pledged goods. The Nazir visited the site, counted
the stock and presented his report. Subsequently, mucaddum also visited the site and
counted the pledged stock as at December 31, 2014. However, as per Bank, the
customer refused to sign the stock report.
195.831 171.25 24.58 Various leased assets. We have been informed by the Bank that United Bank Limited has filed an application 24.580
ED
for winding-up of Gulistan Textile Mills Limited. Subsequently, the Bank filed an
application to the Court for setting aside/ securing its leased assets. However, Court
appointed a representative to inspect leased assets, who visited the site and presented
his report to the Court.
Gulistan Textile Mills Limited has filed a plea of relaxation to Court under Article 10-A of
Y
the Constitution of Pakistan, therefore, application of the Bank is pending in Court.

LA

SP
DI
131
R
DE
OR
in respect of benefit availed against pledged stock and leased assets due to uncertainty
regarding condition of collateral and ongoing litigation with Gulistan Group (cont’d)
T
UR
million)
CO
Gulistan Loss 12.997 7.64 5.35 Various leased assets i.e. 5.350
Spinning Mills generators and vehicles.
Limited 2012
Gulshan Loss 17.410 10.50 6.91 Various leased asset i.e.. Recovery suit has been filed by the Bank against Gulshan Weaving Mills Limited. Hearing 6.910
Weaving Mills plant and machinery. in Banking Court is pending on leave to defend application.
Limited 2012
R
Gulshan Loss 49.50 25.14 24.36 Pledged stock of 2,672 of cotton Recovery suit was filed by the Bank in January 2013 against Gulshan Spinning Mills 24.360
Spinning Mills bales Limited. Hearing in the Banking Court is pending on leave to defend application.
DE
Limited 2012 Further, mucaddum report provided to us dated December 31, 2014 has not been signed
by the customer.
Gulshan Loss 13.956 7.85 6.10 Various leased assets. i.e. Recovery suit has been filed by the Bank against Gulshan Spinning Mills Limited. Hearing 6.100
Spinning Mills industrial machinery, generators in Banking Court is pending on leave to defend application.
Limited 2012
UN and vehicles.
153.01

ED
Due to uncertainty regarding the condition of the above assets and considering the customer is in litigation with the Bank, the Bank may not be able to realise
the value of collateral. Accordingly, we have recommended provision against the amount of benefit availed by the Bank.
Y
LA
SP
DI
132
R
DE
FSV benefit of Rs 9.632 million, as at November 30, 2014, will not be available
OR
to the Bank as at December 31, 2014
T
* FSV benefit of Rs 9.632 million is expiring in 2014. The customer–wise break-up of this benefit is given below:
UR
Name FSV benefit expiring in 2014
(Rupees in million)
CO
Agro Oil 2.352
AL-Ashar Melamine 0.078
Ghulam Muhammad & Sons 0.01
Jameky Foundery 0.251
Lodhy Enterprise 0.205
R
Rasheed & Company 0.468
Kohinoor Flour Mills 0.127
DE
Reshma Power Generation (Pvt) Limited 4.583
Malik Steel Rerolling Mills Limited 1.558
Total 9.632
UN
Y ED
LA
SP
DI
133
R
DE
Additional provision of Rs 205.8 million is recommended against the amount
OR
of benefit availed in respect of non-performing loans relating to “Karobar
Asaan” on the basis of expired valuation reports
T
As per Prudential Regulations for SME financing, the valuation report, on
UR
the basis of which FSV benefit is availed, should have been carried out within
the period of 3 years preceeding the date of classification. In addition, as per
these Regulations, a full-scope valuation is valid for 3 years from the date of
CO
last full-scope valuation. Desktop valuations may only be used to update
provisions. If a full-scope valuation expires, a desktop valuation cannot be
used to take benefit of FSV.
However, we noted that all valuation reports, except for one report, on the
R
basis of which FSV benefit was availed by the Bank in respect of non-
DE
performing loans relating to “Karobar Asaan” were more than 3 years old as
at November 30, 2014. The amount of benefit availed on the basis of the
expired valuation reports is Rs 205.8 million.
UN
The Management has informed us that full-scope valuations could not be
updated as customers do not allow valuators to enter their premises.
Accordingly, we have recommended provision against the amount of benefit
availed by the Bank on the basis of expired valuation reports.
Y ED
LA
SP
DI
134
R
DE
7 Investments Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
As at November 30, 2014, carrying value (net of provision) of investments
OR
amounted to Rs 27,705 million
T
Investments
UR
Surplus / (deficit) Market Provision for dim inution in Investm ent net
Rupees in m illion Cost on investm ent value the value of investm ents of provision
Ava ila ble for sa le
CO
Market Treasury Bills 16,308.4 19.3 16,327.7 - 16,327.7
Pakistan Investment Bonds 5,966.8 163.9 6,130.7 - 6,130.7
Listed Term Finance Certificates 157.8 (0.4) 157.4 (26.4) 131.0
Unlisted Term Finance Certificates 480.1 - 480.1 (177.3) 302.8
Ordinary shares of listed companies 750.3 (197.2) 553.1 (411.0) 142.1
R
Ordinary shares of unlisted companies 1,189.0 - 1,189.0 (33.7) 1,155.3
24,852.4 (14 . 4 ) 24,838.0 (6 4 8 . 4 ) 2 4 , 18 9 . 6
DE
He ld to ma turity
Unlisted Term Finance Certificates 459.1 - 459.1 (292.2) 166.9
Assoc ia te s
Mutual funds
Companies
954.9
1,751.8
UN -
-
954.9
1,751.8
(107.4)
(638.2)
847.5
1,113.6
S ubsidia rie s 2,499.7 - 2,499.7 (1,111.9) 1,387.8

3 0 , 5 17 . 9 (14 . 4 ) 30,503.5 (2 , 7 9 8 . 1) 27,705.4
ED
Y
LA
SP
DI
135
R
DE
Market value of government securities is approximately Rs 22,458 million
OR
T
• We traced the face value of Market Treasury Bills (“T-bills”) and Pakistan
UR
Investment in T-bills
Investment Bonds (“PIBs”) appearing in the portfolio break-up provided Rupees in m illion Num ber of
by the Bank with the portfolio reported in the SGL report dated November Tim e to m aturity T-bills Face value Market value
30, 2014. We noted a difference of Rs 700 million in the face value of T-
CO
Less than 1 month 1 600.0 598.3
bills. We have been given to understand by the Management that this 1 month to 3 months 3 3,800.0 3,758.6
difference is due to T-Bills placed with SBP as collateral against repo 3 months to 6 months 14 12,095.0 11,704.4
borrowings of Rs 680.4 million. 6 months to 1 year 2 290.0 266.3
20 16 , 7 8 5 . 0 16 , 3 2 7 . 6
• The T-bills and PIBs were marked to market using PKRV rates as at
R
November 28, 2014. The PKRV rates were sourced from Investment in PIBs
www.mufap.com.pk.
DE
Rupees in m illion Num ber of Interest
Tim e to m aturity PIBs Face value Market value accrued
1 year to 2 years 39 3,300.0 3,362.6 138.3
UN 3 years to 4 years
5 years to 8 years
13
10
62
1,050.0
1,650.0
6,000.0
1,077.3
1,690.7
6 , 13 0 . 6
45.0
73.8
257.1

ED
Y
LA
SP
DI
136
R
DE
Carrying value (net of provision) of the Bank’s investment in TFCs amounts to
OR
Rs 601 million
T
TFCs
UR
Per TFC Value of TFC -
Profit rate per Profit Date of face Outstanding Market Market Provision net of Interest
Rupees in m illion annum paym ent m aturity Units value face value Cost price value held provision receivable
CO
Rupees Rupees
Ava ila ble for sa le - Liste d
! Allied Bank Ltd. 6M KIBOR + 0.85% Semi annually Aug- 19 2,000 5,000 10.0 10.0 97.8268 9.8 - 9.8 0.3
! Jahangir Siddiqui & Company Ltd. 6M KIBOR+2.4% Semi annually Oct- 16 15,000 2,500 37.5 37.5 99.4762 37.3 - 37.3 0.4
% Worldcall Telecom Ltd. 6M KIBOR+1.6% Semi annually Oct- 15 39,348 2,142 84.3 84.3 N/A N/A - 84.3 4.7
R
@ Telecard Ltd. 6M KIBOR + 3.75% Semi annually May- 15 3,000 1,233 3.7 3.7 N/A N/A 3.9 (0.2) N/A
# Trust Investment Bank Ltd. 6M KIBOR + 1.85% Semi annually Jul- 14 9,000 2,500 22.5 22.5 N/A N/A 22.5 - N/A
DE
Ava ila ble for sa le - Unliste d
! Engro Chemical Pakistan Ltd. 6M KIBOR+1.7% Semi annually Mar- 18 41,640 5,000 208.2 208.9 N/A N/A - 208.9 5.1
! Nishat Chunian Ltd. 3M KIBOR+2.25% Quarterly Sep- 15 38,500 1,249 48.1 48.1 N/A N/A - 48.1 1.0
^
&
$
Azgard Nine Ltd. (3rd issue)
Agritech Ltd.
Shakarganj Mills Ltd.
6M KIBOR+2.25%
6M KIBOR+1.75%
6M KIBOR + 2.25%
UN
Semi annually
Semi annually
Semi annually
Dec- 14
Nov- 14
Sep- 16
5,600
30,000
20,000
5,000
4,997
2,250
28.0 28.0
149.9 149.9
45.0 45.0
N/A
N/A
N/A
N/A
N/A
N/A
25.7
106.6
45.0
2.3
43.3
-
N/A
N/A
N/A
He ld to ma turity - Unliste d
ED
! Pakistan Mobile Communication 3M KIBOR +2.65% Quarterly Apr- 16 50,000 2,750 137.5 137.5 N/A N/A - 137.5 2.1
^ Azgard Nine Ltd. (3rd issue) 6M KIBOR+2.25% Semi annually Sep- 15 35,000 1,714 60.0 60.0 N/A N/A 55.2 4.8 N/A
^ Azgard Nine Ltd. (5th issue) 0% Bullet payment Dec- 14 33,883 5,000 169.4 169.4 N/A N/A 169.4 - N/A
& Agritech Ltd. (4th issue) 0% Bullet payment Sep- 16 18,429 4,998 92.1 92.1 N/A N/A 67.6 24.5 N/A
Y
LA
Tota l 600.6 13 . 6

SP
DI
137
R
DE
During 2014, the Bank received Rs 40 million in respect of investment in TFC
OR
of Shakarganj Mills Ltd.
T
Based on review of redemption schedules and information Payments received against TFC of Shakarganj Mills Ltd.
UR
relating to mark-up received and principal redemptions Rupees in m illion
made during 2014, we noted that: Am ount due as per
redem ption schedule Am ount received
! Mark-up and principal redemptions in respect of these
CO
Due Date Principal Interest Principal Interest Com m ents
TFCs were made in accordance with their respective
redemption schedules. 21- Mar- 09 8.0 8.0
19- Sep- 09 7.3 7.3
@ No payment was received in respect of this TFC during
22- Mar- 10 7.5
R
2014. As per Management, payment has not been received 22- Sep- 10 7.4
in respect of this TFC since July 4, 2011. 22- Mar- 11 7.5
DE
22- Sep- 11 8.1
# Payment of Rs 1.2 million was received in respect of this 22- Mar- 12 10.0 7.8 10.0
TFC during the year. However, it is classified by the Bank 22- Sep- 12 10.0 6.4 10.0
as “non-performing” and provision has been made by the 22- Mar- 13 10.0 5.0 10.0 Payment of Rs 20 million was received on June 30, 2014.
$
Bank against this TFC. UN
Payment of Rs 40 million was received in respect of TFC of
22- Sep- 13
22- Mar- 14
10.0
10.0
4.2
3.5
10.0
10.0
This was adjusted against amount due on March 22, 2013
and September 22, 2013.
Payment of Rs 20 million was received on October 30,
Shakarganj Mills Ltd. during 2014. We have been 22- Sep- 14 10.0 3.1 5.0 5.0 2014 out of which Rs 10 million was adjusted against
informed that the company has a 49.24% shareholding in principal due on March 22, 2014 and Rs 5 million was
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partially adjusted against principal redemption due on
Shakarganj Food Products Ltd., an associate of the Bank. September 22, 2014. Remaining amount of Rs 5 million
Consequently, the decision on how to allocate payments was adjusted against interest.
made by the company to outstanding principal and mark-
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up is made by senior management of the Bank. The
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adjustment of this amount by the Bank is shown in the

table on the right.
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138
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The principal and mark-up payment due on TFC of Worldcall on October 7,
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2014 was overdue by more than three months in January 2015. Worldcall has
requested restructuring to extend the maturity of TFC to October 7, 20121
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% The 5 -year Worldcall TFC was acquired by the Bank in October 2008. The Bank’s share in the issue Financial information of Worldcall
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amounted to Rs 196.7 million (5.127% of total TFCs). However, on the request of Worldcall, the TFC was Rupees in m illion 30-Sep-14
restructured with effect from October 7, 2012 and the maturity of the TFC was extended by two years. Based Equity 7,756.0
on Discussions with Management, we understand that there were delays in payments by Worldcall, however, Long- term debt 3,278.3
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the Bank has received mark-up due under the redemption schedule till July 7, 2014 Current liabilities net of current assets 7,531.9
Worldcall requested another restructuring on July 25, 2014 to extend the maturity of TFC to October 7, 2021 Nine m onths ended Septem ber 30, 2014
with principal payable in eleven equal installments starting from October 7, 2016 and deferment of interest Sales - net 1,824.6
payment. We understand that a condition of the previous restructuring related to equity injection of USD 35 Gross loss (701.4)
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million. However, the equity injection was delayed to July 2013 which impacted revival of operating Operating loss (1,507.2)
Finance cost (562.1)
cashflows and the company was not in a position to redeem the principal and outstanding mark-up as on
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Other income - net 274.7
October 7, 2014. Loss before tax (1,794.6)
Loss after tax (1,824.0)
As per Management Information, the Bank has given its approval to the above restructuring of TFC.
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However, the approval of at least 51% of Worldcall TFC holders necessary for restructuring/rescheduling has
not been received till February 27, 2015.
Source: Public Information
The principal and mark-up payment, due on October 7, 2014, was overdue by more than three months in
January 2015. Collateral held against the TFC consists of (i) hypothecation of all the company’s present and
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future fixed assets, excluding land and building, and (ii) assignment of all rights, benefits, claims and/or
interests in ‘Wireless Local Loop’ licenses, ‘Long Distance and International’ license and assigned frequency
spectrums.
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We have been provided with the valuation report, dated August 12, 2013, of ‘Wireless Local Loop’, ‘Long
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Distance and International’ and ‘hybrid fibre coaxial’ equipment of Worldcall deployed all over Pakistan. As
per this report, the Bank’s share of FSV of the collateral amounts to Rs 521.5 million. The benefit of forced
sale value of collateral which may be availed in the determination of provision against this TFC, under the
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Prudential Regulations, works out to Rs 156.4 million. In view of the above, and considering the specialised
nature of collateral and financial position of the company, we recommend that provision should be recorded
in respect of 50% of the outstanding amount of TFC of Rs 84.3 million. In addition, mark-up receivable of Rs
4.7 million, as at November 30, 2014, should also be reversed to suspense account.
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Carrying value (net of provision) of investment in TFCs of Azgard Nine Ltd. is
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approximately Rs 7.1 million
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^ Investment in TFCs of Azgard Nine Ltd.
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Rupees in m illion 3rd issue 5th issue Total Com m ents
Inve stme nt a t c ost 88.0 16 9 . 4 257.4 The Bank holds two TFCs of Azgard Nine Ltd. with face value of Rs 257.4 million. Based on Discussions with
Management of the Bank, we understand that these TFCs were classified as “ non- performing” on January 1,
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2010.
FSV 34.2 - 34.2 As per information provided by Management, the Bank holds collateral with FSV of Rs 34.2 million against 3rd
issue TFC and there is no collateral against 5th issue TFC.
FSV benefit allowed 20.8% N/A Under the Prudential Regulations, the benefit availed in respect of forced sale value of collateral, which
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FSV as at November 30, 2014 7.1 - 7.1 consists of land and building, held against the TFCs, amounts to Rs 7.1 million as at November 30, 2014. The
benefit of forced sale value expires on December 31, 2015.
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Cost net of FSV 80.9 169.4 250.3
Provision as at November 30, 2014 (80.9) (169.4) (250.3) Both TFCs are classified as "loss".
Ne t book va lue of TFCs UN
7.1 - 7 . 1 As per the company’s financial statements for the quarter ended September 30, 2014, the net current liabilities
of the company amounted to Rs 6,818.4 million, including Rs 4,448 million relating to overdue principal and
mark- up thereon, and accumulated loss stood at Rs 8,814.6 million. We have adjusted the benefit availed by
the Bank of Rs 7.1 million in respect of the above collateral.
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140
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As per the financial statements of Agritech Ltd. for 9M 2014, the company
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incurred a loss after tax of approximately Rs 3.5 billion. The net current
liabilities of the company amounted to Rs 18.3 billion
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• As at November 30, 2014, the Bank’s exposure to Agritech Ltd. • Agritech proposed the following restructuring plan to the Bank and other
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(“Agritech”) was as follows: lenders in 2013:
Exposure to Agritech • Partially settle outstanding principal from available funds of Rs 1.65
Rupees in m illion Principal FSV billion, on pro-rata basis. The remaining principal would be converted
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Loan 400.0 615.0 into preference shares at floating rate on cumulative basis (average 1-
TFCs 242.0 20.8 year KIBOR less 1% per annum for first seven years after issuance;
Shares 750.3 -
increased to average 1-year KIBOR plus 4% from the 8th year onwards,
1,392.3 635.8
payable subject to profitability of the company. Dividend rate subject to
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a floor of 9% to be increased to 12% from 8th year onwards).
• As per Agritech’s financial statements for the period ended September 30,
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• Outstanding mark-up up to December 31, 2013 to be converted into
2014, we understand that the company’s operations have been significantly TFCs payable at end of 2026 by a bullet payment. Mark-up is not
impacted by load shedding during the last three years. Some of the payable on these TFCs.
financial information of the company is summarised below:
Financial information of Agritech

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• Based on Discussions with Management, we understand that this proposal
Rupees in m illion 30-Sep-14
was not finalised due to lack of consensus between lenders. Due to delay in
exercising the option and shortage of gas during 2014, the company no
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Equity 5,619.8
Long- term debt 12,049.6 longer had Rs 1.65 billion for debt servicing. However, all lenders have now
Current liabilities net of current assets 18,317.2
agreed to the above restructuring terms. The Management expects the
Cash and bank balances 32.8
proposal to be finalised by March 2015 with some technical changes to the
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Nine m onths ended Septem ber 30, 2014 original option.

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Sales - net 1,655.5

Gross loss (964.9)
• As per the financial statements of Agritech for the period ended September
Operating (loss)/profit (1,632.7) 30, 2014, the proposal is pending approval of SECP.
Finance cost (2,137.4)
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Other income - net 41.5

Loss before tax (3,728.6)
Loss after tax (3,490.0)
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Carrying value (net of provision) of investment in TFCs of Agritech is
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&
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Investment in TFCs of Agritech
Rupees in m illion 1st issue 4th issue Total Com m ents
Inve stme nt a t c ost 14 9 . 9 92.1 242.0 The Bank holds two TFCs of Agritech with face value of Rs 242 million. Based on Discussions with Management
of the Bank, we understand that these TFCs were classified as “ non- performing” on January 1, 2010.
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FSV 20.8 - 20.8 As per information provided by Management, the Bank holds collateral with FSV of Rs 20.8 million against 1st
issue TFC and there is no collateral against 4th issue TFC.
FSV benefit allowed 20.8% N/A As per the Prudential Regulations, the benefit availed in respect of forced sale value of collateral, which
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FSV as at November 30, 2014 4.3 - 4.3 consists of land and building, held against the TFCs amounts to Rs 4.3 million as at November 30, 2014. This
benefit expires on December 31, 2015.
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Cost net of FSV 145.6 92.1 237.7
Provision required 73.33% 73.33% The SBP vide circular no. BPRD/BRD- (Policy)/2014- 11546 dated June 27, 2014, has relaxed requirements for
Provision as at November 30, 2014 UN
(106.8) (67.5) (174.3) making provision against TFCs of Agritech. Under the circular, total provision is to be recorded in a phased
manner by December 31, 2015.
Ne t book va lue of TFCs 43.1 24.6 67.7

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Ne t book va lue of TFCs a s pe r Ba nk 43.3 24.5 67.8 We have adjusted Rs 63.5 million in respect of provision not made by the Bank due to the above relaxation. In
addition, we have adjusted the amount of benefit of Rs 4.3 million availed in respect of collateral as the land and
building relates to the urea fertiliser plant. Accordingly, we recommend an adjustment of Rs 67.8 million against
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the carrying value (net of provision) of these TFCs.

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142
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Carrying value (net of provision) of investment in shares of Agritech is
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• As per CDC statement dated December 2, 2014, the Bank holds Investment in shares of Agritech
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18,155,305 shares in Agritech. The remaining 3,280,553 shares are Rupees in m illion Provision Cost net
held by Pak Brunei Investment Company Ltd. as trustee. These No. of Share Market Total required to be Provision of
shares were acquired by the Bank at the rate of Rs 35 per share in shares price value Cost im pairm ent m aintained am ount provision
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part settlement of the loan of Azgard Nine Ltd. These shares are 21,435,858 7.37 158 750.3 592.3 73.33% 434.4 315.9
subject to a “lock-in” period of 5 years which expires on July 26,
2017. However, the Management of the Bank is of the view that the Remaining provision classified in surplus on revaluation of investments (157.9)
sale restriction is not applicable to transactions between lenders. Ne t book va lue 15 8 . 0
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• The market value of Agritech was Rs 7.37 per share as at November Computa tion of c a rrying va lue of sha re s a s pe r Ba nk
28, 2014. Accordingly, the market value of the Bank’s investment
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Cost 750.3
in the company works out to Rs 158 million. However, the carrying Provision recorded 411.0
339.3
value of this investment is Rs 142.1 million. Reason for the Remaining provision classified in surplus on revaluation of investments (197.2)
difference has not been provided by Management.
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• However, vide circular no. BPRD/BRD-(Policy)/2014-11546 dated
June 27, 2014, SBP relaxed the requirement for making provision
Ne t book va lue
Diffe re nc e (re a son for the diffe re nc e ha s not be e n provide d by Ma na ge me nt)

14 2 . 1
15 . 9
against shares of Agritech. Under the circular, provision is required
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to be recorded in a phased manner by December 31, 2015.
Provision required to be m aintained

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Upto September 30, 2014 70%

Upto December 31, 2014 75%
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Upto January 31, 2015 80%

Upto March 31, 2015 85%
Upto June 30, 2015 90%
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Upto September 30, 2015 95%

Upto December 31, 2015 100%
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Carrying value (net of provision) of investment in shares of Agritech is
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approximately Rs 142.1 million (cont’d)
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• Due to this relaxation provision of Rs 434.4 million was required as at As per information on www.ksestocks.com, shares of the company were traded
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November 30, 2014. However, provision of Rs 411 million was on only 80 days during the period of six months from June 1, 2014 to
recorded by the Bank. In addition, amount of Rs 197.2 million was November 30, 2014 with an average volume of 29,250 shares. As per the
recorded by the Bank on deficit on revaluation of ‘available for sale’ company’s website, approximately 5 million shares are held by individuals.
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investments.
• We recommend that the deficit on revaluation of ‘available for sale’ Pattern of shareholding
investments of Rs 197.2 million should be charged off to the income No. of shareholders Shares held % shareholding
statement. The net of tax impact of the above adjustment works out Individuals 624 4,966,194 1.27%
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to Rs 177.5 million. In addition, due to the low trading volume of the Financial institutions 15 16,996,757 4.33%
company’ shares and taking into consideration the restriction on sale Banks 22 370,467,049 94.40%
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392,430,000 100.0%
of shares of Agritech Ltd. and the adverse financial condition of the
company, we recommend a provision against the carrying value (net
of provision) of investment of the Bank in Agritech Ltd. amounting to
Rs 142.1 million. UN
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144
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Certain securities pledged with the Bank by customers are appearing in the
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CDC statement of the Bank
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We traced the Bank’s investments in TFCs and listed ordinary shares to the CDC report as
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No. of Type of Market Market
at December 2, 2014. We noted that the Bank’s CDC report included certain shares and Rupees in m illion securities security price value
TFCs which are not appearing in the Bank’s investment portfolio. The Management has
Securities included in CDC statem ent but not in investm ent
provided us with the following information in respect of these investments: A
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SME Leasing Ltd. 1,298,500 Shares 5.00 6.49
A shares of SME Leasing Ltd. were part of stock portfolio pledged by First Pakistan K- Electric Ltd. B 2,928 Shares 7.63 0.02
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Securities Ltd. against its borrowings. When the company defaulted, the Management of Colony Textile Mills Ltd. 307 Shares 4.69 -
JS Large Cap Fund D 50 Units 93.58 -
the Bank decided to sell the portfolio and initiate legal proceedings for the remaining Avari Hotels Ltd. E 60,000 TFC N/A N/A
liability. However, shares of SME Leasing Ltd. could not be sold due to “nil” turnover in 6.51
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these shares in the Lahore Stock Exchange.
Third party securities appearing in Bank's CDC statem ent F
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B shares of KE are owned by the Bank. The Bank had written off 3,905 preference shares of Oil and Gas Development
KE which it had previously received on the basis that these shares did not have any Company Ltd. 98,556 Shares 213.10 21.00
market value. However, the preference shares were still reported in the Bank’s CDC Bank Alfalah 5,093 Shares 30.25 0.15
account. In 2012, KE converted these preference shares into 2,928 ordinary shares of KE.
C
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shares of Colony Textile Mills Ltd. were part of stock portfolio pledged by Ace
Securities (Pvt.) Ltd. against its borrowings. When the company defaulted, the
Engro Polymers and Chemicals Ltd.
Engro Powergen Qadirpur Ltd.
Habib Bank Ltd.
JS Global Capital Ltd.
637
2,000
630
1,448
Shares
Shares
Shares
Shares
11.88
42.33
204.75
37.00
0.01
0.08
0.13
0.05
Management of the Bank decided to sell the portfolio. However, these shares could not JS Investments Ltd. 500 Shares 11.96 0.01
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Kot Addu Power Company Ltd. 3,000 Shares 71.03 0.21
be sold as trading in shares of the company was suspended due to a pending merger. MACPAC Films Ltd. 500 Shares 18.70 0.01
D units of JS Large Cap Fund are pledged against borrowings of Lilley International Pakistan Capital Market Fund 3,000 Shares 9.96 0.03
PICIC Growth Fund 350 Units 26.00 0.01
(Pvt.) Ltd.
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Pakistan International Airline

E TFCs of Avari Hotels Ltd. matured on October 31, 2014 and the Bank received the Corporation 'A' 55,500 Shares 6.69 0.37
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outstanding amount on maturity. However, CDC has not removed the investment from Pakistan Petroleum Ltd. 2,872 Shares 189.62 0.54
Summit Bank Ltd. 1,110 Shares 3.60 -
their records as they are in the process of completing their documentation with issuer / Sui Southern Gas Company Ltd. 5,248 Shares 35.44 0.19
trustee. Worldcall Telecom Ltd. 626 Shares 1.61 -
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22.79
F The Bank previously offered custodial services to customers on account of their
successful IPO applications. These shares/units were held on behalf of these customers Source: Management Information, Public Information
and are marked in the name of customers in the Bank’s CDC statement. However, most
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of these customers are currently untraceable.

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Investment in KASB Invest (Pvt.) Ltd. has been reclassified as an “available
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for sale” investment
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Investment in unlisted shares
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No. of Carrying Provision Carrying value
Rupees in m illion shares value held net of provision Financial statem ents
Evolvence Capital Limited 5,400,000 1,155.3 - 1,155.3 Refer following pages for overview of the company.
Pakistan Export Finance
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Guarantee Agency Limited 568,044 5.7 (5.7) - Financial statements of the company have not been provided by the Management.
Re c la ssific a tion from inve stme nt in subsidia ry
4 KASB Invest (Pvt.) Limited 3,985,000 28.0 (28.0) -
1, 18 9 . 0 (3 3 . 7 ) 1, 15 5 . 3
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4 We have been provided with the management accounts for 11M 2014. As Prudential Modaraba and First Pak Modaraba was effectively transferred to
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per these accounts: the company in November 2014. As per Management Information, in 2010,
• a rights issue of 24.9 million shares was made by KIL at a price of Rs 5 the Registrar Modaraba removed Prudential Capital Management Ltd.
per share (i.e. at a discount of Rs 5 per share) during the period of 11M ("PCML") and Royal Management Services (Pvt.) Ltd. ("RMSL") from the
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2014. Based on Discussions with Management, we understand that the
Bank did not participate in the rights issue. We are not aware of the
management of the two modarabas and appointed the company as modaraba
management company. However, PCML and RMSL filed constitutional
shareholders who subscribed to the rights issue and the basis for the petition against the order of the Registrar Modaraba in the Honourable High
price of Rs 5 per share at which this issue was made. Court of Sindh and obtained a stay order. In May 2014, the Honourable High
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Court of Sindh dismissed the petitions filed by PCML and RMSL. However,
• as at November 30, 2014, the net assets of KIL amounted to Rs 102.9 PCML and RMSL filed appeals before the Honourable Supreme Court. In
million and the break-up value per share to Rs 3.54. October 2014, the Honourable Supreme Court of Pakistan dismissed the
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Consequent to the rights issue, the Bank’s shareholding in KIL has appeals and upheld the judgment of the Honourable High Court of Sindh.
declined from 96.02% in December 2013 to 13.7% in November 2014. Accordingly, the previous order of the Registrar Modaraba was reinstated and
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Based on the assumption that the rights issue was made at fair value, we the company was directed by SECP to take over the administration of both
have assumed the value of the Bank’s investment in KIL to be Rs 19.9 the modarabas during November 2014. We have also been informed by the
million using the above price of Rs 5 per share. Consequently, the Management that due diligence of both modarabas is currently under
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provision made by the Bank against the investment in KIL has been progress, under direction of SECP. However, the reason for the due diligences
reversed by this amount. has not been provided to us.
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In addition, we have been given to understand that management of First

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The Bank’s investment of 5.4 million shares in ECL represents 6.83% voting
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rights in ECL and the percentage of paid-up capital held by the Bank in ECL is
8.03%
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• Evolvence Capital Ltd. (“ECL”) is an alternative investment company Pattern of shareholding of ECL as at March 31, 2014
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incorporated in the British Virgin Islands (“BVI”). The company is based in the Nam e No. of shares % shareholding
U.A.E. and focuses on investment opportunities in emerging markets. Khaled Salem Al Muhairy, U.A.E 25,657,155 32.43%
• The registered office is located in Tortola, BVI. However, the business is Sh.Mohd.S.Hamad Al Thani, Qatar 16,003,806 20.23%
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KASB Bank Limited, Pakistan 5,400,000 6.83%
conducted from Dubai, U.A.E under the name of Evolvence Capital Feasibility Sulaiman Ahmed Saeed Al Hoquani, U.A.E 5,379,168 6.80%
Consultancy, a sole proprietorship of Mr. Khalid Al Muhairy, who also acts as Al Nahla Offshore Co. Ltd, BVI 4,800,480 6.07%
venture capitalist and provides financial advisory services. Gen.Retiremt & Pension Authority, State of Qatar 3,550,000 4.49%
Abdel Hadi Abdullah Al Qahtani & Sons Co.,K.S.A 2,675,940 3.38%
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• As at March 31, 2014, ECL had 22 shareholders. The information on shareholding Mohammed Al Qassimi, U.A.E 2,633,558 3.33%
in ECL provided to us by the Management of the Bank is summarized in the table. Saleh Mohd. Al Hajaj, K.S.A 2,631,579 3.33%
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We understand that there is a shareholders agreement between these Mohd. Ezaldeen Elaraj, U.A.E 1,632,364 2.06%
Sultan Mohammed Bin Saleh Bin Sultan, KSA 1,431,949 1.81%
shareholders. We have not been provided with this agreement. As per information
Abdul Mohsen Al Hayat, Kuwait 1,200,000 1.52%
obtained by Management of the Bank from ECL, the shareholders agreement does Kuwait Financial Centre, S.A.K, Kuwait. 1,052,632 1.33%
of first refusal’ clause.

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not contain a ‘tag along’ clause or ‘drag along’ clause, however, it contains a ‘right Emirates International Investment Co. U.A.E
Dr.Farhat Farjam, U.A.E.
Thuraya Investemenets Limited
1,052,632
700,000
650,000
1.33%
0.88%
0.82%
• As per the management accounts for the year ended March 31, 2014, ECL has Robert Pardi, UAE 550,000 0.70%
issued two classes of shares. One class of shares has a par value of USD 0.1 per Sh. Ahmed Bin Zayed Bin Saqr Al Nahyan, U.A.E. 526,316 0.67%
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The Saudi Investment Group & Marketing Co.Ltd. 500,000 0.63%
share whereas the par value of the second class of shares is USD 0.05 per share.
K.I.Varghese, UAE 500,000 0.63%
As per Management Information, we understand that both classes of shares carry Mazin Al Moallim, K.S.A 428,572 0.54%
equal voting rights. However, dividend is to be paid as a common percentage Salah A.H. Al Qahtani, K.S.A 152,156 0.19%
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applied to the paid-up value of each share. Based on the above, we understand 7 9 , 10 8 , 3 0 7 10 0 . 0 0 %
that the Bank’s investment of 5.4 million shares in ECL represents 6.83% voting
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rights in ECL and the percentage of paid-up capital held by the Bank in ECL is
8.03%.
As per the management accounts of ECL for the year ended March
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31, 2014, the last share issue of ECL was made during the year ended
March 31, 2012 wherein 500,000 shares were issued at the rate of
USD 1 per share i.e. at a premium of USD 0.9 per share.
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The shares in ECL became part of the Bank’s investment portfolio on merger of
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KASB Capital Ltd. into the Bank on December 31, 2008. The book value of the
Bank’s investment in ECL is approximately Rs 1,155.3 million
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• The Management has obtained the following information from ECL in respect of shares value, the Management of the Bank recorded the
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issued to KASB group during the period from 2002 to 2006: investment at Rs 314.9 million based on net assets of
USD 56.4 million, as appearing in the unaudited balance
Date of Am ount of No. of Par Am ount
investm ent Investor investm ent shares value Prem ium paid
sheet of ECL as at December 31, 2008. However, in 2011,
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ECL provided the audited financial statements for the
USD USD USD USD
year ended March 31, 2009. As per these financial
16- Jan- 02 Mr. Nasir Ali Shah Bukhari 100,000 1,000,000 0.10 - 100,000 Note 2 statements, the net assets of ECL as at March 31, 2008
16- Jan- 02 KASB & Co. 100,000 1,000,000 0.10 - 100,000 Note 1
6- Jul- 03 Mr. Nasir Ali Shah Bukhari 100,000 1,000,000 0.10 - 100,000 Note 2
(i.e. comparative period) amounted to USD 220.1 million.
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6- Jul- 03 KASB & Co. 100,000 1,000,000 0.10 - 100,000 Note 1 We understand that the difference in net assets was due
11- May- 05 KASB Securities Ltd. 500,000 357,142 0.10 1.30 499,999 Note 1 to transition of the financial statements of the company
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21- Mar- 06 KASB Securities Ltd. (bonus) - 471,428 0.10 - 47,143 from ‘Full IFRS’ to ‘IFRS for SMEs’ effective from April 1,
21- Mar- 06 Mr. Nasir Ali Shah Bukhari (bonus) - 400,000 0.10 - 40,000 Note 2
22- Jul- 06 KASB Securities Ltd. 325,717 171,430 0.10 1.80 325,717 Note 1
2008. However, this change was incorporated in the
5,400,000 1,312,859 comparative information in the financial statements and,
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Note 1: These shares were acquired by KASB Securities Ltd. for a total consideration of approximately Rs 61 million.
Note 2: These shares were transferred by Mr. Nasir Ali Shah Bukhari to KASB Capital Ltd. on December 19, 2006. We have not been
interalia, resulted in restatement of investment in
associates to fair value. Consequently, in 2011, the book
value of the Bank’s investment in ECL was increased to
provided with information on the consideration paid for these shares by KASB Capital Ltd. KASB Securities Ltd. acquired these shares
from KASB Capital Ltd. on April 13, 2007 for a total consideration of Rs 273.6 million.
Rs 1,155.3 million through a prior year adjustment of Rs
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840.4 million. We would like to point out that ECL re-
adopted ‘Full IFRS’ for the purposes of its financial
• KSL sold the above shares to KASB Capital Ltd. on October 31, 2008 at cost of Rs 334.6 statements with effect from April 1, 2012.
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million. Subsequently, KASB Capital Ltd. was merged into the Bank on December 31, 2008.
Consequent to the merger, the above investment in ECL became part of the investment
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As far as we are aware, the Bank has not received any

portfolio of the Bank. cash dividend from ECL. We have not been provided
• The Bank applied the ‘purchase method’ (under IFRS 3) to account for the above with the dividend policy of the company.
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transaction. As per IFRS 3 ‘Business Combinations’, identifiable assets acquired and

liabilities and contingent liabilities assumed in a business combination are measured
initially at their fair values at the acquisition date. In the absence of information on fair
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ECL manages assets across three lines of business, namely Education,
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Consumer and Private Equity
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As per presentation provided by Management of the Bank, ECL manages its private equity, education and consumer
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businesses through a number of subsidiaries. These are summarized in the table.
List of subsidiaries (as at September 30, 2014) Shareholding /
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Nam e of com pany voting pow er Principal activity
O pe ra tiona l subsidia rie s
Evolvence India Advisors Inc., BVI 100% Consultancy services.
ECAP Education Management Ltd., BVI 100% Investment manager to Evolvence Education Holding Ltd.
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Evolvence Cosultancy Services JLT, DMCC, UAE. 100% Business management and consultancy services.
Inve stme nt subsidia rie s
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Evolvence Knowledge Investments, BVI 100% Holding company for investments in education institutions.
Ginza Fashion Holding, BVI 88.12% Holding company for investments in fashion and restaurant entities.
Evolvence Asset Management Ltd., Cayman Islands 75.50% Asset management and placement business
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SP
DI
149
R
DE
OR
Consumer and Private Equity (cont’d)
T
Evolvence Knowledge Investments manages ECL’s education-related investments. These include the following:
UR
Repton Dubai • The school commenced operations in September 2007 as partner school of Repton UK. Since then, enrolment has been growing at compound
annual growth rate of 36%. In FY 2014, 2,375 students were enrolled in the school.
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• The school entered into USD 100 million sale and leaseback transaction with ‘Eastgate Capital Group’ which is the real estate and private equity
investment arm of NCB Capital. This allowed repayment of debt of USD 70 million and equity injection of USD 15 million in Repton Dubai.
Repton Abu • The school commenced operations in September 2013 as foundation school. The school was opened in partnership with Capital Ltd., the investment
Dhabi office of his Highness Sheikh Hazza Bin Zayed al Nahyan. The partnership facilitated in accelerating the grant of necessary licenses and approvals
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from regulatory bodies and land at favourable lease terms. Capital Ltd. holds 28% share in the school.
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• The school is operated through lease and operate model. The partnership has entered into a contract with Aldar Properties under which Aldar
Properties incurs expenditure towards construction of campus. These campuses are then leased by Repton Abu Dhabi for a 25 year renewable lease.
• The junior and senior sections of Repton Abu Dhabi are expected to open in September 2015.
Foremarke
Dubai
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• The school commenced operations in September 2013 as foundation school, with junior school expected to open in September 2014.
• The school was built to capitalise on latent demand at the junior school level as Repton Dubai has long wait list of students for Nursery to year 1.
Dovecote • The school commenced operations in April 2012 in Umm Suqeim 3 area in Dubai.
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Nurseries
• The company plans to establish nurseries across the gulf region under the brand name of Dovecote. These nurseries will act as a feeder for all
Repton and Foremarke campuses.
Humpty • The company operates two nurseries in Al Bateen and Khalifa City areas of Abu Dhabi. Three more branches are planned to be opened in Abu Dhabi
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Dumpty over the period 2014-2016.

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Nurseries
• Students of nurseries have preferential treatment for admission into Repton Abu Dhabi.
Other • Repton Doha: Expected to commence operations in September 2015. It will be built in partnership with strategic investors who will facilitate in
businesses accelerating the grant of necessary licenses and approval from regulatory bodies.
SP
• Partnership with Stowe School: The company entered into a partnership with UK co-educational school Stowe to develop a number of
international schools across Middle East and Far East.
DI
150
R
DE
OR
Consumer and Private Equity (cont’d)
T
Ginza Fashion Holding manages ECL’s consumer -related investments. These include the following:
UR
Ginza Fashion • It commenced operations in May 2007.
• It sets up outlets in the region in partnership with international fashion brands. It serves the lucrative mid to high-end fashion retail sector. As at
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date of presentation (November 2013), the company has opened shops for Zadiq & Voltaire, Nina Ricci, Paula Ka, Herve Leger and Galeries
Lafayette.
• The business also supplies uniforms to students attending schools under ECL’s education platform in return for a fee paid to the school.
Ginza • It commenced operations in 2011.
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Restaurants
• It caters to high-end casual dining market in the gulf region. The company partners with high-end food and beverage brands and develops their
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footprint in the region. As at date of presentation, the company had opened outlets for Brandi Pizzeria, Vogue Café, Serafina and Miskeh. An outlet
in collaboration with Real Madrid Club de Futbol is expected to open in Q1 2014.
Ginza Fashion • It is a London based online retailer focusing on high-end ready-to-wear work clothing.
Art UN
Private Equity
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Evolvence • It is the first hybrid private equity fund of fund for India with assets under management of USD 250 million.
India Fund
• The fund is invested in 10 top tier Indian private equity funds and co-invested in 8 companies. The company has seats in the investment committee
and /or advisory boards in most of the funds.
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• The portfolio was valued at 1.3x as at June 30, 2013.

LA
• Evolvence India Fund II has been launched with target size of USD 300 million. The fund focuses on small and medium enterprises in fast growing
sectors driven by increase in consumption demand in India.
SP
Evolvence • The fund is focused on providing growth capital to generic pharmaceutical and healthcare industry in India.
India Life
• The fund has capital commitments of USD 84.1 million out of which USD 68.3 million has been invested to date of presentation.
Sciences Fund
DI
151
R
DE
Based on the exchange rate as at November 28, 2014 of Rs 101.8828/USD and
OR
the shareholding percentage of 8.03%, the Bank’s share of net assets of ECL
works out to approximately Rs 1,393.4 million
T
Based on management accounts for the half-year ended September 30, 2014, the net Balance Sheet Unaudited Audited
UR
assets of ECL amounted to USD 170.3 million. In addition, as per the management USD in thousand, unless otherw ise stated 30-Sep-14 31-Mar-13
accounts, total assets of USD 245.2 million mainly consist of: Property, plant and equipment 30 23
Investment in subsidiaries (at fair value) 185,867 160,398
• investment in subsidiaries of USD 185.9 million. These are classified as at “fair value
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Investment in associates (at fair value) - 6,100
through profit and loss”. However, the fair value of these investments was last Long- term investments (at fair value) 5,306 19,092
carried out as at March 31, 2014. As per the financial statements for the year ended Non- c urre nt a sse ts 19 1, 2 0 3 18 5 , 6 13
March 31, 2013, fair valuation of investments in subsidiaries is undertaken by ECL Investments (at fair value) 22,992 28,218
using the ‘Discounted Cash Flow’ method.
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Receivables 6,118 6,438
Advance to shareholders 225 1,688
• long term investments of USD 5.3 million. These represent investments made in
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Due from related parties 17,849 9,565
companies in the United Arab Emirates and Middle East, the United States of Cash and bank balances 6,769 7,206
America and Mauritius. These are classified as at “fair value through profit and Curre nt a sse ts 53,953 5 3 , 115
loss”. As per financial statements for the year ended March 31, 2013, fair valuation Payables (1,514) (2,764)
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of listed securities is undertaken on the basis of market price and fair valuation of
investment in unlisted securities is performed on the basis of net asset value per
share.
Due to related parties
Curre nt lia bilitie s
Bank loan (@ 7.99%)
(5,853)
(7 , 3 6 7 )
(60,000)
(9)
(2 , 7 7 3 )
(60,000)
Convertible notes (6,046) (5,484)
• quoted short-term investments of USD 7.8 million. These companies are listed on
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Provision for employee's end of service gratuities (1,423) (1,151)
the stock exchanges of United Arab Emirates and United States of America. These Non- c urre nt lia bilitie s (6 7 , 4 6 9 ) (6 6 , 6 3 5 )
Ne t a sse ts 17 0 , 3 2 0 16 9 , 3 2 0
are marked to market using the last bid price at the date of financial statements.
Share capital 6,723 6,723
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• unquoted short-term investment of USD 15.2 million. The fair value of this Share premium 42,699 42,699
investment was determined on the basis of last bid price provided by a registered Retained earnings 120,898 119,898
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stock broker in the United Arab Emirates. Tota l e quity 17 0 , 3 2 0 16 9 , 3 2 0
• receivables from related parties of USD 17.9 million. Shareholding % of paid- up capital held by the Bank 8.03%
SP
Exchange rate as at November 28, 2014 101.8828

• cash and bank balances of USD 6.8 million.
Ba nk's sha re of ne t a sse ts of ECL (Rs in milion) 1, 3 9 3 . 4
Details of the above assets are not available including underlying financial models and
other information used to determine the fair values of the assets of ECL.
DI
152
R
DE
Taking into account various factors, the nature of limited information
OR
available and uncertainties involved, the carrying value of ECL has been
considered to be in the range of Rs 550 million to Rs 1,155.3 million
T
As per the un-audited management accounts of ECL for the half-year ended September 30, Statement of Comprehensive Income
UR
2014, net assets amount to USD 170.3 million. Based on the exchange rate as at November Half-year Year Year
28, 2014 of Rs 101.8828/USD and the shareholding percentage of 8.03%, the Bank’s share ended ended ended
of net assets of ECL works out to Rs 1,393.4 million. USD in thousand 30-Sep-14 31-Mar-14 31-Mar-13
CO
Based on the above information, the factors considered in respect of the Bank’s investment Inc ome
Management / advisory fee 1,030 2,060 2,618
in ECL included the following:
Gain on fair valuation of investments 728 2,460 5,880
• There is limited information available on ECL. The last audited financial statements Profit from share trading - 517 776
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Dividend income 31 456 759
available with the Bank relate to the year ended March 31, 2013.
Other income 94 185 236
• As per the un-audited management accounts of ECL for the half-year ended September 1, 8 8 3 5,678 10 , 2 6 9
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Expe nse s
30, 2014, the Bank’s share of net assets of ECL works out to Rs 1,393.4 million.
Administration, selling and general
• As discussed above, details relating to assets of ECL are not available. expenses (1,687) (3,351) (4,002)
Finance costs (144) (1,378) (5,041)
UN
• The net assets approach (where appropriate) represents a “controlling interest” level of
value. As the Bank’s investment in ECL represents a minority investment in an unlisted
(1, 8 3 1)
52
(4 , 7 2 9 )
949
(9 , 0 4 3 )
1, 2 2 6
entity, therefore, estimates of value should account for appropriate discounts. Source: Management Information
• As far as we are aware, the Bank has never received dividends from ECL.
ED
• Based on price of last share issue made by ECL of USD 1 per share and the exchange rate
as at November 28, 2014 of Rs 101.8828/USD, the estimate of value of Bank’s investment
in ECL works out to Rs 550.2 million. However, we are not aware of the circumstances
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and considerations underlying this share issue nor do we have any information on the
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basis of valuation used for this share issue.

Taking into account various factors (including those listed above), the nature of limited
information available and uncertainties involved, the carrying value of ECL has been
SP
considered to be in the range of Rs 550 million to Rs 1,155.3 million.

DI
153
R
DE
Net asset value of the Bank’s investment in mutual funds is Rs 884 million
OR
T
Investments in associates - mutual funds
UR
Direct Net asset Net Provision for
holding No. of value per asset dim inution in the Book
Rupees in m illion of Bank units share value Cost value of investm ent value
CO
Rupe e s Note
KASB Asset Allocation Fund 91.5% 6,473,552 43.1200 279.1 298.4 (19.3) 279.1
KASB Cash Fund 33.3% 1,092,502 105.5996 115.4 113.4 - 113.4
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KASB Income Opportunity Fund 92.1% 3,361,101 71.6000 240.7 328.8 (88.1) 240.7
KASB Islamic Income Opportunity Fund 40.5% 1,037,084 104.1200 108.0 103.5 - 103.5
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Crosby Dragon Fund 91.8% 1,343,240 105.1300 141.2 110.8 - 110.8
884.4 954.9 (10 7 . 4 ) 847.5
Note: The Bank has recorded provision for impairment in accordance with its accounting policy of recording investments in associates at cost less
provision for impairment.

UN
In respect of net asset value of the investment in units of mutual funds as at November 30, 2014, we traced
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number of units from the fund account statements as at November 28, 2014 and the net asset value per unit as
at November 28, 2014 from www.mufap.com.pk.
The Bank has classified investment in 5,019,070 units of KASB Asset Allocation Fund and investment in
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1,343,240 units of Crosby Dragon Fund as “strategic investments” in accordance with BPRD Circular letter
No.16 dated August 1, 2006 issued by SBP.
LA
SP
DI
154
R
DE
As at November 30, 2014, the carrying value (net of provision) of investments
OR
in associated companies amounted to approximately Rs 1,114 million
T
Investments in associates - companies
UR
Direct No. of Provision Investm ent
shareholding shares / Book for net of
Rupees in m illion of Bank certificates value im pairm ent provision Com m ents
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A s s o c ia t e s - lis t e d c o m pa ny
KA SB M o daraba 21.73% 10,446,767 91.7 - 91.7
A rights issue o f 19,792,800 certificates was made at a price o f Rs 5 per certificate by the M o daraba in Octo ber 2014. B ased o n Discussio ns with M anagement, we understand that the B ank did no t participate in the rights issue.
This resulted in a decline in the B ank’ s shareho lding in the M o daraba fro m 36.95% in December 2013 to 21.73% in No vember 2014. We wo uld like to po int o ut that we are no t aware o f the certificate ho lders who subscribed to the
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rights issue and the basis o f the price o f Rs 5 per certificate at which this issue was made.
We have been pro vided with the unaudited balance sheet as at No vember 30, 2014 and pro fit and lo ss acco unt fo r the perio d o f five mo nths ended No vember 30, 2014 o f the M o daraba. The net assets o f the M o daraba, as per its
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unaudited balance sheet as at No vember 30, 2014, amo unted to Rs 379.5 millio n.
A s per info rmatio n available o n www.ksesto cks.co m, certificates o f the M o daraba traded o n o nly 97 days during the perio d fro m January 1, 2014 to No vember 30, 2014 with an average vo lume o f 65,830 certificates per day. The
market value o f certificates o f the M o daraba ranged between Rs 2.2 per certificate to Rs 5.1per certificate during this perio d. The market value o f the certificates o f the M o daraba as at No vember 30, 2014 was Rs 4 per certificate.
UN
B ased o n the assumptio n that the rights issue was made at fair value, we have assumed the value o f the B ank’ s investment in the M o daraba to be Rs 52.2 millio n using the abo ve price o f Rs 5 per certificate. Co nsequently, we
have reco mmended a pro visio n o f Rs 39.5 millio n against the B ank’ s investment in the M o daraba.
A s s o c ia t e s - unlis t e d c o m pa nie s
KA SB Funds Ltd. 43.89% 14,123,622 432.3 370.2 62.1
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The M anagement has no t pro vided us with financial pro jectio n o f KFL o n a standalo ne basis. Co nsequently, we co nsidered the market appro ach to determine an indicative valuatio n o f KFL. P lease refer 'Valuatio n Repo rt' fo r
indicative valuatio n o f KFL. In additio n, please refer sectio ns 47-60 fo r financial and tax due diligence o f KFL.
New Ho rizo n Explo ratio n and P ro ductio n Ltd. 23.37% 61,600,000 558.0 250.0 308.0
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KA SB Capital Ltd. 21.78% 283,000 41.9 17.9 24.0

Shakarganj Fo o d P ro ducts Ltd. ("SFP L") 40.20% 60,950,000 627.9 - 627.9
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We were pro vided with financial pro jectio ns o f SFP L. Ho wever, we had limited access to SFP L's management. In additio n, we received very limited info rmatio n fro m SFP L and we have no t received certain material info rmatio n
that we had requested. Co nsequently, we were o nly ale to carry o ut a "high-level price analysis" o f B ank's investment in Shakarganj Fo o d P ro ducts Ltd. In this regard please refer the 'Valuatio n Repo rt'.
1,7 5 1.8 6 3 8 .1 1,113 .7
SP
Note: The investment of the Bank in 61.6 million shares of New Horizon Exploration and Production Ltd has been classified as “strategic investment” in accordance with BPRD Circular letter No. 16 dated August
1, 2006 issued by SBP.
DI
155
R
DE
NHEPL’s exploration licenses for Kunri Block and Jherruk Block have expired,
OR
whereas the Tajikistan block has been abandoned due to shortage of funds
T
• NHEPL is an unlisted public limited company and was incorporated, under the New funding
UR
Companies Ordinance, 1984 on June 2, 2005. Its registered office is in Karachi,
Pakistan. • The Management of NHEPL has provided us with an
agreement between New Horizon Exploration and Production
• The company’s principal activity is exploration, development and production of oil
CO
Ltd., a company incorporated in BVI (“NHEPL-BVI”), GEM
and gas resources. As per financial statements for the year ended December 31, 2013, Investments America, LLC (“GEMIA”) and Citic-Gem Ltd.
the company has working interests in the following petroleum concessions: (“CGL”) under which:
Kunri Block: NHEPL and KEC have working interest of 60% and 40%, respectively, i. NHEPL-BVI is required to acquire an existing listed
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in Block no. 2468-7. The exploration license for first phase of Kunri Block expired on canadian company (“CaCo”) through “reverse acquisition”;
June 5, 2012. As per the cover letter of the external auditors of NHEPL dated August and
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18,2014, NHEPL applied for extension during the license period, however, this
extension was not granted by the DGPC. ii. GEMIA would place up to Canadian Dollars 70 million with
CGL for onward investment in CaCo.
As the recoverability of the pre-commencement discovery expenditure in respect of
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the block appeared to be remote, this expenditure was written off in 2013. The co-
owners filed an application with DGPC for transfer of remaining work commitment of
• The above funds would then be transferred to NHEPL against
issue of NHEPL’s shares to CaCo and will be utilised to fulfil
the remaining work commitments of Kunri and Jherruck
Kunri Block to Jherruck Block. We have been informed by the Management of
NHEPL that response to the application has not been received. As per letter issued by blocks.
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the external auditors to the board of directors of NHEPL, dated August 18, 2014, the • However, we understand that search for the CaCo is currently
company may be liable to liquidated damages depending on DGPC’s response to the on hold, pending renewal/extension of exploration licenses.
application. As per the financial statements for the year ended December 31, 2013,
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these liquidated damages were estimated at Rs 375.4 million.

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Jherruck Block: NHEPL, PPL and KEC have working interests of 30%, 30% and
40%, respectively, in the exploration license for Block no. 2468-9. DGPC granted
extension in first phase of exploration license till December 31, 2014 to undertake
SP
remaining outstanding minimum work commitment.

DI
156
R
DE
NHEPL’s exploration licenses for Kunri Block and Jherruk Block have expired,
OR
whereas the Tajikistan block has been abandoned due to shortage of funds
(cont’d)
T
We have been informed by the management that NHEPL has applied for an Balance Sheet Unaudited Audited
UR
additional extension of 18 months to enable the company to complete the remaining Rupees in m illion 30-Nov-14 31-Dec-13
work commitment. However, response to the application has not been received. Property, plant and equipment and intangibles 0.2 1.4
Tajikistan: NHEPL and Hassan & Company Ltd., a Tajikistan company, have Pre- commercial discovery exploration expenditure 351.2 341.9
CO
Long term deposits and prepayments 7.0 6.7
entered into an agreement under which NHEPL is required to provide financial Non- c urre nt a sse ts 358.4 350.0
resources, technical competence, experience and professional skills to carry out work
Advances, deposits, prepayments and other receivables 3.6 3.8
to improve oil and gas production in the Sulduzy Field of Tajikistan. Under the Due from concessions 26.3 6.1
agreement, 50% of the daily incremental production after recovery of all costs and
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Stores and spares 58.8 58.8
investment incurred by NHEPL will belong to the company. As per the financial Cash and bank balances 3.5 1.1
statements of NHEPL, due to shortage of funds, the project has been abandoned.
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Curre nt a sse ts 92.2 69.8
Non- current assets held for sale - 44.9
• As per the management accounts for the 11M 2014, NHEPL has net assets of Rs 284.7
450.6 464.7
million. Total assets of Rs 450.5 million consist mainly of pre-commencement
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discovery exploration expenditure of Rs 351.2 million and stores and spares of Rs
58.8 million which have remained unused for approximately three years. As per letter
issued by the external auditors, these stores and spares need to be evaluated for
Finance lease - current portion
Short term borrowings
Accrued Interest / mark- up
Accruals. trade, staff and other payables
-
28.6
1.9
104.4
0.3
103.1
3.5
110.4
impairment/obsolescence. Curre nt lia bilitie s 13 4 . 9 2 17 . 3
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• Based on Discussions with Management, we understand that: Obligation under finance lease - 0.3
Loan from investors / sponsors 31.0 -
• NHEPL issued 14,630,339 class ‘A’ shares on December 31, 2014 against Non- c urre nt lia bilitie s 3 1. 0 0.3
outstanding borrowings of USD 130,000 from KASB Capital Ltd, along with Ne t a sse ts 284.7 247.1
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interest accrued thereon. In addition, the company also issued 31,369,661 class ‘A’ Share capital - class A (@ Rs 1 per share) 150.0 150.0
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shares, on the same date, against borrowing of Rs 31 million from Mr. Nasir Ali Share capital - class B (@ Rs 10 per share) 1,135.8 1,135.8
Shah Bukari. Discount on issuance of shares (380.4) (380.4)
Retained earnings (620.7) (658.3)
• Mr. Mehmood Ali Shah Bukhari also invested Rs 4 million in class ‘A’ shares of Tota l e quity 284.7 247.1
SP
NHEPL at par value as at December 31, 2014. Source: Management Information
• NHEPL has borrowings of Rs 14.9 million from the Bank at the rate of 3M KIBOR +
2.5%.
DI
157
R
DE
Taking into account various factors, we have recommended provision against
OR
the carrying value (net of provision) of the Bank’s investment in NHEPL
T
• Based on the above information, the factors considered in respect of the Bank’s Profit and Loss Unaudited Audited
UR
investment in NHEPL included the following: Rupees in m illion 11M 2014 2013
• the company is facing a shortage of funds. General and administrative expenses (23.5) (72.6)
CO
• the exploration license for Kunri and Jherruck Block have expired. Less: allocation of expenses to:
Kunri Block - 0.5
• responses to applications filed with DGPC for transfer of remaining work Jherruck Block 22.1 60.2
commitment of the Kunri Block to Jherruck Block and extension in exploration 22.1 60.7
Pre- commencement and exploration expenditure,
license for the Jherruck Block have not been received.
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written off - (484.2)
• the company has abandoned the Tajikistan block. Other operating expenses (1.5) (1.8)
DE
Other income 47.6 14.0
• total assets of Rs 450.5 million of the company consist mainly of pre- O pe ra ting inc ome / (loss) 44.7 (4 8 3 . 9 )
commencement discovery exploration expenditure of Rs 351.2 million and stores
Finance cost (7.1) (11.6)
and spares of Rs 58.8 million which have remained unused for approximately three
years. UN
• In view of the above factors, we have recommended provision against the carrying
P rofit/ (loss) for the pe riod 37.6 (4 9 5 . 5 )
Note: Other income in 11M 2014 consists mainly of gain of Rs 36.4 million on sale of assets.
This includes gain of Rs 35.2 million on sale of leasehold land and building.
value (net of provision) of the Bank’s investment in NHEPL. Source: Management Information
Y ED
LA
SP
DI
158
R
DE
As per management accounts for 11M 2014, the assets of KCL mainly includes
OR
an investment of USD 0.96 million in NHEPL and a loan of USD 0.13 million to
NHEPL
T
• KASB Capital Ltd. (“KCL”) is a limited liability company incorporated on June 24, Balance Sheet Unaudited Audited
UR
2008 and domiciled in Mauritius. The company is an investment holding company Currency in USD 30-Nov-14 31-Mar-13
and an investment dealer. Plant and equipment 2,260 3,241
• Tek Capital Ltd. holds 1,016,500 shares (78.22%) of the company while the Financial assets at fair value through profit or loss 963,960 929,682
CO
Long- term deposit - 7,190,147
remaining 283,000 shares (21.78%) are held by the Bank. The company has Deferred income tax assets 16,948 16,675
borrowed USD 50,000 from Mr. Khalid Zia at an interest rate of 20%. The interest Non- c urre nt a sse ts 9 8 3 , 16 8 8 , 13 9 , 7 4 5
accrued on the borrowing as at November 30, 2014 amounted to USD 56,009. Other receivables 147,235 364,779
R
• Based on management accounts for 11M 2014, the assets of KCL mainly include the Short- term deposits 205,190 -
Cash and cash equivalents 141,127 123,894
following:
DE
Curre nt a sse ts 493,552 488,673
• Investment in 19,625,600 class ‘B’ shares of NHEPL. These shares were acquired Curre nt lia bilitie s
by the company at a price of Rs 5 per share i.e. at a discount of Rs 5. Trade and other payables 684 32,555
• loan of USD 130,000 to NHEPL at an interest rate of 3% per annum. Other

UN Non- c urre nt lia bilitie s
Borrowings 106,009 7,370,520
receivables include unpaid interest of USD 15,268 on this loan. As per
Discussions with Management, the loan and interest thereon were converted to Ne t a sse ts 1, 3 7 0 , 0 2 7 1, 2 2 5 , 3 4 3
14,630,339 class ‘A’ shares of NHEPL on December 31, 2014. Share capital 1,299,500 1,299,500
ED
The remaining amount of ‘other receivables’ consists of income tax receivable of Revenue surplus/(deficit) 124,857 (28,700)
Other components of equity (54,330) (45,457)
USD 1,967.
1, 3 7 0 , 0 2 7 1, 2 2 5 , 3 4 3
• short term deposits of USD 205,190 with Afrasia Bank Ltd. at 0.1% per annum.
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• balances with banks amounting to USD 141,127.

LA
• After adjusting for the above investment and loan (including interest) to NHEPL,
the company’s net assets amount to USD 260,799.
SP
• As at November 30, 2014, the carrying value (net of provision) of the Bank’s
investment in KCL was Rs 24 million. We have not been provided with working for
assessment of impairment of the Bank’s investment in KCL.
DI
159
R
DE
After adjusting for the investment and loan (including interest) to NHEPL, the
OR
company’s net assets amount to USD 0.26 million. Break-up value of Bank’s
shareholding in KCL based on adjusted net assets works out to Rs 5.8 million
T
• The break-up value of the Bank’s shareholding in KCL, based on the adjusted net
UR
assets of USD 260,799 (at the exchange rate of Rs 101.8828/USD as at November 28,
2014), works out to Rs 5.8 million.
• We would like to highlight that in cases where the net assets approach is appropriate,
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it represents a “controlling interest” level of value. In addition, KCL is an unlisted
entity. Therefore, appropriate discounts may be applicable. However, in the absence
of information, we have adjusted the carrying value (net of provision) of the Bank’s
investment in KCL on the basis of the above estimated break-up value.
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DE
• As per Management Information: Profit and Loss Unaudited Audited
• Revenue of USD 568,082 was earned on a deposit which had been maintained Currency in USD 30-Nov-14 31-Dec-13
during the 11M 2014.

UN
with Nord Finanz at 12% per annum during the year. The deposit was withdrawn Revenue
Administrative expenses
Other gains and losses
572,318
(236,245)
83,666
929,746
(184,625)
• Finance cost includes interest on long-term euro borrowing which had been Operating profit 4 19 , 7 3 9 7 4 5 , 12 1
obtained from Tek Capital Ltd. at 6% per annum. The borrowing was repaid
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Finance income 613,292 268,693
during 11M 2014. Finance cost (879,440) (874,859)
Proft/(loss) before tax 153,591 138,955
• Finance income of USD 613,292 and finance cost of USD 592,100 relates to Income tax (34) (17,626)
Y
exchange gain/loss on revaluation of long term borrowing/deposit on October P roft/ (loss) for the ye a r 15 3 , 5 5 7 12 1, 3 2 9
23, 2014, when the borrowing from Tek Capital Ltd. was repaid using deposit Source: Management Information
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placed with Nord Finanz.

• Administrative expenses consist mainly of professional and legal expenses of
USD 100,000 incurred in respect of ‘Darra Capital’ and USD 89,380 incurred in
SP
respect of Mr. Waqar Ahmed Malik. Nature of the expenses have not been
provided by Management.
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160
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As at November 30, 2014, the carrying value (net of provision) of investments
OR
in subsidiaries amounted to approximately Rs 1,388 million
T
Investment in subsidiaries
UR
Shareholding of No. of Book Provision for Investm ent net
Rupees in m illion Bank shares value im pairm ent of provision Com m ent
Liste d
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KASB Securities Ltd. 77.12% 77,121,500 2,394.9 1,037.9 1,357.0 Please refer 'Valuation Report'.
Un- liste d
My Solutions Corporation Ltd. 100.00% 25,000,000 104.8 74.0 30.8 We have adjusted the net carrying value of the Bank’s investment in MSC of Rs 30.8
million. Please refer 'Valuation Report'. In addition, please refer sections 36- 46 for
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financial and tax due diligence of MSC
2,499.7 1, 111. 9 1, 3 8 7 . 8
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UN
Y ED
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SP
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161
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8 Operating fixed assets Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Surplus on revaluation of buildings recorded on September 30, 2014 was
OR
computed with reference to the book value of buildings without taking into
consideration the book value of leasehold improvements/renovations
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Operating fixed assets • We have reviewed the depreciation expense for 11 M 2014 based on the fixed assets
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Accum ulated
depreciation / register.
am ortisation / Net book Depreciation
• Based on Discussions with Management, we understand that the last physical count
Rupees in m illion Cost im pairm ent value rate
of fixed assets was performed in 2010. We have been informed that FAMCO
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P rope rty a nd e quipme nt Associates (Pvt.) Ltd. was appointed to perform, interalia, a physical count and
Freehold land 302.8 - 302.8 - tagging of fixed assets as at September 30, 2013 and to make a reconciliation to the
Leasehold land 62.0 - 62.0 -
Buildings 1,061.3 8.6 1,052.7 5%
fixed assets register as at October 31, 2014. However, as per Management of the Bank,
the exercise has not been completed.
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Renovations 645.7 212.2 433.5 5%
Furnitures and fixtures 213.2 140.7 72.5 10%
We have been informed that the Bank sold certain assets in 2014. However, these
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Motor vehicles 42.8 26.1 16.7 20%
Electrical, office and could not be tagged to the fixed assets register and the cash received by the Bank of
computer equipment 922.2 817.6 104.6 20%- 33% Rs 2.3 million was recorded in ‘Other liabilities’.
3,250.0 1, 2 0 5 . 2 2,044.8
In the absence of proper tagging and regular physical count of assets, there is a risk of
Capital work- in- progress
Intangible assets
Total
734.8
526.2
4 , 5 11. 0
361.0
340.1
1, 9 0 6 . 3
UN
373.8
186.1
2,604.7
assets being overstated.
• The land and buildings owned by the Bank were revalued in 2014 and the impact of
revaluation of these fixed assets was recorded in the interim financial statements for
the period ended September 30, 2014. During our review of the working for
ED
Source: Management Information calculation of surplus arising on revaluation of fixed assets, we noted that the surplus
on revaluation of buildings was computed with reference to the book value of
As at December 31, 2014, unused operating fixed assets amounted buildings without taking into consideration the book value of leasehold
Y
to Rs 216.1 million. These include, Rs 105.5 million in respect of improvements/renovations.

LA
‘Ittehad Property’, Rs 80 million relating to ‘Islamabad Plots’ and In connection with the above, Management provided us with a list of renovations
Rs 24.3 million relating to ‘Ahmer Arcade’. made to buildings on freehold land and leasehold land as at November 30, 2014. The
net book value of these renovations amounted to Rs 63.3 million. In addition, we
SP
noted that incremental depreciation relating to surplus on revaluation of fixed assets

was not recorded by the Bank for October 2014 and November 2014.
The total impact, net of tax, of the above adjustments works out to Rs 43.4 million.
DI
162
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Legal opinions of M. Ishaq Ali & Co. in respect of the ownership and saleability
OR
the Bank’s land and buildings have highlighted certain missing documents
necessary for establishing ownership and/or saleability of the properties
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• The Management has provided us with legal opinions of M. Ishaq Ali & Co. in respect of the ownership and saleability of each of the Bank’s freehold land,
UR
leasehold land and buildings. In these legal opinions, the lawyer has highlighted certain missing documents which they consider necessary for establishing
ownership and/or saleability of the properties. The Management has informed us that they are in the process of arranging these documents after which they
will request the lawyer to provide revised legal opinions for each property.
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• In this regard, we have requested Management of the Bank to share the revised legal opinions in respect of the properties with the professional valuer,
Maricon Consultants (Pvt.) Ltd., so that their impact on market value and forced sale value of the relevant property, if any, is determined. The Management
has agreed to do the same once the lawyer provides the revised legal opinions
• Revisions, if any, made by Maricon Consultants (Pvt.) Ltd., consequent to the above exercise, may result in an adjustment to the carrying value of the
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operating fixed assets.
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• The information available on properties, including a list of the missing documents to be arranged by the Bank and market value and FSV determined by
Maricon Consultants (Pvt.) Ltd. is summarised on the following two pages.
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SP
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163
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DE
FSV of freehold land and building is Rs 385.5 million. As per Management
OR
Information, the ‘Islamabad Plots’ which have a FSV of Rs 68 million are not
currently in use of the Bank
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UR
Freehold land and building
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Circular Road Basement, Ground, 1st, 2nd floors, Survey 35.1 25- Aug- 14 35.1 30.8 - Fresh non- encumbrance certificate.
Lahore SE 38 R/77, Circular road, Lahore - PT- 1 along with change of name from Platinum Commercial Bank Ltd. to the Bank
and PT- 10
- Deed of amendment/admission to be executed in favour of the Bank.
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KASB House Commercial Plot No.14 & 14- C Known as 190.2 25- Aug- 14 190.5 171.5 - Fresh non- encumbrance certificate;
KASB House, Main Gulberg, Lahore - Up- to- date property tax and NOC to sell from concerned Patwari Office.
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- PT- 1 along with change of name from IHFL to the Bank and PT 10.
- Commercialization letter of LDA dated April 1, 1998.
- Placement letter/transfer letter from LDA in favour of the Bank.
Islamabad 20 plots situated at DHA, Islamabad 80.0 25- Aug- 14 80.0 68.0 - No demand certificates.
Plots
Jodia Bazar
Karachi
Plot No. NP- 10/44, Main Daryalal street,
Jodia Bazar Karachi
UN 47.1 15- Aug- 14 47.2 41.5 - search certificates from July 26, 2010 to date.
- mutation/fresh extract form.
- NOC to sell from the concerned Mukhtiarkar office.
Gul Tower Room No. 301- 302/401- 402/407/410 Gul 14.2 18- Aug- 14 14.3 12.1 - Up- to- date search certificates.
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Tower I.I.Chundrigar road, Karachi - PT- 1 along with change of name from Network Leasing Corporation Limited and PT-
10.
- Deed of amendment/admission to be retrieved.
Preedy Street Shop No 1 & 2, Ground & 1st Floors, Preedy 71.9 11- Aug- 14 72.5 61.6 - 'Up- to- date search certificates.
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Karachi street Saddar, Karachi

Tota l 438.5 439.6 385.5
LA
Note: Net book value of renovations is not included in the above book value.

SP

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164
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FSV of leasehold land and building is Rs 838.6 million. As per Management
OR
Information, ‘Ittehad Property’ and ‘Ahmer Arcade’ with an aggregate FSV of
Rs 110.4 million are not currently in use of the Bank
T
UR
Leasehold land and building
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Capital Plaza Donolly Road 2nd + 3rd + 6th Floor 138.9 11- Aug- 14 140.3 119.2 - search certificates from June 4, 2005 to date.
Business and I.I Chundrigar Road, Ground, Mezzanine, 1st 446.6 18- Aug- 14 450.3 382.7 - search certificates from June 1, 1999 to date.
Finance and 2nd floor - deed of amendment/admission.
Centre
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Sahil Commercial 2/3, Block- 3, Shahrah- e- Saadi, 66.5 18- Aug- 14 67.0 56.9 - search certificates from September 29, 2009 to date.
Prominade Kehkashan Clifton, Karachi (Ground +
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Mezzanine Floor) Sahil Prominade
Progressive Room No. 315- 318 Progressive Plaza Plot No 56.4 11- Aug- 14 56.9 48.4 - search certificates from December 12, 2004 to date.
Plaza 5 Street No Cl 10 Civil Lines Quarters - PT- 1 along with change of name from IHFL to the Bank and PT- 10.
Beaumont Road, Karachi - Deed of amendment/ admission to be executed in respect of change of name.
Gulshan- e-
Iqbal Branch
Karachi
Ground Floor with Mezzanine floor, Plot No
SB- 36, KDA scheme 24, Karachi UN 90.9 15- Aug- 14 91.7 77.9 - search certificates from October 5, 1998 to date.
- PT- 1 along with change of name from Platinum Commercial Bank Ltd. to the Bank
and PT- 10.
- Deed of amendment/ admission to be executed in respect of change of name.
Ittehad Plot no.6- C / 8- C 1 & II Phase II E ext 105.2 11- Aug- 14 105.5 89.7 - search certificates from June 10, 2014 to date.
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Property - no demand certificate and NOC to sell.
- in respect of plot 8- C/1, transfer order from D.H.A. in favour of the Bank.
SITE Branch Ground Floor / Mezzanine Floor on plot no, 50.3 18- Aug- 14 50.7 43.1 - search certificates from January 25, 2007 to date.
Karachi B/9- B/1, S.I.T.E., Karachi
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Ahmer Arcade Office M- 1 Mezzanine floor on plot no. 2/172- 24.1 11- Aug- 14 24.3 20.7 - search certificates from January 1, 2012 to date.
U, Survey no. 35- P/1, Ahmer Arcade, Main
LA
Tariq Road.
Tota l 978.9 986.7 838.6
Note: Net book value of renovations is not included in the above book value.
SP

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We recommend that provision should be made against the carrying amount
OR
(net of provision) of the advance made to KDPL for acquiring four floors in
KASB Altitude
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Capital work-in-progress Advance for acquiring floor / office premises
UR
Rupees in m illion
• The Bank entered into an agreement with KASB Developers (Pvt.) Ltd. (“KDPL”) in 2008 for the purchase
Advance for acquiring floors / office premises 721.9 of the 11th, 12th, 17th and 18th floors in KASB Altitude, a building under construction at Marine Promenade
Provision for impairment (361.0) in Karachi, for a purchase consideration of Rs 947 million. The project was to be completed in December
CO
360.9
Other advances 2.3
2012. However, as per Management of the Bank, the construction was suspended due to unauthorized
Civil works 2.8 parking of oil tankers around the project site for which legal process was initiated.
Computer software 7.8
373.8
• The Management of the Bank has informed us that, as per discussion with KDPL, the constructed portion
of KASB Altitude as of January 22, 2015 comprises of two basements, ground floor and nine floors. The
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Bank has not appointed an independent surveyor/contractor to assess the completion status of the
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project.
Commitments for acquisition of operating • We understand that the Bank has made advance payments of Rs 721.9 million for the project. Due to the
fixed assets amount to Rs 235 million. This above, vide letter dated June 14, 2012, the SBP imposed certain conditions on payment of the remaining
includes an amount of Rs 225.1million
relating to payment to be made to KDPL in
UNamount. These conditions included that KDPL allocate four constructed floors to the Bank in place of the
four floors initially allocated by them. However, KDPL did not agree to this reallocation.
respect of floors in KASB Altitude.
• The Bank’s Management has informed us that KDPL requires additional funding of approximately Rs 1.5
billion in order to complete the project. However, we understand that except for the Bank, no other person
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has booked any floor, or portion of a floor, in KASB Altitude. We have also not been provided with the
financial statements of KDPL.
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• The owner of KDPL, Mr. Arif Ali Shah Bukhari (“AASB”), proposed a restructuring plan in 2013. The
features of this plan are summarised below:
LA
• conversion of advance payment of Rs 721.9 million to a four-year term finance facility payable at
maturity.
SP
• the Bank to provide a new loan for four years of Rs 200 million to AASB which would allow him to settle
his liability with Bank of Punjab (“BoP”), obtain title documents of land and building of KASB Altitude
(mortgaged with BoP) and mortgage the property with the Bank. This loan would also be payable at
DI
166
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DE
We recommend that provision should be made against the carrying amount
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(net of provision) of the advance made to KDPL for acquiring four floors in
KASB Altitude (cont’d)
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Exposure of Bank to AASB maturity. The Bank would then release the property in Malir mortgaged against running finance facility
UR
Outstanding provided to AASB to enable him to obtain loans from other sources to complete the project.
Rupees in m illion Nature balance
• restructuring of the running finance facility of Rs 248.5 million and its conversion to term finance
Running financ e Funded 248.5 facility for a period of 4 years with payment at maturity.
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Bank guarantee Non- funded 37.8
Advanc e for aquiring floors CWIP 721.9 • mark-up at 6% per annum to be charged on total term finance facility of Rs 1,170.4 million to be paid on
/ offic e premises quarterly basis after grace period of two years.
Based on Management Information, we understand that • accrued mark-up of Rs 76.3 million a running finance to be converted to term finance facility for a
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the running financ e fac ility was c lassified by the Bank in
June 2011 due to non- payment of mark- up.
period of 4 years with payment at maturity. No mark-up is to be charged on this loan.
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• bank guarantee of Rs 37.81 million to remain valid and extended from time to time, and secured against
The running financ e fac ility and the bank guarantee are
sec ured by equitable mortgage over properties situated in
property in PECHS.
Malir and P.E.C.H.S. The FSV of these properties were Rs The Bank submitted the above restructuring plan to SBP on June 21, 2013 for approval. However, SBP has
226.7 million and Rs 82.8 million, respec tively, as per
valuation reports dated Marc h 20, 2014 and Oc tober 14,
2014.
UN
not given approval to this restructuring plan.
The Management of the Bank, based on discussions with the external auditor, made a provision of Rs 361
Source: Management Information million against this advance in 2012.
ED
In view of the above and taking into consideration that the floors purchased by the Bank have not been
constructed, the project is faced with funding issues and KDPL has not responded to requests sent by the
Bank in 2014 for updates on development work of KASB Altitude, we recommend that provision should
also be made against the remaining amount of Rs 360.9 million.
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LA
SP
DI
167
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DE
The remaining CWIP relates mainly to different software modules / sub-
OR
systems under development
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Capital work-in-progress Other advances
UR
Rupees in m illion
• This mainly relates to mobilisation advance paid for renovation of Bahria Town branch in Lahore.
Advance for acquiring floors / office premises 721.9
Provision for impairment (361.0) Civil works
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360.9
• This mainly includes transfer deed documentation charges paid in respect of Bank’s ‘Ittehad Property’ in
Other advances 2.3
Civil works 2.8 Karachi. The documentation is in process and is being completed by Shanasa Enterprises. As at November
Computer software 7.8 30, 2014, these charges amounted, in aggregate, to Rs 1.54 million.
373.8
• In addition, civil works includes approximately Rs 1 million relating to payments made to various vendors
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for electrical / cabling and revamping of IT data centre at 6th floor of Capital Plaza. As per Management of
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the Bank, the work is substantially complete. At present, testing and ancillary works are in progress.
Computer software
• This pertains to different software modules / sub-systems under development. In this regard,
UNapproximately Rs 1 million was paid to ‘Innovarge’ for development of HRIS software, Rs 1.5 million was
paid to ‘Emmaculate’ for deployment of home remittance software and Rs 0.9 million was paid to ‘Oratech’
for SBP reporting chart of accounts software development.
Y ED
LA
SP
DI
168
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DE
We have recommended provision against the carrying value of the ‘foreign
OR
affiliate relationship’ intangible asset due to termination of the cooperation
arrangement with Merril
T
Intangible assets We have reviewed the amortisation expense for 11M 2014 based on the fixed
UR
Accum ulated Net book assets register.
Rupees in m illion Cost am ortisation value Am ortisation rate
! Computer software mainly relates to MISYS Software which has a book
! Computer software 316.8 229.2 87.6 33% value of Rs 55 million. Other software mainly include modules and sub-
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@ Customer list 30.7 21.6 9.1 10% modules in respect of remote banking, mobile banking and home
# Foreign affiliate relationship 89.3 - 89.3 Indefinite useful life
remittance software.
Contract and mandates 89.4 89.4 - -
526.2 340.2 18 6 . 0 @ The Bank acquired and then merged with International Housing Finance
Ltd. (“IHFL”) in 2007. As part of the purchase price allocation exercise,
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‘customer list’ of IHFL was identified and recognised as an intangible asset.
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# KASB Capital Ltd. was merged into the Bank in 2008. This company had
entered into a cooperation agreement with Merrill Lynch (Asia Pacific) Ltd.
(“Merrill”) in respect of investment banking activities in Pakistan. The
UN Bank had identified and recorded this relationship as an indefinite life
‘foreign affiliate relationship’ intangible asset with a value of Rs 89.3
million in 2008.
We have been informed that Merrill submitted a 30-day written notice of
ED
termination of the above agreement on December 1, 2014. Consequently,

the agreement was terminated on December 31, 2014. In view of the above,
we consider that the ‘foreign affiliate relationship’ intangible asset is
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impaired and recommend provision of Rs 89.3 million against the carrying

LA
value of this intangible asset.

SP
DI
169
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9 Lending to financial institutions Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
We have recommended provision against the net carrying value of Rs 24.3
OR
million of the outstanding loan to ICIBL
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Lendings to financial institutions
UR
Rupees in m illion
Overview of ICIBL
30-Nov-14 31-Dec-13
Clean placement 32.4 32.4
• As per ICIBL’s financial statements for the period of three months ended
Provision for impairment (8.1) - September 30, 2014, due to financial and operational difficulties during
CO
24.3 32.4 2009-2011, the company incurred substantial operating losses which
Call money lending - 300.0 impacted the company’s ability to comply with loan covenants.
Repurchase agreement lending - 730.6
24.3 1, 0 6 3 . 0 • The management implemented a plan to improve the financial and
Source: Management Information operational condition of the company. The plan consisted of (i) substantial
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reduction in administrative and other expenses without impacting
• The Bank granted a loan of Rs 40 million to ICIBL for three months. operational efficiency; (ii) recommencement of new leasing business; (iii)
DE
This loan was rolled-over on a periodic basis. ICIBL settled part of settlement / rescheduling of loans with lenders; (iv) disposal of non-core
principal and total outstanding mark-up on each roll-over upto June assets; and (v) disposal / transfer of brokerage related assets and liabilities.
7, 2012. On each subsequent roll-over, ICIBL only settled
UN
outstanding mark-up and did not make any payment on account of
the outstanding principal of Rs 32.4 million. ICIBL defaulted on
principal and mark-up payments on June 5, 2014.
• As at September 30, 2014, the company had accumulated losses of Rs. 613
million and net current liabilities of Rs 42.3 million. In addition, as per the
eCIB report dated November 30, 2014, the total borrowings of the company
amounted to Rs 209 million.
• The Management of the Bank have sent a number of reminders to
ED
ICIBL to settle the transaction. In addition, a meeting was held with

ICIBL on October 23, 2014. However, no agreement on settlement
was reached at this meeting. As per Management Information, the
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Bank has initiated legal proceedings against ICIBL.

LA
• As at November 30, 2014, the Bank had made provision against 25%
of the outstanding principal balance.
• In view of the above factors and considering the financial position of
SP
ICIBL, we have recommended provision against the net carrying

value of Rs 24.3 million of the outstanding loan to ICIBL.
DI
170
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DE
9 Lending to financial institutions Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
As at November 30, 2014, call money lending to Industrial and Commercial
OR
Bank of China of Rs 36 million was appearing as a ‘reconciling item’ in the
bank reconciliation statement
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Unrecorded lending to financial institution We noted that call money lending to Industrial and Commercial Bank of China (“ICBC”) of Rs 36 million
UR
Rupees in m illion was not recorded by the Bank as at November 30, 2014. The amount was appearing as a ‘reconciling
Deal No. 102- 001- 1000147- 2014 item’ in the bank reconciliation statement relating to ICBC. However, mark-up for 11M 2014 was accrued
Deal type Call Money Lending by the Bank in respect of this lending.
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Counter party Industrial and Commercial Bank of China
Face value 36
Start date 8- Apr- 14
Maturity date 10- Apr- 15
Mark- up rate 9.0%
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Mark- up accrued 2.0
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UN
Y ED
LA
SP
DI
171
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DE
10 Cash and balances with banks Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
As at November 30, 2014, the Bank had cash and bank balances of Rs 4,194
OR
million
T
Cash and balances with treasury banks • We have reviewed the available bank reconciliation statements of bank accounts of the Bank as
UR
Rupees in m illion 30-Nov-14 31-Dec-13 at November 30, 2014. In addition, the management informed us of the ‘reconciling items’
In ha nd which had subsequently been cleared up to December 23, 2014. The bank reconciliation
Local currency 906.9 817.8 statements are summarized on the following pages.
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Foreign currency 167.7 302.7
National prize bonds 0.6 3.1
1,075.2 1,123.6
With S ta te Ba nk of P a kista n
Local currency current account 2,678.4 3,163.7
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Foreign currency current account 1.1 1.8
Foreign currency deposit account 252.3 403.4
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2,931.8 3,568.9
With Na tiona l Ba nk of P a kista n
In local currency account 187.0 251.7
4 , 19 4 . 0 4,944.2
Source: Management Information UN
Balances with other banks
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Rupees in m illion 30-Nov-14 31-Dec-13
In P a kista n
On current account 39.5 21.8
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O utside P a kista n
On current account 244.7 232.9
LA
On deposit account 72.2 69.2

316.9 302.1
356.4 323.9
SP

DI
172
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DE
Bank reconciliation statements of accounts maintained with SBP
OR
T
Reconciliation of bank statements and general ledger as at November 30, 2014
UR
Balance as per
General Bank Differ-
ledger statem ent ence Com m ents Am ount
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- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Rupe e s - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Rupe e s
Ba la nc e s with S BP
Gulberg branch 0001- 000253- 001 110,000,822 109,882,571 (118,251) Charges relating to export refinance were debited by SBP during July 2014 and September 2014, (117,716)
however, these were not recorded by the Bank.
This represents a difference in interest on export refinance facility paid by the Bank to SBP. We have (535)
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not been provided with the reason for the difference by Management.
Sialkot branch 0022- 000253- 002 99,317,278 76,197,062 (23,120,216) This amount was debited by SBP, however, it was not recorded in the general ledger. It represents (23,120,216)
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repayment of borrowings of Rs 22.9 million (and interest of Rs 0.22 million) made under 'export
refinance scheme'. The borrowing related to Surgicon (Pvt.) Ltd. This was subsequently recorded by
the Bank on December 9, 2014.
Current 0098- 000253- 001 2,271,283,478 2,199,203,877 (72,079,601) The Bank upgraded its alternate delivery channel with Avanza Solution in January 2012. However, (9,358,595)
account UN due to an error in the system international transactions in foreign currency were credited to
customers' account without applying conversion rate. The error in the system was rectified in May
2012. However, this rectification could not be made to the account of one customer as the amount
(9,852,417)
he had spent due to the error was much greater than the balance in his account. The amount is still
receivable from the customer. Management has recorded a provision in respect of the balance.
ED
SBP imposed a penalty on the Bank for certain non- compliances identified during inspection. The (2,759,000)
Management has recorded an accrual in respect of this amount.
This represents cheque clearing balance debited by SBP on November 28, 2014 but not recorded (61,717,191)
by the Bank.
Y
We have been informed by Management that these reconciling items were subsequently cleared. 11,607,602
Remaining ten bank accounts 197,846,544 197,846,544 - No reconciling items. -
LA
2,678,448,122 2,583,130,054
SP
DI
173
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DE
Bank reconciliation statements of accounts maintained with SBP (cont’d)
OR
T
UR
Balance as per
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- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US D - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - US D
Ba la nc e s with S BP
Curre nt a c c ount
USD Settlement 0098- 000253- 009 11,209 17,397 (6,188) We have been informed by Management that these reconciling items were subsequently cleared. (6,188)
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Account
No te: B ased o n SB P mark-to -market revaluatio n exchange rate o f Rs 101.8828/USD as at No vember 28, 2014, the balance as per general ledger wo rks o ut to Rs 1.1millio n.
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De posit a c c ount
SBP 5%
SBP 15%
0098- 000253- 010
0098- 000253- 003
619,000
1,857,000
UN
619,000
1,857,000
-
-
No reconciling items.
No reconciling items.
-
-
2,476,000 2,476,000
ED
No te: B ased o n SB P mark-to -market revaluatio n exchange rate o f Rs 101.8828/USD as at No vember 28, 2014, the balance as per general ledger wo rks o ut to Rs 252.3 millio n.

Y
LA
SP
DI
174
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DE
The Management of the Bank has informed us that MCB Bank Ltd. has not
OR
provided bank statements for the two accounts maintained with the Bank
T
UR
Balance as per
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- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Rupe e s - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Rupe e s
Ba la nc e s with Na tiona l Ba nk of P a kista n
Nawabshah branch 0025- 000254- 001 2,215,608 3,248,480 (1,032,872) (1,032,872)

Gujrat branch 0025- 000254- 001 10,146,655 10,146,480 175 175
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Mirpur Khas branch 0045- 000254- 001 443,887 1,419,132 (975,245) (975,245)
We have been informed by Management that these reconciling items were
Sargodha branch 0047- 000254- 001 15,189,876 15,189,176 700 700
DE
subsequently cleared.
Kandhkot branch 0064- 000254- 001 12,552,001 12,550,251 1,750 1,750
D.G.Khan branch 0067- 000254- 001 3,348,035 3,466,370 (118,335) (118,335)
Sanghar branch 0069- 000254- 001 6,899,095 6,943,782 (44,687) (44,687)
Remaining sixteen bank accounts 136,215,574 136,215,574 - -
Ba la nc e s with othe r ba nks

UN
187,010,731 189,179,245 (2,168,514) (2,168,514)
Industrial and Commercial 6001010000000040000 37,896,048 1,896,048 36,000,000 Please refer section 9 for details. 36,000,000
ED
Bank of China
Allied Bank Limited 0010001346160018 44,299
603,852 1 1
001001346170017 559,554
Y
Not provided 4,725 Bank statement and bank reconciliation statement of this account has not been
provided by Management of the Bank.
LA
0003000262001 507,669 507,669 - No reconciling differences. -

MCB Bank Limited 500,000 The Bank has not provided us with the bank statements of accounts maintained with
MCB Bank Ltd. in Corporate PNSC branch and Global Transaction Branch Banking
M. R. Kayani Road branch. The total balance in these accounts, as per Bank’s
SP
general ledger, is Rs 500,000. The Management of the Bank has informed us that
MCB Bank Ltd. has not provided the bank statements for these accounts.
39,512,294 3,007,570 36,000,001 36,000,001

DI
175
R
DE
The difference in DenizBank AS, Istanbul relates to a balance of Energy Global
OR
International FZ LLC, an Iranian company. We have been given to understand
that movement of these funds has been restricted by SBP
T
UR
Balance as per
Currency ledger statem ent ence Com m ents Am ount
CO
Agricultural Bank of China USD58101001234 USD 13,465 13,472 (7) Details of the reconciling item are not available with Management of the Bank. (7)
Limited The amount is outstanding since November 3, 2014.
Denizbank AS, Istanbul 9159- 00441791351 TRY 4,652 13,642,652 (13,638,000) The difference relates to a balance of Energy Global International FZ LLC, an (13,638,000)
Iranian company. We have been given to understand that movement of these
funds has been restricted by SBP.
R
Habib Bank Limited, New 21501484091 USD 1,594,435 2,066,745 (472,310) Swift charges debited to the Bank's account on November 7, 2014, however, not 738
York recorded by the Bank.
DE
Payments in respect of imports debited to the Bank's account on November 28, 131,839
2014, however, not recorded by the Bank.
Foreign currency placement matured. However, it was short credited by USD 1,086
1,086 on June 24, 2013. This amount is receivable from the bank.
UN The Management has informed us that this amount represents receipts relating
to an import transaction by a customer. The proceeds were recorded in the
general ledger but were not credited to the Bank's account. As per
680
Management, the customer had entered into litigation with Habib Bank Ltd. and
ED
consequently, the activity in the Bank's account was stopped. Details of the
case were not provided by Management.
Remittances made by customers were credited to the Bank's account, but not (101,008)
recorded by the Bank. In this regard, USD 427 was credited in October 2014 and
Y
USD 100,581 were credited in November 2014.

Payments received by the bank in respect of exports were credited to the Bank's (111,236)
LA
account but not recorded by the Bank. In this regard, USD 1,060 was credited in
October 2014 and USD 110,176 were credited in November 2014.
These represent foreign demand drafts issued in August 2013 that have not (150)
been presented.
SP
We have been informed by the Management that the remaining reconciling items (394,260)
were subsequently cleared.

DI
176
R
DE
We were not provided the bank statements of the Iran-based bank accounts of
OR
the Bank. We were informed that the bank statements will not be
available/provided for the purposes of due diligence
T
UR
Balance as per
CO
United Bank UK 0001- 000170005 USD 20,343 143,898 (123,555) Th difference relates to remittances made by customers which were not recorded by (123,555)
the Bank.
Industrial Commercial 114201801015 USD 27,933 540,480 (512,547) We have been informed by the Management that this reconciling item was (496,860)
Bank of China, New York subsequently cleared by December 17, 2014
The difference includes unpresented foreign demand drafts. (1,198)
R
This amount represents account maintenance charges. 11
This relates to remittances made by customers that have been reversed due to non- (14,500)
DE
availability of beneficiary.
Union De Banques Arabes 1098703001510 EUR 3,795 8,207 (4,412) We have been informed by the Management that this reconciling item was (450)
Et Francaises Paris FR subsequently cleared by December 12, 2014.
This relates to remittances made by customers that have been reversed due to non- (3,962)
Unicredit Bank AG
GTB4G1 AM Tucherpark 1
69111912 EUR
UN
23,012 125,009
availability of beneficiary.
(101,997) We have been informed by the Management that this reconciling item was
subsequently cleared by December 17, 2014.
(10,990)
80538 Munich Germany This difference relates to bank charges. 7

ED
The difference relates to export payments by customer. (386)
This relates to remittances made by customers. (90,628)
United National Bank 0001000170002 GBP 73,615 230,113 (156,498) We have been informed by the Management that this reconciling item was (138,121)
London GB subsequently cleared by December 17, 2014.
Y
This relates to remittances made by customers. (18,026)

The difference includes unpresented foreign demand drafts. (351)
LA
National Australia Bank 1803109940500 AUD 13,458 16,868 (3,410) The difference includes unpresented foreign demand drafts. (3,410)
Limited (Head Office)
Iranian Venezuelan Bi- 3020320190001 EUR 11,289 We were not provided the bank statement of the Iran- based bank accounts of the
National Bank Tehran IR Bank. We were informed that the bank statement will not be available/provided for the
SP
purposes of due diligence.

DI
177
R
DE
We were not provided the bank statements of the Iran-based bank accounts of
OR
the Bank. We were informed that the bank statements will not be
available/provided for the purposes of due diligence
T
UR
Balance as per
CO
Eghtesad Novin Bank, Iran 14775037887961 EUR 12,036 We were not provided the bank statement of the Iran- based bank accounts of the Bank.
We were informed that the bank statement will not be available/provided for the purposes of
due diligence.
CIMB Bank Berhad 14081318815520 USD 980 950 30 Represents bank charges. 30
CIMB Bank Berhad 14081318714527 JPY 7,432 4,456
R
2,976 2,976
Bank of China, Canada 03000892 CAD 53,188 61,188 (8,000) We have been informed by Management that these reconciling items were subsequently (8,000)
DE
cleared.
Hatton National Bank 054010066601 ACUD 29,082 29,129 (47) (47)
Limited Colombo LK
UN
* We have been informed that there were no reconciling items in the remaining bank accounts.

Y ED
LA
SP
DI
178
R
DE
Foreign currency placement
OR
T
Foreign currency placement Am ount in
UR
Com m ission Interest foreign Com m ission
Nam e of bank Deal No. Deal date Maturity date rate rate currency receivable
USD
CO
Habib Bank Limited New York - 072- 042- 2000554- 2014 7- Apr- 14 20- Apr- 15 - 0.20% 300,000 ! 389.6
NY, US 072- 042- 2001758- 2014 12- Nov- 14 5- Jan- 15 2.00% - 126,651 @ 124.9
072- 042- 2001754- 2014 12- Nov- 14 21- Dec- 14 2.00% - 253,302 @ 249.8
Tota l 679,953 764.3
R
Exchange rate 101.8828 101.8828
Amount in Rupe e s (in million) 69.3 0.1
DE
Based on Discussions with Management, we understand that:

!
UN
in order to enter into an agreement for money transfer with MoneyGram Payment Systems Inc. (“MoneyGram”), the
Bank was required to open a standby LC in favour of MoneyGram. In this regard, the standby LC was opened with
Habib Bank Ltd., New York. However, the Bank was required to place USD 300,000 with the bank as security. The
Bank negotiated an interest rate of 0.2% per annum on the amount of the placement, in addition to a rebate of 1.65% on
ED
commission.
@ these placements have been made against two LCs issued by the Bank on behalf of Amin Textile Mills (Pvt.) Ltd. in
favour of Cargill Cotton for import of Brazilian raw cotton.
Y
LA
SP
DI
179
R
DE
11 Other assets Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
We have recommended provision of approximately Rs 445.9 million against
OR
non-banking assets acquired in satisfaction of claims
T
Other assets ! The Management has provided us with legal opinions of M. Ishaq Ali & Co. in respect of non-
UR
Rupees in m illion banking assets acquired in satisfaction of claims. In these legal opinions, the lawyer has
! Non- banking assets ac quired in satisfac tion of c laims 1,088.8
highlighted certain missing documents which they consider necessary for establishing ownership
@ Inc ome / mark- up ac c rued in loc al c urrenc y 876.9 and/or saleability of the properties. The Management has informed us that they are in the
CO
# Goodwill 248.4 process of arranging these documents after which they will request the lawyer to provide revised
$ Commission rec eivable 54.0 legal opinions for each property.
% Unrealised gain on forward foreign exchange c ontrac ts 2.6
In this regard, we have requested Management of the Bank to share the revised legal opinions in
^ Advanc es, prepayments and deposits 143.7
respect of the properties with the professional valuer, Maricon Consultants (Pvt.) Ltd., so that
R
Stationery and stamps in hand 11.5
Branc h adjustment ac c ount 0.9 their impact on market value and forced sale value of the relevant property, if any, is determined.
The Management has agreed to do the same once the lawyer provides the revised legal opinions
DE
& Others 112.3
2,539.1 Revisions, if any, made by Maricon Consultants (Pvt.) Ltd., consequent to the above exercise,
Lease rental rec eivable 44.3 may result in an adjustment to the carrying value of the non-banking assets acquired in
Less: Lense rental suspended (44.3) satisfaction of claims.
& Others
UN -
15.9
The information available on properties, including a list of the missing documents to be arranged
by the Bank and market value and FSV determined by Maricon Consultants (Pvt.) Ltd. is
Provision held against other assets (15.9) summarised on the following page for all properties.
-
However, pending receipt of the revised legal opinions and valuation reports, the following
ED
2,539.1
adjustment has been considered in respect of non-banking assets acquired in satisfaction of
claims:
Source: Management Information • ‘Hub, Baluchistan’: The lawyer has highlighted that registered title documents in favour of the
Y
Bank are not available. As the validity of Bank’s title to the property can not be established in
LA
Income/ mark-up accrued in local currency the absence of these title documents, we have recommended a provision against the book
Rupees in m illion value of this property of Rs 211.6 million.
Mark- up on advances 4,229.0 • ‘Gemini Plaza’: The lawyer has specified that approximately 50 shops in Gemini Plaza are not
SP
Less: Mark- up suspended (3,355.7)

owned by the Bank. In view of the potential difficulty associated with recovery of carrying
Mark- up on education asaan scheme 3.6
876.9 @ value of this property through sale due to the matter highlighted by the lawyer, we have
recommended provision equivalent to 50% of the book value of the property of Rs 468.5
DI
million.
180
R
DE
We have recommended provision of approximately Rs 445.9 million against
OR
non-banking assets acquired in satisfaction of claims (cont’d)
T
UR
Non-banking assets acquired in satisfaction of claims
CO
Hub, Industrial Land Survey No.87/1 & 83/1 Baroot 211.6 11- Aug- 14 250.8 200.6 - fresh non- encumbrance certificate.
Balochistan Hub - registered title documents in favour of the Bank.
Gemini Plaza Gemini Plaza, Mobile Market, Saddar 468.5 As per valuation report dated December Gemini Plaza comprises of a plot, shops built on the plot and first floor. As per the
5, 2014, market value and FSV of the lawyer, the Bank is lawful owner of the property and all the shops except those shops
R
property amounted to Rs 627.3 million which are in the name of shopkeepers and have been sub- leased by the Bank in
and Rs 501.9 million, respectively. favour of shopkeepers. As per the legal opinion, the number of these shops are
DE
However, from the lawyer's remarks, we approximately 50.
understand that approximately 50 shops
are not owned by the Bank. We have not
been provided with the valuation report
Syeda
Chambers
Syeda Chambers, Gulshan- e- Iqbal, Karachi
UN 21.6
of the land and building, excluding the
shops not owned by the Bank.
18- Aug- 14 29.7 23.8 - search certificates from January 19, 2010 to date.
Eden Various Commercial Plots (open plots) 195.0 11- Aug- 14 201.0 160.8 - fresh non- encumbrance certificates.
ED
Broadway situated at Eden Broadway - fard for sell in respect of the properties.
- in respect of one plot, complete copy of sale deed in favour of the Bank.
Alhamra 30 apartments at Al- Hamra Residency, 3 km 15- Aug- 14 106.4 90.5 - non- encumbrance certificate.
Residency from Thokar Niaz Baig, Raiwand Road, - PT- 1.
Y
Lahore - up- to- date paid- up challan.

192.0
Kasur Ferozpur Road, Mustafabad Lalyani District, 11- Aug- 14 106.3 95.6 - fresh non- encumbrance certificate.
LA
Kasur - upto date property tax.

- fard for sell in respect of the property.
Tota l 1, 0 8 8 . 7 694.2 5 7 1. 3
Minor difference due to rounding.
SP

DI
181
R
DE
Merrill has terminated its cooperation agreement with the Bank. In addition,
OR
the Bank does not have any mandates. We have therefore recommended
provision against the carrying value of goodwill of Rs 248.4 million
T
# Goodwill of Rs 698.3 million was recorded by the Bank on its $ Commission receivable represents amount receivable from SBP in relation
UR
amalgamation with KASB Capital Ltd. in 2008. Goodwill arising on to home remittance. As per Pakistan Remittance Initiative (a joint initiative
acquisition was attributed to the significant benefits expected to arise from of SBP and Ministry of Overseas Pakistanis and Ministry of Finance), SBP
the amalgamation. As per the financial statements of the Bank for the year pays Saudi Riyal 25 to banks for home remittance transaction of USD 100
CO
ended December 31, 2009, Management of the Bank allocated the entire or more made through them.
amount of goodwill to its Corporate Finance - Investment Banking Group % We have reviewed the computation of unrealised gain on forward exchange
(“IBG”) segment. contracts outstanding as at November 30, 2014 on the basis of SBP mark-
As a result of annual impairment test reviews of the IBG cash generating to-market rates as at November 28, 2014. The net unrealised gain on the
R
unit, Management of the Bank recorded total impairment against the above contracts, as per this calculation, was Rs 2.5 million.
goodwill of Rs 449.9 million till December 31, 2013. Accordingly, the
DE
carrying value of goodwill (net of impairment) as at November 30, 2014
amounted to Rs 248.4 million.
UN
• Merrill has terminated its cooperation agreement with the Bank. The
Bank earned income of Rs 10.3 million from Merrill-related mandates in
11M 2014.
ED
• At present, the Bank does not have any mandates. We have been
informed that IBG is only allowed to work on private sector deals. Prior
permission of SBP is required for other deals.
Y
In view of the above, we have recommended provision against the carrying

LA
value of goodwill (net of impairment) of Rs 248.4 million.

SP
DI
182
R
DE
We have recommended an aggregate adjustment of Rs 52.5 million in respect
OR
of advances, deposits and prepayments and ‘others’ in other assets
T
^ Advances, prepayments and deposits A Advance rent in respect of branches of the Bank relates to the following periods:
UR
Rupees in m illion Rupees in m illion
Advance deposit * 59.2 2014 3.1
Advance rent A 77.1
CO
2015 73.1
Other prepayments B 7.4 2016 1.5
14 3 . 7 77.7
Prepayments include a negative balance of Rs 0.6 million
R
B Other prepayments include prepaid insurance expenses relating to the following periods:
& Others
DE
Rupees in m illion Rupees in m illion
Other prepayments C 31.6 2014 2.2

2015 4.8
Other receivables
Less: provision
(
UN 96.7
(15.9)
80.8
7.0
112 . 4 C Prepayments include Rs 5.4 million paid to Premier Systems (Pvt) Ltd. for Microsoft E.A
Licence renewal, Rs 1.4 million paid to IBM Italia for license fee, Rs 1.1 million paid to Wateen
ED
Minor difference due to rounding.
Telecom Limited for connectivity charges and Rs 1.1 million paid to MISYS for license renewal
fee of software at 50 branches.
Y
Prepayments relate to the following periods:

LA
Rupees in m illion
2014 8.9
2015 21.5
SP
2016 1.2
3 1. 6
DI
183
R
DE
We have recommended an adjustment of Rs 29 million in respect of advances,
OR
deposits and prepayments
T
* Rupees in
UR
Date million Description
Advance legal fee
CO
23-Dec-2009 3.8 In December 2009, an ‘inter-creditor agreement’ was signed by all banks, which had an exposure to the Dewan Group. In this regard, a steering committee was formed to
handle the legal and recovery process. The Bank made an advance payment of Rs 3.8 million for legal fee in accordance with this agreement. The case is still in court.
Taking into consideration the period of time for which the advance has been outstanding, we are of the view that the advance should be charged-off to the profit and loss
account.
R
13-Aug-2013 1.0 The Bank granted a facility to Transcon Textile (Pvt.) Ltd. in 2000. However, the customer failed to repay the liability. Consequently, the Bank filed execution proceedings
in banking court in Faisalabad and requested the auction of three properties mortgaged with the Bank. The Bank paid an amount of Rs 1 million in 2013 in respect of court
auctioneer charges, stamp duty, registration fee and other charges.
DE
We are of the view that these documentation charges should be charged-off to the profit and loss account.
Other advances
26-Nov-2009 4.4
UN
International Housing Finance Ltd. was amalgamated with and into the Bank in 2006. Consequently, the Bank recorded certain receivables amounting, in aggregate, to Rs
4.4 million.
Taking into consideration the period of time for which these receivables have been outstanding, we have recommended provision of Rs 4.4 million against these
ED
receivables.
4-Nov-2010 16.5 The Bank acquired ‘Bela Kapadia’ property in Hub in settlement of loan of a customer. A generator from that property was sold and realised by the Bank. Subsequently,
the customer filed a suit against the Bank for recovery of the sale proceeds of the generator. Consequently, the amount was deposited with High Court. The case is still
Y
pending. The Management of the Bank has also recorded a liability for the same amount in other liabilities.
22-Aug-2013 10.0 A mobilisation advance of Rs 10 million was paid to BBCL (Pvt.) Ltd. in 2010 for interior drawing and designing charges of data center planned at 'Ittehad Property’. Based
LA
on Discussions with Management of the Bank, we understand that BBCL (Pvt.) Ltd. did not provide the requested services. The Bank sent notices to the company for
repayment of advance, however, no response was received.
Taking into consideration the period of time for which this balance has been outstanding and that BBCL (Pvt.) Ltd. has not responded to the notices of the Bank, we have
SP
recommended provision of Rs 10 million against this mobilisation advance.

DI
184
R
DE
We have recommended an adjustment of Rs 29 million in respect of advances,
OR
deposits and prepayments (cont’d)
T
Rupees in
UR
Various 5.1 These represent various receivables relating to different branches. The Management has charged-off all these balances to profit and loss in December 2014.
CO
30-Apr-2014 0.9 PPL mandated the Bank to perform techncial due diligence of an LPG company. The Bank hired the services of ENAR Petrotech Services (Pvt.) Ltd. for the due diligence
and paid Rs 0.9 million (Rs 0.65 million on account of professional fee and Rs 0.25 million for out of pocket expenses) to them on submission of final report. This amount
is recoverable from PPL.
R
Advance professional fees
27-Sep-2011 1.5 The payment was made to Mohsin Tayebaly & Co. for professional services relating to ‘minimum capital requirement enhancement’. The amount has been charged-on to
DE
profit and loss in December 2014.
20-Sep-2013 2.1 These represent payments to Mr. Bilal Sheikh for professional services relating to documentation of certain non-banking assets acquired in settlement of claims. The non-
banking assets were ‘Alhamra Residency’ and ‘Eden Broadway’.
20-Sep-2013
25-Sep-2013
1.0
0.6
UN
22-Sep-2014 1.9 These represent advance payments amounting, in aggregate, to Rs 3.2 million made to Ernst & Young Ford Rhodes Sidat Hyder during the period from June 2014 to
September 2014 for assistance in restructuring. These “one-off” services were provided by the firm prior to November 30, 2014. Based on Discussions with Management,
ED
6-Jun-2014 0.8 we understand that the amount has been charged-off to profit and loss in December 2014.
23-Jun-2014 0.5
Remaining 9.1
Y
balances
LA
Total 59.2

SP
DI
185
R
DE
We have recommended an adjustment of Rs 23.5 million in respect of ‘others’
OR
in other assets
T
( Rupees in
UR
19-Dec-2011 17.9 The Bank paid salaries and benefits of Rs 17.9 million to the CEO of KASB Invest (Pvt.) Ltd. for the period from June 2009 to December 2010. We understand that the
Bank has sent multiple requests to the company for payment of this amount. However, no response has been received from KASB Invest (Pvt.) Ltd.
CO
Taking into consideration the period of time for which this balance has been outstanding and that KASB Invest (Pvt.) Ltd. has not responded to the notices of the Bank,
we have recommended provision of Rs 17.9 million against the receivable.
14-Feb-2013 2.0 Professional fee of Rs 3 million was paid to M/s Nafees Siddiqi Law Associates in respect of the recovery case filed against Gulistan Group. The Management of the Bank
recorded this amount as a receivable and intends to recover it from Gulistan Group on successful completion of the legal proceedings.
R
12-Mar-2013 1.0
We are of the view that these legal expenses should be charged-off to the profit and loss account.
DE
26-Mar-2013 21.1 The amount receivable from Iranian Venezuelan Bi-national Bank (“IVBB”). As per Management Information, this amount was recorded on March 26, 2013. The
Management of the Bank has informed us that information in respect of this receivable will not be provided. Based on our discussions with SBP, we understand that:
• Amir Rice Traders, a customer of the Bank, exported rice to its Iranian customer.
•
•
•
UN
IVBB was the banker for Amir Rice Trader’s customer. The export proceeds were to be routed through IVBB.
IVBB requested that the amount be adjusted from it’s account maintained with the Bank.
However, SBP did not allow the Bank to adjust this account as IVBB is an OFAC sanctioned entity.
• The Bank made the payment to Amir Rice Traders on the instructions of SBP.
ED
As per the general ledger, an amount of EUR 172,913 is appearing in an account of IVBB maintained with the Bank. However, we have not been provided the bank
statement and bank reconciliation statement of the IVBB account as at November 30, 2014.
18-Mar-2014 2.6 The receivable of Rs 2.6 million relates to two instances where pay orders were issued fraudulently through call centre using confidential information of customers.
Y
Subsequently, the customers, denied that they had requested issuance of pay orders and appealed to the Banking Mohtasib who decided in favour of the customers.
Consequently, the Bank paid the amount claimed by these customers’.
LA
The Bank filed an insurance claim in respect of the fraud. However, it was denied on the basis that the call, based on which the payorder s were issued, was not made from
the customers’ contact numbers registered with the Bank. We have been given to understand that the Bank is continuing efforts for recovery and has lodged FIRs. The
Federal Investigation Agency is currently investigating this case. In view of the above factors and considering the uncertainty associated with the receivable, we
recommend that provision should be made against the receivable of Rs 2.6 million.
SP
Source: Management Information, Discussion With Management

DI
186
R
DE
We have recommended an adjustment of Rs 23.5 million in respect of ‘others’
OR
in other assets (cont’d)
T
Rupees in
UR
7-Nov-2014 2.9 This represents claim recoverable from Adamjee Insurance Company Ltd. for robbery committed at D.G.Khan Branch.
CO
30-Nov-2014 2.3 Payment was made to a customer against cheque on the date of moratorium i.e. November 14, 2014. However, SBP stopped the Bank from recording the payment as it was
higher than the limit prescribed i:e Rs 0.3 million. Therefore, the Bank recorded a receivable against the customer. This amount was subsequently settled.
30-Nov-2014 2.5 This represents leave fare assistance for December 2014. The amount was amortised in the month of December 2014.
28-Nov-14 1.5 This represents late payment charges receivable from students under ‘Education Asaan’ scheme of the Bank.
R
30-Sep-14 3.6 This represents amount receivable from KSL in respect of certain IT services.
DE
30-Sep-14 4.4 These amounts represent Bancassurance receivable from insurance companies.
30-Oct-14 1.7
Remaining 17.3
balance
Total 80.8
UN
ED
Source: Management Information, Discussions With Management
Y
LA
SP
DI
187
R
DE
12 Deposits and other accounts Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Deposits (excluding Iranian Deposits) have declined from Rs 41.6 billion as at
OR
January 31, 2014 to Rs 38 billion as at December 31, 2014
T
Deposits and other accounts
UR
Monthly movement in deposits
50 Custome rs
Fixed deposits 10,255.9 15,292.6
CO
Savings deposits 16,649.4 16,323.2
44.5
45 Current accounts - non- remunerative 29,949.9 29,783.6
43.2 43.4
42.2 42.7 42.5 42.4 42.5 Margin deposits - non- remunerative 224.4 284.6
41.6 41.9 41.3 57,079.6 6 1, 6 8 4 . 0
Fina nc ia l Institutions
R
40 38.7 Remunerative deposits 1,105.8 1,364.7
38.0
36.9 Non- remunerative deposits 33.4 24.3
DE
1, 13 9 . 2 1, 3 8 9 . 0
Rupees in billion
35 Tota l 5 8 , 2 18 . 8 63,073.0
30
UN
Please refer following page for details on
deposits of Energy Global International
FZE (“Iranian Deposits”).
ED
25
19.6 19.6 19.6 19.6 19.6 19.6 19.6 19.6 19.6 19.6 19.6 19.6 19.6 19.6
Y
20
LA
15
31-Jan 28-Feb 31-Mar 30-Apr 31-May 30-Jun 31-Jul 31-Aug 30-Sep 31-Oct 14-Nov 30-Nov 18-Dec 31-Dec
SP
Iranian Deposits Other deposits

DI
188
R
DE
Deposit of Rs 19.6 billion of Energy Global International FZ LLC, placed in a
OR
SCR account, constitutes 33.6% of total deposits as at November 30, 2014
T
Background
UR
• The Bank opened four deposit accounts of Energy Global International
FZ LLC (“EGI”) in 2011-2012. As per correspondence provided by
CO
Management:
• On December 3, 2012, EGI requested that its deposits be transferred to
a Special Convertible Rupee (“SCR”) account. In the letter, they also
requested confirmation that these funds could be converted to other
R
international currencies and transferred overseas without any
limitation.
DE
• On December 14, 2012, consequent to a special inspection by SBP, the
Bank froze the accounts of EGI and on the same date responded that
EGI’s four accounts had been closed and the funds in these accounts,
UN
consisting of Japanese Yen 11,579.13 million and Euro 47.55 million,
had been converted to Pakistan Rupees 19,552.20 million and
transferred to a SCR current account. In the letter, the Bank also
confirmed that the funds could be converted to other international
ED
currencies and remitted to EGI’s accounts with other banks.

• A review of the list of sanctioned entities of the Office of Foreign Assets
Y
Control (“OFAC”), USA shows that EGI is included in the list.

• We understand that there has been no movement in the above deposits
LA
since their transfer to the SCR account.

• As per Discussion with the Management, there has been no direct
SP
correspondence of the Bank with EGI in recent months.

DI
189
R
DE
23 depositors constitute 20.4% of total deposits (excluding Iranian Deposits)
OR
T
Top 23 depositors (excluding Iranian Deposits) Please refer section 19 for summary of deposits
UR
Rupees in m illion 30-Nov-14 Description held by related parties.
Usman Enterprise 2,014.5 5.2% Current account
PIAC Provident 1,460.8 3.8% Rs 1 billion in TDRs at 10.6%; Rs 454 million in savings account at 10.55%; Rs 5 million in
CO
savings acount at 9.7%
KASB Securities 365.1 0.9% Rs 358 million in savings account at 9.25%
F W O (MISC A/C 307.4 0.8% Rs 300 million in TDRs
Fauji Fertilizer 300.0 0.8% Rs 300 million in TDRs
PIAC Pension Fund 503.7 1.3% Rs 253 million in savings account at 10.55%; Rs 250 million in TDRs
R
Bahria Town (PV 274.4 0.7% Current account
MCBFSL Trustee 241.4 0.6% Rs 241 million in savings account at 10.75%
DE
Sardar M Ashraf 213.2 0.6% Rs 209 million in savings account at 8.5%
Awais Enterprises 201.4 0.5% Current account
FFC T.F.W.P.P.F 200.0 0.5% TDR
K.C.B.L.GILGIT 200.1 0.5% Rs 200 million in TDRs
KASB Provident
Systems Limited
KSE LTD(DEL&SET
192.2
178.0
171.4
UN
0.5% Rs 182 million in TDRs; Rs 10 million in savings at 7%
0.5% Rs 173 million in savings account at 9.5%; Rs 5 million in current account
0.4% Savings account at 7%
The Four Season 151.4 0.4% Savings account at 9.75%
K- Electric Limited 136.8 0.4% Rs 136 million in savings account at 7%
ED
Tameer microfinance 126.4 0.3% Savings account at 9.25%
IP Commodities 121.1 0.3% Savings account at 10.1%
Mumtaz A Malik 186.3 0.5% Rs 186 million in savings accounts; Rs 120 million at 7.5%; Rs 65 million at 8.25%
Ashiq/ Nasreen 113.6 0.3% Savings account at 9.45%
Y
Sui Northern Of 106.1 0.3% Savings account at 8.25%

Hashmat Ullah M 116.9 0.3% Rs 103 million in TDRs; Rs 13 million in savings account at 7%
LA
7,882.1 20.4%
SP
DI
190
R
DE
Movement in monthly deposits (excluding Iranian Deposits)
OR
T
UR
Movement in deposits
Consequent to the imposition of
24 moratorium on the Bank, term deposits
which could not be rolled over were
CO
transferred to linked savings and
21 current accounts already maintained by
the depositors. Where such accounts
were not maintained by the depositors,
the amount was transferred to ‘Other
18 Movement in deposits is
R
Liabilities’. Please refer to the following
due to transfer between
page for detailed movement in deposits
savings and term deposits.
DE
between November 14, 2014 to
15
Rupees in billion
December 31, 2014.

Based on discussion with Management,
we understand that the balances
12
9
UN classified under ‘Other Liabilities’ are
also subject to the restriction in
withdrawal of up to Rs 0.3 million.
On December 2, 2014, SBP allowed the
ED
Bank to roll over term deposits . The
6 We have been informed by Management has informed us that
Management that customers deposits were rolled over on or after
temporarily moved their deposits to December 2, 2014 after obtaining
Y
3 current account to avoid deduction consent of the customers and for a term
of Zakat. and rate agreed with them.
LA
-
31-Dec-13 31-Jan-14 28-Feb-14 31-Mar-14 30-Apr-14 31-May-14 30-Jun-14 31-Jul-14 31-Aug-14 30-Sep-14 31-Oct-14 14-Nov-14 30-Nov-14 18-Dec-14
SP
Fixed deposits Savings deposits Current and margin accounts (excluding Iranian Deposits)
DI
191
R
DE
Movement in deposits from November 14, 2014 to December 31, 2014
OR
T
Movement in deposits from November 14, 2014 to December 31, 2014
UR
Rupees in m illion Additions to Transfers
Balance deposits betw een From From From From Term to From Other Withdraw als Balance as
as at Nov- 14-Nov-2014 and 30- Term to Current to Term to Savings to Other Liabilities to Other from at 30-Nov-
CO
14-2014 Nov-2014 Current Term Savings Term Liabilities Term transfers accounts 2014
Current 29,051 233 2,334 - - - - - 97 (2,338) 29,680
Savings 16,985 133 - - 1,496 - 63 (1,731) 16,946
Term 14,356 - - - - - - - - (3,996) 10,360
R
Other Liabilities 5 3 - - - 168 - 52 (54) 174
Tota l 60,397 369 2,334 - 1, 4 9 6 - 16 8 - 2 12 (8 , 119 ) 5 7 , 16 0
DE
Additions to Transfers
Balance deposits betw een 1- From From From From Term to From Other Withdraw als Balance as
as at 30- Dec-2014 to 31-Dec- Term to
Nov-2014 2014 Current
UN Current to
Term
Term to
Savings
Savings to
Term
Other
Liabilities
Liabilities to
Term
Other
transfers
from
accounts
at 31-Dec-
2014
Current 29,680 209 144 (182) - - - - 261 (688) 29,424
Savings 16,946 616 - - 2,272 (1,436) - - 435 (1,196) 17,637
ED
Term 10,360 - - - - - - - 1,981 (3,018) 9,323
Other Liabilities 174 44 - - - - 922 (656) 194 (299) 379
Tota l 5 7 , 16 0 869 14 4 (18 2 ) 2,272 (1, 4 3 6 ) 922 (6 5 6 ) 2,871 (5 , 2 0 1) 56,763
Note: Foreign currency deposits are not included in the above deposit balances/movement. As at November 30, 2014, foreign currency deposits amounted to Rs 1,245.9 million.
Y

LA
SP
DI
192
R
DE
78% of bank deposits (excluding Iranian Deposits) are placed in Karachi,
OR
Lahore and Islamabad / Rawalpindi branches
T
UR
Branch-wise deposits
14 40
13.2
CO
36
35
12
R
30
10
DE
8.5 8.5 8.5 25
Rupees in billion
No. of branches
8
6
19 UN 20
13 15
ED
4
10
Y
LA
2
5
5
SP
- -
Karachi Lahore Rawalpindi / Islamabad Other cities

DI
193
R
DE
Segment-wise deposits (excluding Iranian Deposits)
OR
T
UR
Deposits (excluding Iranian Deposits) - segmentation by class Deposits (excluding Iranian Deposits) - segmentation
of business by sector
CO
8% 6%
11% Agriculture, Forestry,
4% Hunting and Fishing
R
3% Wholesale and Retail
7%
Trade
DE
8% Financial
UN Services Public/Government
Private
Individuals
ED
Public/Government
Y
Others
LA
59% 94%
SP
Source: Management Information Source: Management Information

DI
194
R
DE
13 Borrowings Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
As at November 30, 2014, total borrowings of the Bank amounted to
OR
approximately Rs 2,393 million
T
Borrowings • The Bank entered into a repo borrowing of Rs 680.4 million on November 28, 2014 against T-Bills
UR
Rupees in m illion 30-Nov-14 31-Dec-13 with a face value of Rs 700 million. Terms of the borrowing are as follows:
S e c ure d - S BP
Repurchase agreement borrowings 680.4 - Face Transaction Settlement
CO
Export refinance scheme 1,668.4 1,812.3 Repo Repo start Repo maturity Tenure value amount amount
2,348.8 1, 8 12 . 3 rate date date (days) Rupees in million
Unse c ure d
Overdrawn nostro accounts 43.8 48.7 9.48% 28- Nov- 14 5- Dec- 14 7 700.0 680.4 681.7
2,392.6 1, 8 6 1. 0
R
DE
• Mark-up accrued on the repo borrowing, as at November 30, 2014, amounted to Rs 1.2 million.
UN
Y ED
LA
SP
DI
195
R
DE
As at November 30, 2014, the Bank had total borrowings under the export
OR
refinance scheme of approximately Rs 1,668 million
T
Borrowings under export refinance scheme As per Discussions with Management,
UR
Rupees in m illion
SBP Days up to we understand that SBP had debited
Start Maturity Outstanding interest Novem ber 30, Mark-up the Bank’s account, maintained with it,
date date am ount Custom er nam e Loan type rate (%) 2014 payable with the amount of mark-up accrued as
CO
at September 30, 2014. Consequently,
5- Sep- 14 16- Mar- 15 24.0 A Wahid A Majid (Pvt.) Ltd Pre Shipment (Part II) 6.5 61 0.3
25- Sep- 14 31- Mar- 15 16.0 Baromed Surgical Pre Shipment (Part II) 5.5 61 0.1 the mark-up payable as at November
29- Aug- 14 2- Mar- 15 50.0 Bismillah Textiles Ltd Pre Shipment (Part II) 6.5 61 0.5 30, 2014 represents the mark-up due
1- Sep- 14 2- Mar- 15 150.0 Colony Sugar Mills Ltd Pre Shipment 6.5 61 1.6 for the period from October 1, 2014 to
R
8- Sep- 14 11- Mar- 15 149.0 Colony Sugar Mills Ltd Pre Shipment (Part II) 6.5 61 1.6 November 30, 2014.
13- Jun- 14 15- Dec- 14 1.0 Ekal Surgical Works Pre Shipment (Part II) 5.5 61 -
DE
23- Oct- 14 27- Apr- 15 23.0 Ekal Surgical Works Pre Shipment (Part II) 5.5 39 0.1
10- Sep- 14 16- Mar- 15 92.5 Nova International (Pvt.) Ltd Pre Shipment (Part II) 6.5 61 1.0
1- Sep- 14 2- Mar- 15 75.0 Multan Fabrics (Pvt.) Ltd Pre Shipment (Part II) 6.5 61 0.8
3- Jun- 14 8- Dec- 14 2.0 Naushahi Surgico Pre Shipment (Part II) 5.5 61 -
11- Nov- 14
19- Sep- 14
1- Sep- 14
1- Sep- 14
12- May- 15
24- Mar- 15
3- Mar- 15
9- Mar- 15
2.0
22.0
700.0
150.0
Naushai Surgico
Nishat Mills Ltd

UN
New Asia Merchandise Company
Nova Leathers (Pvt.) Ltd

Pre Shipment (Part II)
6.5
5.5
6.5
6.5
20
61
61
61
-
0.2
7.6
1.6
12- Aug- 14 9- Feb- 15 25.0 Qayum & Elahisons (Pvt.) Ltd Pre Shipment (Part II) 5.5 61 0.2
ED
6- Nov- 14 11- May- 15 25.0 Starmed Engineering Pre Shipment (Part II) 6.5 25 0.1
10- Oct- 14 20- Apr- 15 5.0 Starmed Engineering Pre Shipment (Part II) 6.5 52 -
1- Oct- 14 13- Apr- 15 12.0 Surgicon (Pvt) Ltd. Pre Shipment (Part II) 6.5 61 0.1
20- Oct- 14 22- Apr- 15 25.0 Surgicon (Pvt) Ltd. Pre Shipment (Part II) 6.5 42 0.2
Y
6- Nov- 14 12- May- 15 60.0 Surgicon (Pvt) Ltd. Pre Shipment (Part II) 6.5 25 0.3
27- May- 14 24- Nov- 14 22.9 Surgicon (Pvt) Ltd.* Pre Shipment (Part II) 6.5 61 0.2
LA
8- Aug- 14 16- Feb- 15 9.5 Surgivet Instruments Co. Pre Shipment (Part II) 5.5 61 0.1
18- Aug- 14 16- Feb- 15 20.0 Surgivet Instruments Co. Pre Shipment (Part II) 5.5 61 0.2
29- Oct- 14 29- Apr- 15 3.5 Surgivet Instruments Co. Pre Shipment (Part II) 6.5 33 -
30- Oct- 14 5- May- 15 4.0 Techland International Pre Shipment (Part II) 6.5 32 -
SP
1, 6 6 8 . 4 16 . 8
*Refer section 10 for details.
As per general ledger 17.0
Source: Management Information, AFF Analysis Difference (0.2)
DI
196
R
DE
We have not been provided with the bank statement in respect of the Iran-
OR
based bank account of the Bank. We were informed that the bank statement
will not be available/provided for the purposes of due diligence
T
UR
Balance as per
Account no. Currency ledger statem ent ence Com m ents Am ount
CO
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Amount in Fore ign Curre nc y - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Habib American Bank New 20729857 / USD (74,740) - (74,740) These represent foreign demand drafts issued during the period from May 2004 to March (79,504)
York, US 61729857 2013 that have not been presented.
These amounts relate to a fraud case. 500
R
4,264
Mashreq Bank PSC 10251 GBP (8,594) - (8,594) These represent foreign demand drafts issued during the period from November 2008 to (8,594)
DE
London GB October 2012 that have not been presented.
Mashreq Bank PSC., New 70002841 USD (2,039) - (2,039) These represent foreign demand drafts issued during the period from January 2004 to (2,039)
York Branch - NY, US September 2004 that have not been presented.
Habib Bank AG Zurich 7112011040277302 GBP (11) (11) - No reconciling items. -
Commerzbank AG
Frankfurt AM Main De
Iranian Venezuelan Bi-
400880735600
EUR
EUR
EUR
UN (6,107)
(172,913)
- (6,107) These represent foreign demand drafts issued during the period from February 2005 to April
2012 that have not been presented.
We have not been provided with bank statement in respect of the Iran- based bank account
(6,107)
National Bank Tehran IR of the Bank. We were informed that the bank statement will not be available/provided for the
purposes of due diligence.
ED
Emirates Bank 1264428254701 AED (410,475) 200,000 (610,475) The Management has informed us that these reconciling items were cleared on December (200,000)
International PJSC (Head 5, 2014.
Office) Dubai AE This amount relates to remittances made by customers. These have been credited in the (410,475)
bank's account but have not yet been debited by the Bank in the general ledger.
Y
Habib Canadian Bank 3- 1- 1- 20110- 184- CAD (21,893) - (21,893) These represent foreign demand drafts issued during the period from December 2011 to (21,893)
Canada 46503 May 2013 that have not been presented.
LA
(696,772) 199,989 (723,847) (723,848)

SP
DI
197
R
DE
14 Bills payable Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
As at November 30, 2014, the Bank had outstanding bills payable of
OR
approximately Rs 288 million. These included bills payable of approximately
Rs 85 million relating to periods prior to 2014
T
Ageing analysis of 'payment orders payable' Ageing analysis of 'unclaimed bills payable'
UR
Bills payable
Rupees in m illion Rupees in m illion No. of pay orders Am ount Rupees in m illion No. of bills Am ount
PRTC payable 0.3 2014 2,339 202.8 2013 2 -

Payment orders payable 263.4 2013 1,309 30.9 2012 23 0.1
CO
Unclaimed bills payable 24.7 2012 1,009 19.6 2011 100 0.8
288.4 2011 640 6.1 2010 419 3.1
2010 122 3.4 Prior to 2010 2,660 20.4
Prior to 2010 251 0.6 Date not provided 55 0.2
5,670 263.4 3,259 24.6
R
Source: Management Information Minor differences due to rounding.
DE
UN
ED
Y
LA
SP
DI
198
R
DE
15 Other liabilities Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
The Bank operates an unfunded gratuity scheme for its employees. Employees
OR
completing 3 years of employment are eligible for gratuity
T
Other liabilities ! We have reviewed the computation of mark-up payable on borrowings. Please refer section 13.
UR
Rupees in m illion
@ The Bank operates an unfunded gratuity scheme for its employees. Employees completing 3
! Mark- up / return / interest payable in local currency 315.4 years of employment are eligible for gratuity.
! Mark- up / return / interest payable in foreign currencies 0.9
CO
@ Provision for gratuity 125.2 Last actuarial valuation was carried out by Sidat Hyder Morshed Associates (Pvt.) Ltd. for the
Security deposit against lease 190.8 year ended December 31, 2013. As per the report, the expected gratuity expense for 2014 was
# Unearned commission income 19.2 Rs 36 million. The Bank has recorded the gratuity expense on proportionate basis for 11M 2014
$ Accrued expenses 199.4 in its financial statements. We have traced the gratuity expense from the gratuity report.
R
Advance against leases 2.8
Taxation (payments less provisions) 122.9 Extracts from gratuity report 2013
DE
Unclaimed dividends 0.6 Rupees in m illions
% Others 345.9
1, 3 2 3 . 1 Present value of defined benefit obligation 147.4
Fair value of plan assets -
UN Liability to be recognised in the balance sheet
Current service cost
Net interest
Expected gratuity expense for 2014
147.4
24.0
12.0
36.0
Mark-up payable
Rupees in m illion Source: Management Information
ED
Savings accounts 127.5

Financial institution deposits 0.3 # Unearned commission of Rs 17.1 million relates to letters of guarantees.
Term deposits 169.7
Y
Repo T- bills 0.5

SBP Pre Shipment 17.0
LA
SBP Long- term financing 0.4

Tota l ! 3 15 . 4
SP
DI
199
R
DE
Management has reversed certain excess accruals amounting to Rs 12.7
OR
million in December 2014. We have also incorporated the above adjustment in
the net assets of the Bank as at November 30, 2014
T
$ Rupees in million Description
UR
Payable against fraud 17.7 This relates to fraud occurred in March 2013. As per the Management, two employees made a number of fake accounts and transferred Rs 22.9 million from 1-
link settlement account of the Bank to these fake accounts. The Bank has recovered only Rs 21.8 million, out of Rs 22.9 million, from the employees. However,
only an amount of Rs 4.1 million has been adjusted in the 1-link settlement account in the general ledger. The remaining amount is required to be adjusted by the
CO
Bank.
Provision for fraud 17.6 This relates to other frauds. The major amount of Rs 16.7 million pertains to the fraud committed by a customer named Umer Gulzar. As per the Management, in
January 2012, Avanza Solutions deployed VISA software which contained ‘bugs’ due to which, on each foreign currency withdrawal, the same number in rupees
was deducted from the account without applying the foreign currency exchange rate. The Bank has made a provision against this fraud.
R
Consultancy 17.2 This includes an ‘excess accrual’ of Rs 7.9 million in respect of professional charges. The amount was reversed during December 2014.
DE
Rs 2.1 million was payable to KPMG for assistance in relation to Foreign Account Tax Compliance Act and Rs 2.5 million was payable against tax advices and
professional services from Saiduddin Advocate.
Generator sale 16.7 Please refer section 11.

proceeds held with
Court Nazir
FED payable 14.2

UN
Please refer section 17.
Software maintenance 14.0 Includes Rs 7.2 million accrued in respect of IBM Italia and Rs 2.5 million accrued in respect of Bloomberg terminal. In addition, Rs 1.3 million was accrued for
E-Access software and hardware maintenance charges. In addition, Rs 1 million was accrued in respect of Visa International Card fee.
ED
Auditors’ 12.7 This represents accrual for annual audit fee for 2014.
remuneration
Y
Security guard 12.2 This represents accrual relating to security guard charges including in respect of Ghazi Securities for Rs 3.8 million.
Connectivity charges 10.8 This mainly relates to VISA connectivity charges. These charges are paid on monthly, quarterly and annual basis.
LA
Stationery 8.3 Includes accrual for table stationery amounting to Rs 4.7 million.
Payable to KSL 8.1 The Bank's IBG business unit is situated at the premises of KSL. The Bank pays rent and utility charges for usage of premises.
SP
Generator fuel 7.2

DI
200
R
DE
Management has reversed certain excess accruals amounting to Rs 12.7
OR
million in December 2014. We have also incorporated the above adjustment in
the net assets of the Bank as at November 30, 2014 (cont’d)
T
Rupees in million Description
UR
Subscription 6.3 This relates to VISA International subscription charges.
Directors’ 4.9 Rs 4.8 million represents ‘excess accrual’ which was reversed during December 2014.
CO
remuneration
Provision for salary 4.0 This represents an accrual for general increment in salaries of employees.
Telephone 3.4
Consumer collection 3.2 The Bank pays commission to its staff on ‘performing’ consumer portfolio. This represents accrual in respect of such commission.
R
SBP penalty 2.8 The accrual relates to penalties for various non-compliances levied by SBP. The amount was deducted by SBP from the Bank’s current account. However,
DE
Management has recorded an accrual in respect of the penalty.
Courier charges 2.7 This represents accrual for courier charges.
Disposal of fixed asset 2.3 The Bank sold various items stored in a warehouse in P.E.C.H.S. and received cash. However, as these fixed assets were not tagged to fixed assets register, these
Account printing 2.2

UN
could not be identified by Management. Until such time that the assets are identified, the cash received has been classified under this account head.
This represents accrual for printing of annual accounts.
Repair & maintenance 2.1 This represents accrual for various repair and maintenance charges relating to generator, air conditioners, furniture, etc.
ED
Others 9.0 This represents miscellaneous accruals including in respect of electricity of Rs 1.9 million, entertainment of Rs 1.3 million, rent of Rs 1.4 million, rates and taxes
of Rs 1.1 and office maintenance of Rs1.2 million.
Remaining balance - (0.2)

Y
net
LA
Total 199.4

SP
DI
201
R
DE
Term deposits which matured after the imposition of moratorium on the Bank
OR
but were not linked to a current or savings account have been classified under
‘Other liabilities’
T
% Rupees in
UR
million Description
184.1 The amount represents term deposits which matured after the imposition of moratorium on the Bank but were not linked to a current or savings account. Consequently, these
deposits were classified under ‘Other liabilities’.
CO
65.3 This amount pertains to various clearing accounts.
33.8 Commission payable to various clearing brokers in respect of their share of commission on home remittance received/ receivable from SBP. The commission of Rs 54 million
receivable from SBP is included in ‘Other Assets’. Please refer section 11.
R
21.1 The amount pertains to visa point of sale settlement account.
13.1 This represents collections on behalf of utility companies. Collections from utility companies are transferred to their linked accounts maintained with the Bank on the next day
DE
and are available for withdrawal. Balances of Rs 6.1 million and Rs 6.7 million relate to Lahore Electric Supply Company Ltd. and Gujranwala Electric Supply Company Ltd.,
respectively.
28.5 Remaining balance.
345.9

UN
Y ED
LA
SP
DI
202
R
DE
16 Profit and loss analysis Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Net interest income for 11M 2014 (annualised) has declined by 10%. The
OR
decline is due in part to the decrease in performing loan portfolio and higher
proportion of restructured/rescheduled low rate fixed income loans
T
Net mark-up / return / interest income • As per Discussions with Management, interest income on loans and
UR
Rupees in m illion 2014 Dec 2014 11M 2014 2013 advances for 11M 2014 declined by 21%, on an annualised basis, due in
part to:
Ma rk- up / inte re st inc ome
On loans and advances 2,219.7 151.5 2,068.2 2,864.2 • decline in performing loans and advances from Rs 23.1 billion as at
CO
On investments 2,469.6 201.3 2,268.3 2,030.8
December 31, 2013 to Rs 19.2 billion as at November 30, 2014.
On deposits with financial institutions 15.0 0.3 14.7 13.3
On securities purchased under sale agreement 15.3 - 15.3 28.3 • decrease in yield on advances from 10.6% to 9.9%. We have been
4 , 7 19 . 6 353.1 4,366.5 4,936.6 informed that as a result of restructuring / rescheduling of certain
Ma rk- up / inte re st e xpe nse
significant loans, the composition of lower rate fixed income loans
R
Deposits 2,605.5 188.9 2,416.6 2,372.7
Securities sold under repurchase agreement 73.3 3.1 70.2 251.9 and advances has increased.
DE
Borrowings 130.8 8.9 121.9 180.2
Other borrowings - - - 0.3
• The interest income on investments has increased by 22% on an
2,809.6 200.9 2,608.7 2,805.1 annualised basis. This is due in part to the transfer of approximately Rs
5 billion from T-Bills to comparatively higher-yield PIBs.
Ne t Ma rk- up / inte re st inc ome
Effective yield on advances
Effective yield on investments
UN
1, 9 10 . 0 15 2 . 2 1, 7 5 7 . 8
9.9%
8.9%
2 , 13 1. 5
10.6%
5.9%
• The interest expense on deposits has increased by 11.1% on an
annualised basis. The increase is in large part to the rise in cost of
Effe c tive yie ld on tota l e a rning a sse ts 8.5% 7.3% deposits from 5.5% in 2013 to 6.4% in 11M 2014 which is in line with
the weighted average increase in SBP discount rate from 9.4% in 2013
ED
Effective cost of deposits 4.3% 3.8%
Effe c tive c ost of funds 3.5% 3.0% to 10% in 11M 2014.
No te: Yield and co st has been co mputed by annualising the actual inco me earned/co st incurred and dividing it by
the average o f related asset/liability as at December 31, 2013 and No vember 30, 2014.
Y
Earning assets co nsist o f lo ans and advances, investments, depo sits with financial institutio ns and
LA
securities purchased under sale agreement.

Funds co nsist o f depo sits, securities so ld under repurchase agreements and bo rro wings.
Fo r presentatio n purpo ses o nly.

SP

DI
203
R
DE
As per our analysis based on the Management’s internal reporting pack, the
OR
Bank’s monthly net interest margin has ranged between 3.3% to 4.3% during
11M 2014
T
Earning assets
UR
Trend in yield on earning assets, cost of funds and net
interest margin 70
60
10% 6.3 4.7 5.2
CO
6.1
Rupees in billion
50 4.6
8.8%
9% 40 27.7 30.3 30.7
8.4% 8.5% 8.5% 28.2 27.7
8.2% 8.2% 8.3%
8.1% 8.2% 8.2% 30
8% 20
R
7.4%
10 24.3 23.1 23.0 22.5 21.3
DE
7% -
31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14 30-Nov-14
6%
Advances Investments Other earning assets
5%
4.4%
4.0%
4.4% 4.4%
4.8%
4.4%
4.6%
UN4.5%
4.2%
4.6%
4.4%
Source: Financial statements, Management accounts
Funds
4% 70 1.9 2.7 1.8
4.3% 1.7
ED
4.1% 4.1% 2.4
3.9% 60
3.7% 3.8% 3.7% 3.8%
3.6% 3.6% 19.6 19.6
19.6
Rupees in billion
3% 3.3% 50 19.6
19.6
Yield and cost has been computed by 40

Y
2%
annualising the actual income earned/cost 30
incurred in the month and dividing it by the
LA
43.5 42.7 44.5 42.4

1% average of related asset/liability as at the 20 38.7
start and end of the month. 10
SP
0% -
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14 30-Nov-14
Yield on earning assets Cost of funds Net interest margin Deposits (excluding Iranian Deposits) Iranian Deposits Borrowings
DI
Source: Management accounts, AFF Analysis Source: Financial statements, Management accounts
204
R
DE
Yield on performing advances decreased from 11% in January 2014 to 10.4% in
OR
November 2014. Yield on investments increased from 8.3% to 8.6% during the
same period
T
UR
Monthly yield
! the decline in monthly yield on performing advances was due to a write-off
12% of Rs 34.3 million of mark-up receivable from Towellers Ltd.
11.1%
CO
11.0%
10.6%
10.9%
10.7% @ the increase in yield on non-performing advances was due to recoveries of
10.5% 10.4%
10.2% 10.3% Rs 52.8 million made during the month. These consisted mainly of receipts
10% 9.6% of Rs 19.3 million from Imperial Developers, Rs 9.3 million from
! Mohammad Ahmed Ansari, Rs 7 million from Agritech Ltd., Rs 5.7 million
R
8.5% from NHEPL, Rs 5.1 million from Chenab Ltd. and Rs 2.9 million from
9.1%
8.9% 8.8% 8.9% Azgard Nine Ltd.
DE
8% 8.0% 8.5% 8.6%
8.3%
8.0% 8.0%
7.8%
7.6% 7.6%
7.2% 7.2% 7.3% 7.2% 7.2%
6.9%
Yield
6% 6.5% UN
6.7% 6.7%
6.0%
4%
ED
@
2% 1.5%
Y
1.3% 1.4%
0.9% 0.8%
0.7%
LA
0.0% 0.1% 0.0% 0.0%

0%
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14
SP
Yield on performing advances Yield on non-performing advances

Yield on investments Yield on total advances
DI
Source: Management accounts, AFF Analysis
205
R
DE
As per our analysis based on the Management’s internal reporting pack, the
OR
Bank’s monthly cost of funds has ranged between 4.0% to 4.8% during 11M
2014
T
UR
Cost of funds (including and excluding Iranian Deposits) Funding mix (excluding Iranian Deposits)
70
8%
CO
1.8
1.9 2.7
6.84% 1.7
7% 6.69% 6.69% 60
6.57% 2.4
6.33% 6.37% 10.3
6.27% 6.28% 6.26% 10.8
6.10% 6.7%
5.83% 15.5 14.2
6% 6.4% 6.4%
R
6.3% 6.3% 10.6
6.1% 6.2% 6.2% 6.1% 50
6.0%
5.7%
DE
4.81%
5% 4.64% 4.54% 4.58% 20.5
4.43% 4.42%
Rupess in billion
4.36% 4.38% 4.39%
4.22% 40 21.8
4.03% 17.5 17.6 17.4
4.6%
4%
3%
4.2%
3.9%
4.3% 4.3% 4.3%
4.1%
4.4%
UN 4.4%
4.2% 4.3%
30
13.8
10.5 10.1 10.6 10.7
ED
2% Cost has been computed by annualising the 20

actual cost incurred in the month and
dividing it by the average of related liability
as at the start and end of the month.
Y
1% 10 19.6 19.6 19.6 19.6 19.6

LA
0%
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 -
Cost of deposits (excluding Iranian Deposits) 31-Dec-13 31-Mar-14 30-Jun-14 30-Sep-14 30-Nov-14
SP
Cost of deposits (including Iranian Deposits)

Cost of funds (excluding Iranian Deposits) Borrowings Term Deposits Saving Deposits Current Deposits Iranian Deposits (in current account)
Cost of funds (including Iranian Deposits)
DI
Source: Management accounts, AFF Analysis Source: Financial statements
206
R
DE
Since November 14, 2014, the Bank has been unable to renew any existing
OR
guarantee or LC or issue a new guarantee or LC
T
Fee, commission and brokerage income ! Bank guarantees - The Bank charges quarterly commission of 0.4% on
UR
Rupees in m illion 2014 Dec 2014 11M 2014 2013 guarantees of upto Rs 50 million and 0.35% on guarantees above Rs 50
! B ank guarantee 55.7 4.8 50.9 67.5 million. However, rates are negotiable depending on the Bank’s
! LC impo rt issuance 11.9 - 11.9 18.8 relationship with the customer.
CO
! LC impo rt lo cal 7.5 - 7.5 9.8
@ Co mmissio n inco me - bancassurance 30.0 - 30.0 42.6 The Management has provided a list of top ten income generating LGs for
# Co mmissio n inco me - ho me remittance 19.5 - 19.5 41.5 2014. These consist of the following:
$ Co mmissio n inco me - M o neyGram 8.3 - 8.3 8.6
% Financial and investment adviso ry fees 26.3 - 26.3 19.8 Guarantee Rate (per
R
A cceptances 6.2 0.5 5.7 8.7
Rupees in m illion am ount quarter)
Sundry charges - impo rt bills 14.0 0.7 13.3 20.1
Sundry charges - P A D 13.3 0.9 12.4 15.0
DE
Sardar M.Ashraf D.B (Pvt.) Ltd. 528.7 0.10%
Sundry charges - expo rt bills 8.7 0.1 8.6 11.2
Izhar Construction (Pvt.) Ltd. 327.0 0.10%
^ Fund transfer charges 20.0 0.8 19.2 22.2
Descon Engineering Limited 208.7 0.10%
Telex & telegram 2.0 0.1 1.9 2.8
Cheque bo o k 1.9 - 1.9 2.5
Wire Manufacturing Industry Ltd. 72.9 0.25%
&
TT - fo reign
Co mmissio n inco me utility bills
Lo cal bills
P ay o rder
1.4
1.4
1.0
UN
1.1 -
-
-
-
1.1
1.4
1.4
1.0
2.1
1.6
1.1
1.2
Sarwar & Company (Pvt.) Ltd.
Amer Cotton Ginning & Pressing Factory
Ghulam Rasool & Company (Pvt.) Ltd.
Data Steel Pipe Industries (Pvt.) Ltd.
58.0
50.0
50.0
38.1
0.40%
0.25%
0.25%
0.40%
Cash management services 1.0 - 1.0 0.7 Javid Traders 36.5 0.40%
ED
Co llectio n - lo cal 0.6 - 0.6 0.8 Presson Descon International (Pvt.) Ltd. 31.4 0.10%
Trade finance misc charges 1.1 - 1.1 1.1 1, 4 0 1. 3
Others 0.2 (0.2) 0.4 2.0
2 3 3 .1 7 .7 2 2 5 .4 3 0 1.7
Y
For presentation purposes only.

However, we have not been provided with the amount of commission
LA
Source: Management Information, AFF Analysis earned on these LGs.

We have been given to understand by the Management that during the
period of moratorium imposed on the Bank by SBP, the Bank cannot:
SP
• renew any existing guarantees or letters of credit; or

• issue a new guarantee or LC.
DI
207
R
DE
We have been informed that the Bank is not generating commission on
OR
bancassurance products after the imposition of the moratorium as majority of
customers are not making premium payments from their accounts at the Bank
T
@ Commission income – bancassurance # Commission income - home remittance
UR
Based on Discussions with Management of the Bank, we understand that The Bank is on the panel of a number of foreign entities for the purposes of
commission income-bancassurance relates mainly to life insurance home remittance. Based on Discussions with Management of the Bank, we
products. These sales are made through: understand that the Bank receives Pakistan Rupee equivalent 25 Saudi
CO
Riyal from SBP on each remittance of $100 or more, which is made
• branch relationship managers. The bank generated 93.4% commission
through the Bank. Neither remitter nor beneficiary pay any fee and the
income in 11M 2014 from sales through branches. The branches in
Bank receives rebate from SBP under Pakistan Remittance Initiative
Karachi and Lahore contributed 29% ad 23%, respectively, to total sales
scheme. The Bank then shares this amount with money transfer companies
through branches.
R
at an agreed-upon percentage which varies between 28% to 50%.
• external sale staff. These sales are made by commission-based staff who
DE
We have also been informed that the decline in commission income from
make sales to customers outside branches.
home remittance business was mainly due to closure of nostro accounts in
During 2013, the Bank sold life insurance products of Jubilee Life October 2013 through which this income was remitted. The closure of the
Insurance Company Ltd. and Adamjee Insurance Company Ltd. However,
UN
sale of Jubilee Life Insurance Company Ltd’s products were suspended
from January 2014.There was a complete switch over to Adamjee
accounts resulted in a decline in home remittance transactions through the
Bank from 182,969 in 2013 to 73,823 during 11M 2014.
Insurance Company Ltd’s insurance products as the company was We have been given to understand that, subsequent to imposition of
providing better support services to the Bank. We have been given to moratorium on the Bank, the home remittance business has been
ED
understand that the commission of the Bank on “first premium” from suspended.
customer is 50% and on subsequent premiums is 5%.
Y
One of the reasons for decline in commission income-bancassurance in

2014 was due to the departure of Head of wealth and cash management in
LA
June 2014. He was managing the bancassurance business. The vacancy

remained until July 2014, after which sales volumes recovered.
We have been informed that the Bank is not generating commission on
SP
bancassurance products after the imposition of the moratorium as majority

of customers are not making payments for premiums from their accounts
at the Bank.
DI
208
R
DE
Merrill has terminated its agreement in respect of cooperation on investment
OR
banking transactions with effect from December 31, 2014. Income earned
Merrill-related mandate in 2014 was Rs 10.3 million
T
$ Commission income – MoneyGram The Management has provided us Merrill Lynch (Asia Pacific) Ltd.’s
UR
The Bank receives 25% of the consumer fee generated for each MoneyGram (“Merrill”) notice of termination of agreement in respect of investment
Payment Systems Inc. (“MoneyGram”) transaction terminated and paid- banking transactions. The agreement with Merrill terminated with effect
out through its branches. from December 31, 2014.
CO
^ Fund transfer charges
Based on Discussions with Management of the Bank, we understand that
payments made by the Bank were through MoneyGram’s deposit account Income included under this head consists mainly of commission charges on
with the Bank. As a result of the moratorium, this account has been 1-Link transactions of Rs 10.2 million and commission income earned
blocked. Consequently, transactions cannot terminate through the Bank. through VISA point of sales of Rs 3.5 million.
R
% Financial and investment advisory fees & Commission income utility bills
DE
The bank earned total advisory income of Rs 26.7 million during 11M 2014. As per Management Information, the Bank generates flat commission
The break-up of this income is given below: income of Rs 8 per utility bill paid at/through the Bank. This income is
received by MSC, which reconciles bills paid at/through the Bank to the
Financial and investment advisory fees
Rupees in m illion
UN bills communicated as ‘paid’ by the respective utility companies. After
deducting its share in the income, MSC transfers the remaining income to
Non- Me rrill ma nda te s the Bank. Refer section 39 for further information.
Out of pocket expense of Project Dawn 0.1
ED
Project Don 0.9
Project Antiqua 14.8
Project PPL 0.6
16.4
Y
Me rrill ma nda te
LA
Eurobond 10.3
26.7
"O ne - offs"
Project Icebox (reversal of over- recorded receivable) (0.4)
SP
26.3
DI
209
R
DE
The Bank received dividend income of Rs 213.4 million during 11M 2014.
OR
Dividends were received from mutual funds of KASB Funds Ltd. and KASB
Securities Ltd.
T
Income from trading Dividend income
UR
Rupees in m illion 2014 Dec-2014 11M 2014 2013 Rupees in m illion 2014 Dec-2014 11M 2014 2013
Inc ome from tra ding in fore ign c urre nc ie s 36.8 (1. 6 ) 38.4 18 . 1 Mutua l funds
KASB Income Opportunity Fund 47.9 - 47.9 33.6
CO
G a in on sa le of se c uritie s- ne t KASB Asset Allocation Fund 85.1 - 85.1 68.0
Ordinary shares of listed companies - - - 1.0 KASB Islamic Income Opportunity Fund 3.9 - 3.9 12.5
PIBs 86.7 51.1 35.6 50.8 Crosby Dragon Fund 32.6 - 32.6 26.9
KASB Cash Fund 5.2 - 5.2 9.3
T- Bills 5.5 - 5.5 49.2
17 4 . 7 - 17 4 . 7 15 0 . 3
92.2 51.1 4 1. 1 10 0 . 9
R
O rdina ry sha re s
12 9 . 0 49.5 79.5 119 . 0 KASB Securities Limited 41.3 2.5 38.8 38.6
PAKGen Power - - - 0.5
DE
Fo r presentatio n purpo ses o nly. 4 1. 3 2.5 38.8 39.1
Minor differences due to rounding. 2 16 . 0 2.5 2 13 . 5 18 9 . 4
Source: Management Information Fo r presentatio n purpo ses o nly.

UN Minor differences due to rounding.

Y ED
LA
SP
DI
210
R
DE
During 11M 2014, the Bank sold land in Multan for a gain of Rs 15 million. The
OR
Bank also sold a property in Karachi at a loss of Rs 7.3 million
T
Other income • As per Discussions with Management, rental income is generated
UR
Rupees in m illion 2014 Dec-2014 11M 2014 2013 primarily from:
Processing fee and cheque return charges 25.7 0.6 25.1 26.9
• ‘Gemini Plaza’: monthly rent from the property is Rs 500,000.
Insurance claims and stamp charges * 13.2 0.6 12.6 7.2
CO
Bank charges against consumer loans 14.1 1.8 12.3 15.0 • ‘Syeda Chambers’: monthly rental income of Rs 160,500.
Rent on property 11.4 1.7 9.7 9.2
Gain on disposal of fixed assets - net 11.2 3.5 7.7 1.5 The remaining rental income is earned from KSL and KASB Modaraba for
Locker rent 5.2 0.2 5.0 5.3 sharing the Bank’s premises in Gulshan-e-Iqbal, Karachi.
Renewal of credit fees * 12.0 - 12.0 6.6
R
Recovery from impaired loans - - - 2.1 • Gain on disposal of fixed assets –net was an aggregate of:
Prepayment penalty charged to borrowers 0.2 - 0.2 -
• gain on sale of land in Multan of Rs 15 million; and
DE
Amortisation of discount on securities** 20.3 1.6 18.7 2.5
113 . 3 10 . 0 10 3 . 3 76.3
• loss on sale of property in Karachi of Rs 7.3 million.

UN
Y ED
LA
SP
DI
211
R
DE
Rent expense for the 11M 2014 amounted to Rs 288.9 million
OR
T
! Salaries and related costs and insurance expense are discussed in the
UR
Rupees in m illion 2014 Dec-14 11M 2014 2013 following pages.
! Salaries, allowances and other benefits 1,152.4 91.6 1,060.8 1,138.7 @ The rent expense of the Bank for 11M 2014 was Rs 288.9 million.
! Charge in respect of defined benefit scheme 36.0 3.0 33.0 46.0 Management has provided a summary of terms of rent agreement of
CO
! Contribution to defined contribution plan 34.3 2.8 31.5 34.4 branches of the Bank. Based on this analysis the branch rent expense for
! 1,222.7 97.4 1,125.3 1,219.1
November 2014 worked out Rs 28.3 million.
@ Rent, taxes, insurance and electricity 523.8 42.4 481.4 505.2
Rent expense of branches Novem ber 2014 Decem ber 2013
R
Legal and professional charges 64.0 20.1 43.9 55.5
Rupees in m illion Branches Rent Branches Rent
Communication charges 78.8 (1.7) 80.5 93.0
DE
Repairs and maintenance 173.3 9.2 164.1 175.7 Karachi 26 10.8 26 10.2
Stationery and printing 34.9 (3.8) 38.7 34.4 Lahore 18 6.3 17 5.6
# Advertisement and publicity 7.0 1.6 5.4 1.4 Rawalpindi / Islamabad 12 3.9 11 3.9
$ Depreciation 170.2 13.0 157.2 203.9 Others 50 7.3 51 5.7
$ Amortization
Auditors' remuneration
Vehicle running expenses
15.8UN
17.1
9.7
1.6
1.4
0.8
14.2
15.7
8.9
15.8
15.2
7.0
Tota l
10 6 28.3 10 5 25.4
Brokerage and commission 2.3 - 2.3 2.6 The electricity and fuel charges for 11M 2014 amounted to Rs 100.7 million
% and Rs 51.1 million
ED
Security charges 83.6 4.0 79.6 76.1
Fee and subscription 44.3 4.1 40.2 44.0
# Advertisement and publicity charges increased by Rs 4 million in 11M 2014
Entertainment 15.2 (0.2) 15.4 14.1
Traveling expenses 14.2 1.1 13.1 15.2 as compared to 2013. As per Discussions with Management of the Bank,
this increase was due to publicity carried out by IBG in respect of the
Y
Others 0.5 (1.0) 1.5 7.5

2,477.4 19 0 . 0 2,287.4 2,485.7 Eurobond transaction.
LA
$ For depreciation and amortisation expense, please refer section 8.

Source: Management Information % Security expenses increased by Rs 3.5 million in 11M 2014 as compared to
SP
2013. As per Discussions with Management of the Bank, this increase was
due to the reason that security guards were posted at branches in the night.
Previously, branches were remotely monitored through CCTV cameras by
security service companies.
DI
212
R
DE
Salaries have remained at 2013 levels mainly due to departure of two
OR
department heads and 66 executive-level employees. The rehiring was done at
lower positions
T
Salaries and related costs ! Salaries, allowances and other benefits have remained stable at the same
UR
Rupees in m illion 2014 Dec-14 11M 2014 2013 level as2013. As per Discussions with Management, we understand that
! Salaries 530.6 40.7 489.9 535.3
this was due to:
@ House rent allowance 156.2 12.3 143.9 159.7 • departure of 66 executive-level staff during 11M 2014. The rehiring was
CO
@ Medical allowance 52.2 4.1 48.1 53.3
done at lower positions.
@ Utilities allowance 52.1 4.1 48.0 53.2
# Car allowance 85.2 6.9 78.3 84.2 • increments were not given to 13 senior employees who report directly to
Fuel reimbursement to staff 39.5 2.6 36.9 39.1 the CEO of the Bank. However, these employees were allowed an
R
Contractual salaries 113.1 10.1 103.0 102.1 increment of 3% as compensation for inflation.
$ Gratuity 36.0 3.0 33.0 46.0
• the head of Investment Banking Group and group executive of Global
DE
% Provident fund 34.3 2.8 31.5 34.4
^ Bonus officers 36.2 5.4 30.8 30.8 Transaction Banking and Alternative Delivery Channel left the Bank in
& LFA reimbursement to staff 15.5 2.6 12.9 15.9 August 2014 and July 2014, respectively. These positions remained
* Honoraria & cash rewards 10.4 0.1 10.3 1.7 vacant till December 31, 2014.
( Commission based contractual salaries
) EOBI contribution
_ Other incentives
8.4
5.3
3.4
UN -
0.2
0.4
8.2
4.9
3.4
7.5
5.3
0.8 As per Management Information, during the period from November 14,
+ Vehicle running & maintenance expense 2.6 0.2 2.4 2.5 2014 to December 31, 2014, 92 employees of the Bank have resigned. These
Training expense 2.1 0.6 1.5 1.0 employees include:
ED
Insurance mobile 0.1 - 0.1 0.1

- Staff settlements - - - 8.3 • Business Head – External Sales.
= Other staff benefits 25.3 2.7 22.6 23.9
• Head HR Operations, Compensation and Benefits.
Y
1, 2 0 8 . 5 98.8 1, 10 9 . 7 1, 2 0 5 . 1
Reconciliation of the component- wise break- up of salaries and related costs as per Management’s • Manager Market Risk and Basel Implementation.
LA
internal reporting document and the total staff cost as per the management accounts has not been
provided by Management of the Bank. • Four branch managers.
For presentation purposes only. Combined monthly salaries of employees who resigned, post imposition of
SP
Source: Management Information, AFF Analysis moratorium on the Bank, are Rs 3.83 million.
DI
213
R
DE
OR
lower positions (cont’d)
T
@ House rent allowance, medical allowance and utilities allowance are • “one-off” bonus of Rs 150,000 was given to Head HR, Head Business
UR
provided to all staff members at 30%, 10% and 10% of basic salary, Branch North and Head Financial Institution.
respectively. • The remaining amount relates to cash rewards for those branches where
# The Bank also provides car allowance to all employees who are at Vice there was portfolio growth. During 11M 2014, the Bank made 78 such
CO
President level or above. payments to branches.
$ Refer section 15 for details on gratuity. ( Commission based contractual salaries represent commission paid to
collection and recovery staff. The rate of commission depends on whether the
% All permanent employees of the Bank are eligible for the provident
employee has made a recovery or collection. Recovery relates to funds are
R
fund benefit. The Bank deducts 8.33% of basic salary from the
received from accounts classified as “loss” and collection is in respect of funds
employees’ salary and also contributes same amount to the fund.
DE
received from “over due” accounts. Summarised rate structure is given below:
^ All permanent employees of the Bank receive one month’s salary as
Eid Bonus. Collection incentive plan Recovery commission structure
UN
& The Bank provides leave fare assistance of one basic salary to
employees at Vice President level or above, for covering cost of travel
during their annual leave. Disbursements are made to all eligible
Days
Pre- emptive
(1- 29)
Com m ission in Rs
5,000
15,000
Recovery
Unse c ure d loa ns
Rs 150,000 per month
Com m ission
10% of amount received

(30- 59) 8,000 S e c ure d loa ns
employees on July 2 each year. (60- 89) 9,500 Minimum recovery of Rs 350,000 3% of amount received
ED
(90- 119) 11,000 From Rs 350,001 to Rs 600,000 4% of amount received
LFA expense also includes leave encashment expense of Rs 1.3 million.
(120- 149) 13,000 From Rs 600,001 to Rs1000,000 5% of amount received
The expense for 2013 was Rs 3.1 million. (150 179) 17,000 From Rs 1,000,000 and above 6% of amount received
* Honoraria and cash rewards have increased from Rs 1.7 million to Rs
Y

10.3 million in 11M 2014. As per Discussions with Management, this There is a cap of Rs 150,000 for total amount of monthly commission.
LA
was due to the following:

) The Bank pays Rs 450 per employee each month to EOBI account. Rs 80
• in March 2014, the Bank paid bonus of Rs 4.5 million to from this amount is contributed by the employee and the remaining Rs 370 is
departmental head and three employees of IBG for the Eurobond paid by the Bank on employee’s behalf.
SP
transaction.
DI
214
R
DE
OR
lower positions (cont’d)
T
_ Other incentives increased from Rs 0.8 million in 2013 to Rs 3.4 million monthly fixed allowance and monthly cash risk allowance of Rs 2,000 paid
UR
during 11M 2014. These commission-based payments are made to: to cashiers.
• retail banking officers at 10% of total revenue made by the Bank on • The insurance premium for staff health insurance for 2014 was Rs 11.9
deposits generated by them; and million. However, the actual charge for the period works out to Rs 11.2
CO
million.
• business managers at 2% of the revenue generated by team’s portfolio.
However, these payments are made based on certain criteria. As per Health insurance
information provided by the Management of the Bank, these commissions Rupees in m illion
R
were paid in 2013 based on number of new deposits and portfolio growth. Insurance cost for
Many members of the retail staff qualified for criteria of portfolio growth,
DE
Period Prem ium 11M 2014
however, they struggled to fulfil the criteria of number of new deposits. As 20- Sep- 13 19- Sep- 14 12.0
a result, these staff members started to resign from the Bank and took 20- Sep- 14 19- Sep- 15 13.4
11.2
their portfolio with them.

UN
Subsequently, from 2014, the Bank revised its criteria and commissions
were paid based on volume of deposits only. Consequently, amount of
Health insurance covers cost of hospitalisation and major medical care.

commission paid in 2014 increased. This facility is available to all permanent employees of the Bank, however,
amount of benefit varies for different levels.
ED
+ Vehicle running and maintenance expense includes maintenance and

running expenses for president’s cars and 6 pool cars. However, in
December 2014, the Bank disposed of 5 pool cars.
Y
- The Bank made redundant 19 employees in 2013. These employees were

LA
paid for three months salary as compensation.

= Other staff benefits include monthly servant and guard allowance of Rs
4,000 and Rs 12,000 paid to EVP and above, monthly cell phone allowance
SP
of Rs 3,000, Rs 4,000 and Rs 5,000 paid to SVP, EVP and SEVP,

respectively, OPD coverage for junior officer of Rs 7,500 per annum,
monthly evening allowance of Rs 3,000 per employee for 20 branches,
DI
215
R
DE
17 Taxation Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
No adjustment required in respect of Provision for non-performing advances
OR
(Pre-seventh schedule years)
T
• Prior to the applicability of the Seventh Schedule, the Bank consistently • The claim for provision for non-performing advances was initially
UR
followed the policy of claiming the provision made under the Prudential disallowed by the tax authorities by amending the tax returns. The Bank
Regulations on non-performing advances. Year-wise details of provisions contested the matter in appeal. The Appellate Tribunal has allowed
claimed prior to the applicability of the Seventh Schedule and the present provision for bad debt to the Bank. We are not aware whether
CO
status are as under: Department’s appeal is pending in High Court.
• In our opinion, the allowability of provision for non-performing advances
Am ount
is a contentious issue and the allowability of the same is subject to final
of
decision of the Supreme Court, favourable probability of which cannot be
R
S.No Tax Year Provision Status
(Rupees in m illion)
ascertained. There is a favourable order of High Court as well as recent
adverse order of the Sindh High Court, though the later decision has not
DE
1 1999 to 2002 86 Disallo wance maintained by CITA vide o rder dated June 30, 2005. No
seco nd appeal was filed by the B ank as mo st o f the advances were
discussed the issue in detail.
reco vered in subsequent years and the reco veries were no t o ffered to tax. • In view of that it is not presently ascertainable as to whether the Bank's
2 2002 – 2003 UN
112 Reco veries having tax impact o f Rs. 99.685 millio n were made in
subsequent years and the reco veries were no t o ffered to tax. P ro visio n
having tax impact o f Rs.10.939 millio n was allo wed by the ITA T vide o rder
claim for provision against non-performing advances will be ultimately
allowed. Nevertheless, no adjustment is being proposed for the reason that
if provisions will be disallowed, reversal / recovery will be claimed. We
dated A pril 9, 2010 in respect o f tho se custo mers fo r who m Co urt had
o rder decree. Disallo wance o f remaining balance o f Rs. 1.27 millio n was have also noted that upto tax year 2008, provision for bad debts of Rs.
ED
maintained. 1,037.660 million was claimed, which was initially disallowed; however
3 2003 35 Disallo wance maintained by CITA vide o rder dated January 12, 2010. substantial provisions have been reversed and the write offs are not of
A ppeal pending with A TIR.
4 2004 12 Disallo wance maintained by CITA vide o rder dated M ay 31, 2006. A ppeal material amount. Hence there is no tax effect of the issue of provisions for
bad debt, if superior courts decide the issue either way.
Y
pending with A TIR.

5 2005 29 P ro visio n fo r no n-perfo rming advance was held by the A TIR as tax
LA
6 2006 179 deductible vide o rder dated M ay 2, 2013. No info rmatio n is available as to
whether the tax autho rities have filed reference with the High Co urt
7 2007 337
against the A TIR o rder.
8 2008 248
SP
1,0 3 8

DI
216
R
DE
Benefit of Rs 1,185 million available after revision of returns if tax losses are
OR
not able to be absorbed in respect of Provision for non-performing advances
(Post-seventh schedule years)
T
• Under the Seventh Schedule, provision for non-performing advances are
UR
allowed to the extent of 1% and 5% of corporate and other than corporate
advances respectively and excess of provision, if any, is carried forward to
be allowed in subsequent tax year without limit. We have noted that the
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Bank (has indirectly) claimed reversal and reduced the carried forward
provision; as a result taxable loss for respective years has been increased.
• If such reversals are offered for tax, loss of respective tax year will be
reduced and carried forward provision will be increased which can be
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carried forward for unlimited period.
DE
• The aforesaid benefit is only relevant if taxable losses could not be
absorbed. Since the benefit available would depend upon the capacity to
absorb tax losses, we are unable to quantify the benefit; however the
UN
maximum benefit that could be availed is Rs. 1,185.292 million [Rs.
3,386.548 million (i.e., post Seventh Schedule reversals) x 35%].
• To avail the aforesaid benefit, returns would need to be revised.
ED
Tax year Other than Tax im pact
Corporate Total
Rupees in m illion corporate @ 35%
2009 730 - 730 256
Y
2010 694 20 713 250

2011 573 28 601 210
LA
2012 694 17 712 249

2013 529 101 630 220
3 ,2 2 0 16 6 3 ,3 8 7 1,18 5
SP
Source: Management Information and AFF Analyses

DI
217
R
DE
Provision suggested for potential tax demand of Rs 10.05 million in respect of
OR
disallowance of provision for diminution in value of investments
T
• In tax returns for the Tax Years 2007 & 2008, the Bank claimed provision
UR
for diminution in the value of investments. The claim was disallowed by the
tax authorities by amending the tax returns and the Bank contested the
matter in appeal. Year wise-status is as under:
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Tax Disallow ance Tax
Year of provision im pact Status
Rupees in m illion
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Provision for non- performing advance was held by the ATIR as
2007 27.2 9.5
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tax deductible vide order dated May 2, 2013. No information is
available as to whether the tax authority has filed reference with
2008 1.6 0.5
the High Court against the ATIR order.
28.7 10 . 1
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• As per the information provided to us, no provision has been recognised
for the above referred potential tax liability. It is likely that provision will
be disallowed and gain/loss on actual realisation will be relevant for tax
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purposes. It would therefore be prudent that provision for the potential tax
demand of Rs. 10.1 million be made with corresponding amount of
deferred tax asset.
Y
LA
SP
DI
218
R
DE
Provision suggested for potential tax demand of Rs 100.91 million in respect of
OR
exemption claimed on income from Carry Over Transactions
T
• During the following tax years, the Bank earned income from Carry Over
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Transactions (COT) for which exemption was claimed in the tax returns:
Rupees in m illion Tax rate COT incom e Tax im pact
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2003 47% 4.09 1.92
2004 44% 38.47 16.93
2005 41% 87.36 35.82
2006 38% 16.68 6.34
2007 35% 93.27 32.64
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2008 35% 20.75 7.26
260.62 10 0 . 9 1
DE
• The Bank claimed exemption from tax by contending the income from COT
as in the nature of Capital Gains exempt from tax under clause 110 of Part I
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of the Second Schedule to the Income Tax Ordinance, 2001. The exemption
was claimed based on the legal form of the transaction, notwithstanding
the substance of the transaction which was that of a financing
arrangement.
ED
• The tax authorities denied the Bank's claim for tax exemption of COT
income by amending the tax returns filed by the Bank. The actions of the
tax authorities were upheld by the appellate authorities and the Bank's
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reference on this issue is now pending before the High Court.

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• As per the information provided to us, no provision has been recognised

for the above referred potential tax liability. In our opinion, the Bank's
stance to claim exemption on the legal form of the transaction is not
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sustainable and chances of favourable outcome are very remote. It would

therefore be prudent to recognise provision in the books for the potential
tax impact of Rs. 100.91 million.
DI
219
R
DE
Provision suggested for potential tax demand of Rs. 93.86 million in respect of
OR
apportionment of expenses on turnover basis
T
• In the return of income for tax years 2004 to 2008, the Bank apportioned
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expenditure against dividend income (subject to Final Tax Regime) and
income from Carry Over Transactions (on which exemption was claimed by
the Bank as capital gain). The expenditure apportioned by the Bank mainly
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included the estimated cost of funds invested as well as the estimated cost
of staff and premises utilised in generating such income.
• The tax authorities disallowed the Bank's basis for apportionment of
expenses and apportioned the entire administrative expenses of the Bank
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on turnover basis. This resulted in huge disallowances and the Bank
contested the matter in appeal. Year wise-status is as under:
DE
Disallow ance
Rupees in m ade by the
m illion Tax Officer Tax im pact Status
2004 70.34 30.95

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Disallowance maintained by CIRA. The matter is now
pending before the ATIR.
2005 38.48 15.78 Through the order dated May 2, 2013, the ATIR
deleted the Tax Officer's action of apportioning
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Bank's entire expenses to FTR & exempt income and
2006 20.45 7.77
has held that only the Head Office expenses should
be apportioned but in proportion of FTR income to
2007 87.52 30.63
total income. In our view, the decision of the ATIR to
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apportion only the Head Office expenses is

2008 293.11 102.59 reasonable.
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509.90 18 7 . 7 2 *
* We understand the amount of disallowance will be reduced after the appeal effect is given to ATIR's
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order. Due to the absence of relevant details of Head Office expenses, we are not able to quantify the
financial impact thereof. However, it is estimated that it will not be significant as the Branch expenses
which constituted a major segment of Bank's expenditure are not required to be apportioned in line with
ATIR's favourable order. Hence, on prudent basis, 50% of tax impact is proposed for adjustment (Rs.
DI
187.72 million x 50%).
220
R
DE
OR
Bank’s claim for bad debts directly written off
T
• The Bank has written off bad debts directly in the profit and loss account in Calendar year Tax year Direct w rite offs Tax im pact
UR
the years 2008 upto November 30, 2014 amounting to Rs. 37.763 million; Rupees in m illion
tax impact Rs. 13.218 million. 2008 2009 0.23 0.08
2009 2010 1.16 0.41
• The Department disallowed the claim in assessment order for tax year
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2010 2011 21.51 7.53
2009 on the ground that such direct write offs are also subject to 2011 2012 7.99 2.80
prescribed limits under the Seventh Schedule and cannot be allowed as per 2012 2013 4.46 1.56
charge in the profit and loss account. Further, allowability of direct write 2013 2014 1.34 0.47
2014 2015 1.09 0.38
offs is subject to verification and test of recoverability.
R
37.76 13 . 2 2
• CIR(A) in the appellate order did not give clear findings on the issue and
Source: Financial statements and income tax returns
DE
directed the Tax Officer (TO) to allow claim if relevant provision was
disallowed.
• Considering similar disallowances made by the department in case of other
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banks, we suggest adjustment of Rs. 6.609 million (i.e., 50% of the direct
write offs of Rs. 13.218 million.
• We have noted that in tax year 2013, the Bank erroneously claimed the bad
debts written off twice; once as a deduction in P&L and secondly as
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deduction in computation of taxable income. The duplicate claim of

Rs. 4.458 million (having tax impact of Rs. 1.56 million) should be
adjusted.
Y
• Hence, aggregate adjustment of Rs. 8.169 million (Rs. 6.609 million+

LA
Rs. 1.560 million) is proposed.

SP
DI
221
R
DE
Provision suggested for potential tax demand of Rs. 25.804 million in respect
OR
of bad debts written off against provision
T
• Bank has claimed bad debts written off against provision in years 2011,
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2012 and 2013 amounting to Rs. 35.079 million, Rs. 26.628 million and
Rs. 12.018 million respectively, having aggregate tax impact of Rs. 25.804
million. Such claim is only allowable if the provision was disallowed in
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years prior to tax year 2009 (pre-seventh schedule years). We have noted
that in pre-seventh schedule years, provision against bad debts were
allowed in appeal except for tax years 2003 and 2004. We have requested
the year-wise break-up of provision whether there is duplicate claim of
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provision as well as write off. In the absence of information requested, we
have assumed on prudent basis that there is a duplicate claim.
DE
• If provision written off represents provision of tax years 2009 onwards
(post-seventh schedule years), such write offs are also not allowable.
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• We, therefore, on prudent basis suggest to make adjustment on this
account.
Write offs against

ED
Calendar year Tax year provision Tax im pact
Rupees in m illion
2011 2012 35.08 12.28
2012 2013 26.63 9.32
Y
2013 2014 12.02 4.21

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7 3 .7 3 2 5 .8 0
Source: Financial statements and income tax returns
SP
DI
222
R
DE
OR
Minimum Tax Liability
T
• The Bank has not recognised tax liability on account of Minimum Tax • From tax years 2013 and onwards, we have noted that the Bank did not
UR
(MT). declare MT liability in its return of income, although interest income is
more than interest expense, hence MT can be levied. SHC in the case of
• MT is payable when tax is not payable inter-alia due to tax loss or where
M/s. First Woman Bank Ltd. has held that interest income of Bank can be
the corporate tax on taxable income (at the rate of 35 %) is less than MT.
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considered as ‘turnover’ for the purpose of Minimum Tax. We have noted
However, MT is not payable in case there is ‘gross loss’.
that the Bank has provided for MT in the financial statements
• Department has interpreted ‘gross loss’ as negative gross profit (i.e., before corresponding to the tax year 2013 onwards, which in aggregate amounts
deduction of selling and administrative expense); consequently for banks to Rs 135.173 million.
we assumed it would mean if interest expense is higher than interest
R
• As per our working, provision required is Rs. 137.024 million. We,
income then MT would not be applicable being gross loss position as per therefore, suggest adjustment of Rs. 1.852 million.
DE
Department’s interpretation.
• Department in assessment order for tax year 2011 has levied MT even As per
though there was ‘gross loss’. The Bank’s appeal against this treatment is Rupees in Minim um financial Provision
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pending with CIR (A). We expect the levy of MT will be deleted; hence no
adjustment on this account is suggested.
thousand
2012
2013
Tax year
2013
2014
Tax rate
0.50%
1.00%
Turnover *
7,328,611
5,330,968
Tax
36,643
53,310
statem ents required
36,308
52,562
335
748
• The Bank declared gross loss for tax years 2010 and 2012; hence 2014 2015 1.00% 4,707,161 47,072 46,303 769
adjustment of MT is not required.
ED
1, 8 5 2
* Turnover includes markup earned, commission income and other income after deducting accounting gain
on sale of investment.
Y
Source: AFF analyses from financial statement and income tax return
LA
SP
DI
223
R
DE
No adjustment proposed on amortisation of Goodwill
OR
T
• We have noted that the Bank has recognised goodwill, on merger of Im pairm ent of
UR
Network Leasing Corporation Ltd., KASB Capital Ltd. and International Calendar year Tax year goodw ill Tax im pact
Housing Finance Ltd. in its books of account for tax year 2008 and 2009. Rupees in m illion
• In the amended order dated August 6, 2010 issued for the Tax Year 2008, 2008 2009 144.85 50.70
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2009 2010 1,142.68 399.94
the Tax Officer made a disallowance of Rs. 153.939 million by alleging the
2010 2011 - -
same as goodwill amortisation claimed by the Bank in the tax return. 2011 2012 64.74 22.66
2012 2013 23.97 8.39
• The Bank contested this matter in appeal and it was explained that the Tax
2013 2014 94.27 33.00
Officer had mistakenly picked a figure from the disclosure note and that no
R
1, 4 7 0 . 5 1 5 14 . 6 8
claim of goodwill was made in the return of income The ATIR in its order
Source: AFF analyses from financial statement and income tax return
DE
dated May 2, 2013 has set-aside the matter for re-examination by the tax
authorities.
• We are aware that in other similar cases, the Department is disallowing the
• We have examined the facts and noted that the disallowance was
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erroneously made by the Tax Officer. Hence, the matter is likely to be
decided in favour of the Bank. No provision is therefore required in this
claim of amortisation of goodwill on the basis that goodwill does not fall in
the definition of ‘intangible’; hence amortisation of goodwill is not
allowable. There are decisions of ATIR in favour and in against. The matter
regard.
is pending in High Court.
• In tax years 2009 to 2014, the Bank recognised impairment of goodwill of
ED
• In our view, the claim of goodwill is allowable; on the basis of favourable

Rs. 1,471 million, which was claimed in the returns of income of respective
decision of ATIR. Hence, we do not suggest any adjustment in the amount
tax years.
of tax losses and deferred tax assets for un-adjusted amount of goodwill.
Y
LA
SP
DI
224
R
DE
Potential benefit of Rs 175.691 million by revising tax return if business losses
OR
are likely to utilized in future in respect of dividend income; and also
provision for tax charge on dividend income is short recorded by Rs 21 million
T
• As per Rule 6 of the Seventh Schedule to the Ordinance, income computed • In the computation of taxable income for tax year 2015, the Bank has not
UR
under the seventh Schedule is taxable as ‘business income’. In view of that, adjusted Dividend income from taxable loss. As a result, tax on dividend
dividend income is also business income; however, it is taxable at a lower income has been worked out at 10 percent. Although this treatment is not
rate. Accordingly in case of tax loss, dividend income can be adjusted consistent with prior years but there are arguments in favour of this
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against the loss. This, however, is not advisable where tax losses are treatment. We, therefore, do not suggest adjustment on this account.
expected to be absorbed in future, as the benefit of adjusting dividend However, while making provision of current tax in the accounts, the Bank
income is restricted to the rate of tax on dividend income which is less than did not account for the tax on Dividend income of Rs. 21 million, which we
35 percent. suggest should be adjusted.
R
• The Bank in the return of income for tax years 2009 to 2014 has adjusted
dividend income against loss. The department in the assessment order for
DE
tax years 2011 and 2013 has rejected the treatment and levied tax on
dividend income at the rate of 10 per cent. We although disagree with the
treatment adopted by the department; however, if it is expected that all
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losses will be absorbed in future, hence, the taxability of dividend income
would be beneficial. Similarly, returns for other tax years wherein dividend
income has been adjusted may be revised to avail such benefits.
ED
• Since the benefit available would depend upon the capacity to absorb tax
losses, we are unable to quantify the benefit. The maximum benefit that
could be availed is Rs. 175.691 million.
Y
LA
SP
DI
225
R
DE
Amendments made by the tax authority in Bank’s tax returns which have no
OR
material effect due to carried forward business losses
T
• We have not been provided updated tax position, however, from the
UR
records made available to us, we have noted that returns submitted have
been amended for tax years 2009, 2011 and 2013. In the order for tax year
2009, following disallowances have been made:
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i. provisions for bad debts is allowed to the extent of 1 per cent / 5 per
cent of net advances instead of gross / total advances;
ii. provisions for diminution in value of investments;
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iii. provision against other assets; and
iv. unrealised loss on revaluation of ‘held for trading’ securities.
DE
• In our view, and based on various decisions of the Appellate Tribunal
Inland Revenue (ATIR), including ATIR’s decision in the Bank, the
disallowances made for tax year 2009 are expected to be deleted. We,
UN
therefore, do not suggest any adjustment in the return position including
for the un-amended tax years 2010, 2012 and 2014. Needless to say, the
nature of all the disallowances is of timing difference effect and there
seems to be no financial impact of the above disallowances as the Bank
ED
would still remain in the position of loss.

Y
LA
SP
DI
226
R
DE
Provision suggested for potential tax demand in respect of monitoring of
OR
withholding tax made by the Bank
T
• Under the tax law, the Bank is required to deduct tax from various • In this respect, we have requested the Bank to provide reconciliations.
UR
payments, inter alia, on account of following major heads: The status of reconciliation provided is as under:
- profit on debt(section 151) TAX YEARS
- salary to employees (section 149)
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Expense 2008 2009 2010 2011 2012 2013 2014 2015
- payment against supply of goods and services / contracts (sections 152 / Salary O O O O O P P O
153) Profit on debt P P O O O P O O
Other expenses O O O O O O O O
• From the status of pending cases provided by the KASB, we have noted Source: Management Information
R
that demand in tax years 2011 and 2012 of Rs. 6.362 million and
Rs. 9.851 million respectively was raised on account of short deduction of P = Provided
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tax under section 149 of the Ordinance . O = Not provided
• With respect to monitoring of withholding tax, we have noted that • Our findings on the basis of perusal of reconciliations provided are as
proceeding were initiated in tax years 2009, 2010, 2011, 2012, 2013 and follows:
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2014; however, no orders have been passed as yet.
• It has been noted that monitoring of tax withholding (WHT Audit)
Salary reconciliation
particularly in case of banks has been extensively conducted and demands • The Bank has not withheld tax on overtime payments. The total amount of
of substantial amounts have been raised by tax authorities, under section overtime payments included in recons of tax year 2013 and 2014 is
ED
151 for the following reasons: Rs. 6.046 million. We are of the view that there may be tax exposure of
Rs. 0.453 million [Rs. 6.046 million x 7.5% (average rate of salary tax)].
- tax challans (evidencing tax withholding and deposit of tax under
Since reconciliations for tax years 2010, 2011,2012 and 2015 have not
Y
section 151) are not available with Banks; and

been provided, we have extrapolated the expected exposure which comes
- tax withholding, not made in respect of exempt accounts, are not
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to Rs. 1.360 million [Rs. 0.453 million÷2x 6].

supported by either provision of law or underlying records.
It is our view that monitoring of WHT of KASB Bank can be conducted for
tax years 2010 to 2015, and time limitation for tax year 2010 will expire on
SP
December 31, 2015. Like-wise time limit for other years will apply.
DI
227
R
DE
Provision suggested for potential tax demand in respect of monitoring of
OR
withholding tax made by the Bank (cont’d)
T
Profit on debt reconciliations Rupees in m illion
UR
- Profit on debt – exempt payments 11.4
• In the reconciliations for tax years 2008 and 2009, there is unreconciled
- Profit on debt – unreconciled difference 61.625
difference of Rs. 6.870 million and Rs. 30.105 million respectively. - Salary – overtime payments 1.36
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• We have also been provided the details of exempt payments for tax year - Salary – orders for tax years 2011 and 2012 16.213
- Other expenses – recons not provided (adjustment suggested on the basis of estimate) 18
2013, which apparently shows that tax has not been deducted on mutual 10 8 . 6
funds, provident fund and trusts which are generally exempt from tax;
however, evidence in the form of exemption certificate / recognition of
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provident fund are required to ensure that tax has rightly not been
deducted. The time constraint does not allow such verification. It has been
DE
observed that generally, default in withholding in respect of exempt profit
is 10% of the exempt profit on debt paid. Since, we have only been
provided recon of tax year 2012 (out of recons requested for tax years 2010
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to 2015) on the basis of which expected tax default is Rs. 1.9 million
[Rs. 193.017 million (exempt profit) x 10% (expected default) x 10%
(rate of tax)]. Total expected exposure in this respect is Rs. 11.4 million
[Rs. 1.9 million x 6 years]
ED
• With respect to un-reconciled difference in reconciliations of tax

years 2008, 2009 and 2013, average of which is Rs. 12.325 million
[(Rs. 6.870 million + Rs. 30.105 million)/ 3)], we expect exposure of
Y
Rs. 12.325 million for tax years 2010, 2011, 2012, 2014 and 2015.
We, therefore, suggest adjustment of Rs. 61.625 million
LA
[Rs. 12.325 million x 5 years].

SP
DI
228
R
DE
Provision of Rs. 107.5 million suggested for potential demand in respect of
OR
Provincial Sales Tax and FED
T
Federal Excise Duty on banking services • The Bank is required to pay Provincial Sales Tax (PST) and FED under
UR
• FED is regulated by the Federal Excise Act, 2005 [FE Act]. Banking relevant laws on its service / commission income. Following exemptions
services were brought into the chargeability of FED with effect from July 1, are available under respective laws:
Sindh Sales Punjab Sales KPK Sales Tax
2006. At that time, certain banking services were brought into Nature of incom e FED Tax Act Tax Act Act
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chargeability at the rate of 5 per cent which inter-alia include LC, Services of utility bill collection Exempt Exempt Taxable Taxable
Guarantee, brokerage, issuance of pay order and demand drafts, bill of Umrah & Hajj Services Exempt Exempt Taxable Taxable
exchange charges, transfer of money, bill discounting commission, Safe Cheque book issuance Exempt Exempt Taxable Taxable
Cheque return Exempt Taxable Taxable Taxable
deposit lockers fee, Safe vaults, credit and debit card issuance, processing
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Musharka Financing Exempt Exempt Taxable Taxable
and renewal, commission and brokerage on foreign exchange dealings etc. Modarba Financing Exempt Exempt Taxable Taxable
Effective July 1, 2007 all non-fund services against Pakistan Custom Tariff
DE
Source: Public information
PCT Heading 98.13 were brought into the chargeability of FED. The word • We have noted that the Bank has not paid sales tax on above services in
‘non-fund’ was omitted by the Finance Act, 2009 and with effect from July Sindh, Punjab and KPK; whereas these are taxable services under the PST
1, 2009, all banking services excluding mark-up or interest bearing services laws as shown above. We therefore suggest to provide the sales tax not paid
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were made liable to FED under VAT mode at the rate of 16 per cent.
• Effective July 1, 2011, July 1, 2012 and July 1, 2013, the Province of Sindh,
which amounts to Rs. 6.737 million (Rs. 42.109 million x 16%). In addition,
we have noted that PST is not charged on following incomes despite that
Punjab and KPK respectively legislated their own laws Provincial Sales Tax Provincial tax authorities are of the view that all services provided by bank
are taxable.
ED
(PST) laws for ‘charging’ and ‘collecting’ sales tax on Banking services
rendered in the Provinces. Prior to that FBR was collecting FED on Nature of Incom e Taxable Value Tax im pact
banking services on behalf of Provinces. In the Baluchistan, FED is Rupees
applicable and is collected by FBR. We have noted that in the case of the
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Telegraphic Transfer Telex Charges 12,400 1,984

Bank, Large Taxpayers Unit (“LTU”) Karachi has issued notice to levy FED P ay o rder cancellatio n/ duplicatio n charges 2,806,389 449,022
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on banking services rendered in Sindh on the ground that the levy of FED Outward B ill Co llectio n Return Charges 14,329 2,293
Demand Draft cancelling Charges 4,673 748
was not withdrawn by Federal Government, and the Bank was not absolved Co nsumer A dviso ry Services 81,476,695 13,036,271
from the payment of FED on account of payment of Sindh Sales Tax. We Co mmissio n B ancassurance* 89,537,641 14,326,023
SP
are aware that some banks have challenged the action of LTU, Karachi in Clearing same day return 90,994 14,559
Clearing o utward bill co llectio n Return 203,740 32,598
Sindh High Court, which has granted stay against demand. The final 17 4 ,14 6 ,8 6 1 2 7 ,8 6 3 ,4 9 8
decision of the Court is still awaited. Source: AFF analyses from management information
DI
* Exempt under Federal Excise Act 2005 vide SRO 474(I)/2009 dated June 13, 2009
229
R
DE
OR
Provincial Sales Tax and FED (cont’d)
T
Federal Excise Duty on banking services • Rule 25 of the Sales Tax Rules, 20o6 read with section 8 of the STA,
UR
• We are aware of the decision of Sindh High Court (SHC) reported as 2014 requires to prorate input tax in the ratio of services chargeable to sales tax
PTD 284 wherein, while discussing the taxability of services under the FE and total services (which include exempt services which primarily include
Act 2005, it is held that where description of services is provided under the interest income). By virtue of including interest income in the dominator of
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law for taxability, tax cannot be levied on services not specifically formula (for proration) substantial inputs are generally disallowed to
mentioned. The aforesaid interpretation of SHC has however not attained Banks.
finality at Supreme Court of Pakistan level. We, therefore, on prudent basis • We have, however noted that the Bank has not prorated input tax in
suggest adjustment of 50% of the exposure, which amount to Rs 13.932 accordance with the aforesaid provisions of the Sales Tax law until
R
million [Rs 27.863 million (total exposure) x 50%]. December 2011.
DE
• Under the PST and FED laws, recovery of tax / duty short paid can be • Total input tax claimed from November 2009 till December 2011 amount s
recovered for the last five years. We have only been provided with data to Rs 26.026 million. KASB subsequently started proration of input tax.
(relating to service on which PST / FED not paid) for the period June 2011 The average ratio applied in subsequent period is 0.5 per cent. In view of
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to September 2014, however, under the law, recovery may be made for tax
short paid during the period November 2010 to November 2014.
that, we understand that the Bank claimed input tax of Rs 25.896 million
(Rs 26.026 x 99.5%) which is recoverable as per law.
• FED and PST returns for the period December 2009 to November 2014 • We have been informed that no provision on this account has been made in
were provided, which were examined on test basis. We have noted that the the books. We, therefore, suggest adjustment of Rs 25.896 million on this
ED
Bank has complied with the provisions of FE Act and PST laws to the account.
extent of preparation and filing of returns.
Input tax proration
Y
• FED on banking services was brought under VAT mode vide SRO No.
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478(I)/2009 dated June 13, 2009 by virtue of which provisions of STA and
Rules made thereunder would mutatis mutandis apply. In view of that
banks are allowed to adjust sales tax paid as input tax against FED liability.
SP
DI
230
R
DE
OR
T
Sales tax on sale of fixed assets • Total advertisement expense recorded in Financial statements for the years
UR
• We have noted that the Bank has not charged sales tax on sale of fixed 2010 to 2014 amounts to Rs. 223.914 million, on which withholding of
assets and tax authorities have passed order for the period January 2011 Rs. 35.826 million was required where as tax withheld as per Provincial
to December 2011 wherein demand of Rs 16.577 million is raised on this Sales Tax returns and Sales Tax and Federal Excise returns submitted by
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account. KASB amounts to Rs. 6.636 million.
• Although there are arguments that the Bank is not registered under the • We have not been informed whether provision against the demand raised
STA; hence sale of Fixed Assets by the Bank would not be considered as on account of short withholding of sales tax has been made. We, therefore,
taxable activity under the STA, attracting levy of Sales tax; however, the on prudent basis suggest adjustment of Rs. 29.190 million
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argument is untested. [Rs. 35.826 million – Rs. 6.636 million]
DE
• The total sales proceeds from sale of Fixed Assets recorded in the Financial • We have noted that the Bank has withheld sales tax on purchase of goods
Statements for the years 2010 to 2013 amounts to Rs 386.780 million; and services as evident from the monthly sales tax returns. We, however,
sales tax impact Rs. 63.491 million. We on prudent basis, suggest are not in a position to assess any short withholding of sales tax in this
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adjustment of 50% of exposure which comes to Rs. 31.745 million
[Rs. 63.491 million x 50%]
respect unless expenditure wise reconciliation is provided to us.
Sales tax withholding

ED
• We have noted that tax authorities have passed order in respect of short
deduction of withholding sales tax on advertisement services for the period
January 2011 to December 2011 wherein demand of Rs. 11.902 million was
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raised and is pending before CIR (A).

LA
SP
DI
231
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DE
OR
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Other compliances / matter relating to Indirect Taxes
UR
• Effective July 1, 2007, FBR through Sales Tax Special Procedure
(Withholding) Rules, 2007 made certain persons liable to withhold certain
amount of sales tax. The Bank being a registered person of LTU was also a
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withholding agent, whereby it was required to withheld tax at the rate of
20 per cent* on supply of taxable goods / service by registered persons, at
the rate of 1 per cent* on supply of taxable goods / services by unregistered
person and at 16 per cent of the total amount of advertisement services
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rendered to the Bank.
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• Similar to Federal Sales Tax withholding procedures, the Province of Sindh
and Punjab also framed its withholding Rules effective August 24, 2011 and
July 1, 2012 respectively whereby the Bank was made liable to withhold
UN
sales tax related to Province of Sindh and Punjab. The supply of
advertisement services under Sindh and Punjab Rules are subject to
withholding at 16 per cent whether such services are provided by registered
or unregistered person.
ED
Rupees in m illion
- PST on services exempt under FED and Sindh but not in Punjab and KPK law 6.7
- Short payment of FED and PST on services 13.9
Y
- Non proration of input tax 25.9

- Sales tax on sale of fixed assets 31.7
LA
- Short withholding of Sales tax on advertisement services 29.2

10 7 . 4
* The rate of withholding sales tax has changed over time, the rate of withholding sales tax of
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20% on supply of goods by registered person effective from July 01, 2007 and the rate of
withholding sales tax of 1% on supply of goods by registered person effective from
June 25, 2009.
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Source: AFF analyses
232
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18 Deferred taxation Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Adjustments to recognise additional deferred tax asset not recommended due
OR
to uncertainty regarding availability of future taxable profits
T
• The Bank has recognised deferred tax asset of Rs. 4,798 million based on Unabsorbed depreciation
UR
carrying values and tax bases of September 30, 2014. Breakup of deferred • As per Management Information, unabsorbed depreciation of
tax assets and liabilities recognised by the Bank is given below: Rs. 2,081 million is available to the Bank for adjustment against taxable
profits that may arise in future. The Bank has recognised deferred tax asset
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Deferred tax asset - net
on the entire balance of unabsorbed depreciation of Rs. 2,081 million.
Rupees in m illion
De duc tible te mpora ry diffe re nc e s a rising in re spe c t of:
Carried forward business losses
Carried forward business losses 2,187 • As per Management Information, business losses of Rs. 9,591 million are
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Unabsorbed tax depreciation 728
2,915
available to the Bank for adjustment against taxable profits that may arise
in future. However, the Bank has restricted recognition of deferred tax
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Provision against non- performing loans and advances 2,114
Goodwill 67 asset to business losses of Rs. 6,247 million, thus not recognising deferred
Deficit on revaluation of available for sale investments 67 tax of Rs. 1,170 million on business losses of Rs 3,344 million (Rs 9,591
Provision for gratuity 43
million - Rs 6,247 million). However, we would like to point out that
Provision for diminution in the value of investments
Provision on other assets
UN 294
132
5,631
business losses of Rs 1,462 million and Rs 2,478 million are due to expire
in 2014 (tax year 2015) and 2015 (tax year 2016), respectively.
Ta xa ble te mpora ry diffe re nc e s a rising in re spe c t of:
Surplus on revaluation of fixed assets (238) • We noted that in the deferred tax workings, the Bank has inadvertently
taken the figure of business loss for tax year 2014 at Rs 299 million, as
ED
Accelerated tax depreciation (100)
Fair value adjustments relating to net assets acquired upon amalgamation (328) against the loss of Rs. 604 million reported in the tax return filed by the
Net investment in finance leases (167) Bank, thus not recognising deferred tax of Rs 107 million on business
(8 3 3 )
losses of Rs 305 million (Rs. 604 million – Rs 299 million).
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4,798
Source: Management information • The recoverability of the deferred tax asset depends on the availability of
LA
future taxable profits to allow the realisation of the deferred tax asset. The
determination of future taxable profits is sensitive to certain key
assumptions including capital injections, timing of withdrawal of Iranian
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Deposits growth of deposits and advances. Any significant change in the

key assumptions may have aa major impact on the realisability of deferred
tax asset.
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233
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OR
to uncertainty regarding availability of future taxable profits (cont’d)
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Accordingly, adjustment to recognise further deferred tax asset, including Provisions for gratuity, diminution in value of investments and
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deferred tax asset arising on due diligence adjustments, has not been other assets
proposed considering the uncertainty associated with availability of
• The Bank has recognised DTA of Rs 43 million, Rs 294 million and
sufficient taxable profits. This is also consistent with the approach adopted
Rs 132 million, in respect of provision for gratuity, diminution in value of
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by the Management, as discussed above.
investments and other assets, respectively. We noted that these provisions
Provision against non- performing loans and advances were claimed in the tax returns filed by the Bank in the years of
• The Bank has recognised deferred tax asset of Rs 2,114 million on provisioning. As the Bank has already recognised DTA on unused business
unabsorbed bad debt provisions of Rs 6,039 million. losses (which include these provisions) for prior tax years, recognition of
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DTA on provisions is a duplication. Accordingly, DTA recognised by the
Goodwill Bank on above referred provisions should be reversed.
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• As per Management Information, the Bank has recognised deferred Surplus on revaluation of fixed assets
tax asset of Rs 67 million in respect of unamortised goodwill as at
September 30, 2014 having carrying value of Rs 248 million and tax base of • The Bank has recognised deferred tax liability of Rs 238 million on surplus
UN
Rs 439 million. In this regard, we have noted that the Bank has already
claimed impairment of goodwill for tax purposes. Therefore, deferred tax
of Rs 855 million on revaluation of fixed assets.
• We have identified that the figure of deferred tax on revaluation surplus as
asset of Rs 67 million recognised by the Bank should be reversed. per the financial statements differs from the figure in deferred tax workings
ED
Deficit on revaluation of Available-For-Sale investments by Rs 3.772 million. No reason /explanation for this difference has been
provided by the Bank.
• We have noted that due to a computational error in the deferred tax
workings, the Bank has recorded deferred tax asset of Rs 67 million instead
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of recording net deferred tax liability of Rs 27 million.

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Accordingly, an adjustment of Rs 94 million should be made to record

DTL of Rs 27 million.
SP
DI
234
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DE
OR
to uncertainty regarding availability of future taxable profits (cont’d)
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Accelerated tax depreciation and Fair value adjustments • Based on the above discussion, a net reversal of Rs 463 million can be
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relating to net assets acquired upon amalgamation made to the deferred tax asset of Rs. 4,798 million recognised by the Bank.
• Deferred tax liabilities of Rs 100 million and Rs 328 million, respectively, The break-up is given below:
were recorded by the Bank in respect of accelerated tax depreciation and
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Rupees in m illion
Fair value adjustments relating to net assets acquired upon amalgamation,
due to the difference in tax base and carrying value. DTA on provision for gratuity, to be reversed (43)
DTA on provision for other assets, to be reversed (132)
Net Investment in Finance Leases DTA on goodwill, to be reversed (67)
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DTA on provision for diminution in the value of investments, to be reversed (294)
• The Bank has recognised DTL of Rs 167 million on difference between tax Adjustment to DTA in respect of deficit on revaluation of AFS investments (94)
and accounting base of finance leases entered into upto tax year 2008 (i.e.
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DTL on NIFL, to be reversed 167
prior to the applicability of the Seventh Schedule). As per Rule 8A of the (4 6 3 )
Seventh Schedule, lease rentals relating to leases issued prior to January 1, Source: AFF analysis
2008 are to be offered to tax and adjustments for depreciation and finance
UN
income on such leases are allowable. However, we noted that in the tax
returns for tax years 2009 to 2014, the Bank has not made any adjustment
• However, the above reversal has not been recommended due to availability
of potential deferred tax asset arising from the due diligence adjustments.
on this account. Thus, the Bank has offered for tax, the finance income
reported in the financial statements.
ED
• It is likely that the Bank will continue this treatment in future years. As a
result of the above, there is no timing difference on account of leases and
the question of recording DTL does not arise. It is therefore suggested that
Y
DTL of Rs. 167 million recorded by the Bank should be reversed.

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SP
DI
235
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19 Related party transactions and balances Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
List of related parties provided by Management of the Bank
OR
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List of related parties
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Particulars Basis Particulars Basis Particulars Basis
Dire c tors Assoc ia te s Ke y ma na ge me nt pe rsonne l

Bilal Mustafa President & CEO KASB Corporation Limited Parent Muhammad Muzaffar Khan Country Treasurer
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Syed Tariq Hussain Gilani Director New Horizon Exploration & By Investment above 20% Syed Masud A. Naqvi Head of Trade Services
Production Ltd.
Ashraf M. Hayat Director Crosby Dragon Fund By Investment above 20% Mushtaq Murad Chief Information Officer
Muzaffar Ali Shah Bukhari Director KASB Islamic Income Opportunity By Investment above 20% Parvaiz Ahmad Head of Internal Audit
Fund
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Sun Shui Director KASB Income Opportunity Fund By Investment above 20% Syed Fazal Hasnain Head of SAM
Feroz Rizvi Director KASB Cash Fund By Investment above 20% Sumair Wahid Abro Head of Human Resource &
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Development
S ubsidia rie s Shakarganj Food Products Ltd. By Investment above 20% Huma Kamani Head of Financial Institutions
My Solutions Corporation Ltd. By Investment above 50% KASB Capital Ltd. (formerly KASB By Investment above 20% Ali Rabbani Regional Head Corporate and
International Ltd.) Business Banking - (Central &
KASB Securities Ltd. By Investment above 50%

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KASB Asset Allocation Fund By Investment above 20% Muhammad Javed Ghafoor
Humayun
North)
Regional Head Corporate and
Business Banking - South
Structured Venture (Pvt) Ltd Indirect subsidiary (wholly KASB Modaraba By Investment above 20% Muhammad Sabih Qazi Head of Operations & Support
owned subsidiary of KSL)
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O the r re la te d pa rtie s KASB Funds Ltd. By Investment above 20% Syed Asif Ali Head of Risk Management
Institute of Policy Reforms, Common Director - Imran Malik Head of GTB & ADC and
Lahore Ashraf M. Hayat Ke y ma na ge me nt pe rsonne l Investment Banking
Asia International Finance Common Director - Muhammad Hamidullah Company Secretary
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Limited (Hong Kong) Sun Shui

KASB Bank Employees Trustees are key Syed Liaquat Ali Chief Financial Officer
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Provident Fund management personnel

Nasir Ali Shah Bukhari Sponsor shareholder Salman Naqvi Group Head - Branch Banking
KASB Invest (Pvt) Limited Management company of Syed Murshid Ali Chief Compliance Officer
SP
KASB Modaraba Muhammad Sadiq Sheikh Country Credit Officer

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236
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DE
As at November 30, 2014, total loans to and deposits from related parties
OR
amounted to Rs 264.9 million and Rs 641.7 million, respectively
T
Related party balances and transactions (other than directors and key management personnel)
UR
30-Nov-14 11M 2014
Loans and Contingencies Mark-up Mark-up
Rupees in m illion advances Deposits and com m itm ents earned expense
CO
Ma jor sha re holde rs
KASB Corporation Ltd. - (4.9) - - (0.3)
Asia International Finance Ltd. - (0.5) - - -
Zephyr Power (Pvt.) Ltd. - - - - -
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S ubsidia rie s
DE
KASB Securities Ltd. 150.0 (365.1) - 11.8 (34.2)
My Solutions Corporation Ltd. - (6.3) 3.6* - (0.5)
Structured Venture (Pvt) Ltd - (3.4) - - (0.2)
- - -
Assoc ia te s
KASB Capital Ltd.
KASB Modaraba
-
-
UN (0.1)
(3.3)
-
-
-
-
-
-
New Horizon Exploration and Production Ltd. 14.9 (1.1) 97.8* 5.7 -
Shakarganj Food Products Ltd. 100.0 - - 10.2 -
ED
KASB Funds Ltd. - (16.1) - - (0.6)
KASB Asset Allocation Fund - (21.7) - - -
KASB Income Opportunity Fund - (26.3) - - (9.1)
KASB Cash Fund - - - - -
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KASB Islamic Income Opportunity Fund - - - - -

KASB Balances Fund - - - - (5.0)
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Crosby Dragon Fund - - - - -
O the r re la te d pa rtie s
KASB Invest (Pvt.) Ltd. - (0.7) - - (0.1)
SP
KASB Bank Provident Fund - (192.2) - - (18.3)

264.9 (6 4 1. 7 ) 27.7 (6 8 . 3 )
* Both contingencies represent letters of guarantee opened on behalf of related parties.
DI
237
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DE
The Bank received dividend income of Rs 213.5 million from related parties
OR
during 11M 2014
T
Related party balances and transactions (other than directors and key management personnel) ! Administrative expenses include an amount of
UR
30-Nov-14 11M 2014 Rs 4.6 million in respect of rent expense for
Other Other Adm inistrative Dividend Other 2014 for space occupied by IBG of the Bank.
Rupees in m illion assets liabilities expenses incom e incom e Others
@ The expense incurred in respect of MSC
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Ma jor sha re holde rs
consists of internet connectivity charges for the
Zephyr Power (Pvt.) Ltd. - - - - 0.1 0.1
period from October 2013 to September 2014.
S ubsidia rie s
# This represents the Bank’s contribution to
! (5.3)
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KASB Securities Ltd. 3.6 - 38.8 1.9 3.5
KASB Bank Provident Fund for 2014.
My Solutions Corporation Ltd. - - @ (2.2) - 1.2 -
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Assoc ia te s
KASB Modaraba 17.9 - - 0.2 0.1 Refer section 11 and 15 for details of outstanding
New Horizon Exploration and Production Ltd. 0.5 - - - 0.3
KASB Asset Allocation Fund - - - 85.1 - -
balances in respect of related parties.
KASB Income Opportunity Fund
KASB Cash Fund
KASB Islamic Income Opportunity Fund
-
-
-
UN -
-
-
-
-
-
47.9
5.2
3.9
-
-
-
-
-
-
Crosby Dragon Fund - - - 32.6 - -
ED
O the r re la te d pa rtie s
KASB Bank Provident Fund - (1.4) # (31.5) - - -
22.0 (1. 4 ) (3 9 . 0 ) 2 13 . 5 3.4 4.0
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LA
SP
DI
238
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DE
As at November 30, 2014, total loans to and deposits from directors and key
OR
management personnel amounted to Rs 37.4 million and Rs 20.3 million,
respectively
T
Related party balances and transactions with directors and key management personnel
UR
30-Nov-14 11M 2014
Loans and Mark-up Mark-up Directors Salaries and
Rupees in m illion advances Deposits earned expense fee allow ances
CO
Feroz Rizvi Director - - - - (0.5) -
Ashraf M. Hayat Director - (6.1) - - (0.8) -
Muzaffar Ali Shah Bukhari Director - (1.1) - - (0.5) -
Syed Tariq Hussain Gilani Director - (1.5) - - (0.8) -
Bilal Mustafa Director - (3.9) - - - (19.7)
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Syed Liaquat Ali Director 5.6 - 0.4 - - (13.1)
Mohammad Hamidullah Director - (0.2) - - - (5.9)
DE
Tariq M Rangoonwala ex- Director: has left the Bank - - - - (0.2) -
Zia Khaleeli ex- Director: has left the Bank - - - - (0.2) -
Ali Rabbani Key Management 10.2 - 0.3 - - (4.2)
Hamid Mehmood Baloch Key Management - - 0.2 - - (3.3)
Huma Kamani
Imran Malik
Jahanzeb Nazar Haider
Key Management
Key Management
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ex- Key Management: Has left the Bank
-
0.9
-
(1.2)
(0.6)
-
-
0.1
-
(0.1)
-
(0.1)
-
-
-
(4.1)
(4.6)
(0.7)
Khaqan Saadullah Khan ex- Key Management: Has left the Bank - - - - - (7.8)
Muhammad Muzaffar Khan Key Management 10.0 (3.0) 0.2 (0.1) - (9.3)
ED
Muhammad Sabih Qazi Key Management - - - (2.9)
Muhammad Sadiq Sheikh Key Management 2.9 (0.2) 0.1 - - (5.8)
Mushtaq Murad Key Management 1.6 - 0.1 - - -
Nasir Ali Shah Bukhari Sponsor Shareholder - (1.0) - - - -
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Parvaiz Ahmed Key Management 0.6 - 0.1 - - (6.9)

Salman Ahmad ex- Key Management: Has left the Bank - - 0.2 - - (0.9)
LA
Salman Naqvi Key Management 2.2 - 0.3 - - (9.2)

Sumair Wahid Abro Key Management 0.4 - 0.1 - - (4.3)
Syed Asif Ali Key Management - (0.4) - - - (5.7)
Syed Fazal Hasnain Key Management - (0.1) - - - (4.4)
SP
Syed Masud Ahmed Naqvi Key Management 1.3 (0.2) 0.2 (0.1) - (6.1)
Syed Murshid Ali Key Management 1.7 (0.1) 0.1 - - (4.7)
Waqar Ahmed khan ex- Key Management: Has left the Bank - - 0.1 (0.1) - (5.1)
37.4 (19 . 6 ) 2.5 (0 . 5 ) (3 . 0 ) (12 8 . 7 )
DI
239
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20 Contingencies and commitments Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Since November 14, 2014, the Bank has been unable to renew any existing
OR
guarantee or LC or issue a new guarantee or LC
T
Contingencies and commitments
UR
Tra nsa c tion- re la te d c ontinge nt lia bilitie s

Includes performance bonds, bid bonds, warranties advance
CO
payment guarantees and shipping guarantees related to particular
transactions issued in favour of:
Government 8,091.7 9,409.0 Please refer section 6 for transaction and trade related contingent
Others 2,827.7 3,884.5 liabilities as at November 30, 2014.
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Tra de - re la te d c ontinge nt lia bilitie s
DE
Letters of credit 667.9 8,345.1
Acceptances 1,235.7 2,154.4
Commitme nts in re spe c t of forwa rd e xc ha nge c ontra c ts Please refer section 11 for details of commitments in respect of forward
Purchase
Sale
UN 572.7
83.5
29,116.6
28,952.6
exchange contracts and the net unrealised gain recorded as at November
30, 2014.
Commitme nts for the a c quisition of ope ra ting fixe d a sse ts 235.1 276.6 Please refer section 8 for details of capital expenditure commitments as
at November 30, 2014.
ED
Y
LA
SP
DI
240
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DE
21 Capital adequacy ratio Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Capital adequacy ratio of the Bank as at November 30, 2014
OR
T
CAR as at November 30, 2014
UR
Rupees in thousand
Common Equity Tie r 1 (CET 1) Ca pita l
Share capital 19,508,617
CO
Advance against future issue of rights shares 981,410
Discount on issue of right shares (6,976,276)
General reserve 384
Accumulated losses (12,870,823)
CET 1 be fore re gula tory a djustme nts 6 4 3 , 3 12
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De duc tions*
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Regulatory adjustments (2,828,133)
CET 1 a fte r a pplic a tion of a ll re gula tory a djustme nts (2 , 18 4 , 8 2 1)
Credit risk weighted assets 42,054,620

Market risk weighted assets
Operational risk weighted assets
Tota l risk we ighte d a sse ts
UN 2,911,051
3,736,536
48,702,207
Ca pita l Ade qua c y Ra tio - 4.49%

ED
*These adjusments relate to deferred taxation, goodwill, intangibles, significant investments in the capital of financial entities and investments in mutual funds
exceeding the prescribed threshold.
Y
CAR as at November 30, 2014 was prepared by the Management on the basis of transisitional provision under BASEL III guidelines.
LA

SP
DI
241
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DE
KASB KASB Securities 242
OR
22 Company overview 243
Securities 23 Balance sheet 244
T
UR
25 Property and equipment 252
26 Long-term investments 255
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27 Short-term investments 262
29 Trade debts 264
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30 Advances, deposits, prepayments and other receivables 265
DE
31 Cash and bank balances 266
32 Trade and other payables 268
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33
34
Taxation - direct
Taxation - indirect
269
274
35 Deferred tax 279
ED

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LA
SP
DI
242
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22 Company overview Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
KSL is a corporate member of the Karachi Stock Exchange and Pakistan
OR
Mercantile Exchange. The Bank holds 77.12% of shares of KSL
T
• KSL was incorporated on October 24, 2000 under the Companies
UR
Ordinance, 1984 and commenced its operations effective from January 1, Group structure of KASB Securities Ltd.
2003 consequent to sanction of scheme of arrangement by the High Court
of Sindh for transfer of assets and liabilities of the securities segment of
CO
Khadim Ali Shah Bukhari and Company Ltd. KASB Bank Ltd.
Directors,
Individuals and
associates and
• The shares of the company are listed on the Karachi Stock Exchange Ltd. others
related parties
(“KSE”).
77.12%
• KSL is a subsidiary of the Bank which holds 77.12% of shares of the 1.32% 21.56%
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company. The ultimate parent of the company is KASB Corporation Ltd.
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KASB Securities
• KSL has corporate membership of KSE and Pakistan Mercantile Exchange Limited
Ltd. (“PMEL”) and is principally engaged in the business of stocks, money
market, foreign exchange and commodity broking. The activities of the
research and advisory services.

UN
company also include investment in equity and debt securities, economic
1.55% 1.02% 100% 0.50%
ED
Al Jomaih Power Structured Karachi Stock
KASB Bank Ltd.
Ltd. Venture (Pvt) Ltd. Exchange Ltd.
Y

LA
SP
DI
243
R
DE
Total assets of the company declined from Rs 2.3 billion as at December 31,
OR
2013 to Rs 2.1 billion as at November 30, 2014
T
Balance Sheet • Property and equipment and intangible assets mainly consist of:
UR
• office premises (carrying value of Rs 17.5 million and market value of Rs 115.4 million).
Property and equipment 56.8 46.8
Intangible assets 8.9 8.9
• computer and office equipment (carrying value of Rs 24.7 million).
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Long- term investments 859.4 883.4 • three rooms and telephone booths at KSE (carrying value of Rs 6.8 million and market
Long- term loans and advances 8.3 0.5
Long- term deposits and prepayments 6.5 6.4
value of Rs 28.5 million).
Long- term receivable - 0.2 • membership card of PMEL and Trading Right Entitlement Certificate of KSE.
Deferred tax asset - net 37.2 39.2
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Non- c urre nt a sse ts 977.1 985.4 • Long-term investments mainly comprise of:
• Investment of Rs 488.6 million in Structured Venture (Pvt.) Ltd. (“SVL”). The major
DE
Short- term investments 25.7 267.6
Trade debts 397.9 382.7
Advances, deposits, prepayments and
investments of SVL include (i) investment of Rs 375 million in plots in Korangi Housing
other receivables 261.7 258.0 Scheme; and (ii) investment in shares of NHEPL with a carrying value of Rs 101 million.
Taxation - net
Cash and bank balances
Curre nt a sse ts
TO TAL AS S ETS
22.5
431.2
1, 13 9 . 0
2 , 116 . 1
UN 26.8
337.4
1, 2 7 2 . 5
2,257.9
• Investment in Al-Jomaih Power Ltd. with a carrying value of Rs 306 million as at
November 30, 2014.
• Trade debts (net of provision) of Rs 26 million have remained outstanding till January 31,
S ha re c a pita l a nd re se rve s 2015 out of trade debts (net of provision) of Rs 397.9 million as at November 30, 2014. The
ED
Issued, subscribed and paid- up capital 1,000.0 1,000.0
company held collateral against trade debts of Rs 5.3 million.
General reserve 18.8 18.8
Unrealised gain on re- measurement of 'available • Advances, deposits, prepayments and other receivables mainly consist of exposure deposit
- for- sale' investments to fair value - net 129.5 153.6
with KSE of Rs 241.9 million.
Y
Unappropriated profit 92.5 46.1

1,240.8 1,218.5 • The long term loan was obtained from the Bank at 3-month KIBOR plus 2.5% per annum
LA
Non- c urre nt lia bilitie s

and is payable on quarterly basis. The principal is to be paid on maturity in January 2016.
Long- term loan 150.0 100.0
The loan is secured by way of first pari passu hypothecation charge over all present and
future current assets amounting to Rs 607 million with 30% margin. In addition, the
SP
Trade and other payables 722.0 939.4

Accrued mark- up company has lien on all deposits, accounts and properties held with the Bank.
3.3 -
725.3 939.4 • Trade and other payables include cash balances of customers held with KSL amounting to Rs
TO TAL EQ UITY AND LIABILITIES 2 , 116 . 1 2,257.9 585 million. In addition, accrued expenses amounted to Rs 112.4 million.
DI
244
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DE
Profit after tax of the company increased from Rs 81.5 million in 2013 to Rs
OR
116.4 million in 2014
T
Profit and loss account • Income earned by KSL increased by 18.7% in 2014. As per
UR
Rupees in m illion 2014 Dec-14 11M 2014 2013 Management Information, the higher income was mainly due to
Operating revenue 514.8 9.0 505.8 481.1
gain of Rs 49.8 million on sale of securities in 2014 as compared to
loss of Rs 20.8 million recorded in 2013. In addition:
CO
Net gain / (loss) on investments 'at fair value through profit and loss'
On sale of securities, other investments and
• equity brokerage of Rs 385.5 million was earned on KSE trades
commodities 49.8 3.4 46.4 (20.8) as compared to Rs 361.1 million in 2013. The income generated
Net unrealised (loss) / gain on re- measurement in 2014 included Rs 72.4 million relating to trades by Merrill. We
of investments (3.1) (1.5) (1.6) 16.7 understand that Merrill has terminated its agreement with KSL
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46.7 1.9 44.8 (4.1)
with effect from December 31, 2014.
DE
Dividend Income 1.1 - 1.1 1.5
Mark- up / profit on bank deposits, investments • late payment surcharge, which is charged at rates ranging from
and other receivables 51.7 5.5 46.2 39.2 21% to 26% of overdue amount from customers who do not settle
614.3 16.4 597.9 517.7 at ‘T+2’, increased from Rs 41.4 million in 2013 to Rs 69.7
Operating and administrative expenses
Provision against doubtful debts- net
Reversal of provision against long- term receivable
UN (462.1)
1.1
-
(17.2)
1.1
(1.0)
(444.9)
-
1.0
(400.7)
(4.3)
14.0
million in 2014.
• interest on bank balances and KSE exposure deposits increased
(461.0) (17.1) (444.0) (391.0) from Rs 28.3 million in 2013 to Rs 47.6 million in 2014.
• Operating and administrative expenses increased by 15.3% in 2014
ED
O pe ra ting profit 15 3 . 3 (0 . 6 ) 15 3 . 9 12 6 . 7
Finance cost (21.0) (1.6) (19.4) (8.9) mainly due to:
13 2 . 3 (2 . 2 ) 13 4 . 5 117 . 8
Other income 6.7 1.5 5.2 7.3 • increase in salaries expense from Rs 244.8 million to Rs 266.5
Y
P rofit be fore ta xa tion 13 9 . 0 (0 . 7 ) 13 9 . 7 12 5 . 1 million.

Taxation (22.5) 21.1 (43.6) (43.6)
LA
P rofit a fte r ta xa tion 116 . 5 20.4 96.1 8 1. 5 • a “one-off” tax charge of Rs 19.1 million paid to Sindh Revenue
Board.
• increase in brokerage expense of Rs 14 million on account of
SP
Source: Management Information higher commission to brokers in respect of capital gains on

Normalised profit and loss was not prepared due to insufficient information in money market deals. Money market brokerage expense in 2014
respect of “non-recurring” items was Rs 22.3 million.
DI
245
R
DE
Equity brokerage increased by 6.7% in 2014
OR
T
Operating revenue • Equity brokerage of KSL increased by approximately 6.7% in 2014 as a result of higher
UR
Rupees in m illion 2014 Dec-2014 11M 2014 2013 average commission per share of Rs 0.069 as compared to average commission per share
Broke ra ge
of Rs 0.05 in 2013. However, the increase was impacted by:
Equity brokerage 385.4 7.1 378.3 361.1
• decrease in market share of KSL from 10.2% in 2013 to 9.4% in 2014.
CO
Money market brokerage 18.1 1.9 16.2 14.5
Forex brokerage 11.0 0.8 10.2 7.0 • decrease in KSL volumes from 6.1 billion in 2013 to 5.4 billion in 2014.
4 14 . 5 9.8 404.7 382.6
• late payment surcharge, which is charged at rates ranging from 21% to 26% of overdue
Additional commission 69.7 - 69.7 41.4 amount from customers who do not settle at ‘T+2’, increased from Rs 41.4 million in 2013
R
Brokerage - PMEL 21.0 0.1 20.9 23.1 to Rs 69.7 million in 2014. However, we have been informed by the Management that
Share application brokerage 0.5 - 0.5 0.0
SECP has recently reiterated its position that the above practice is not allowed.
DE
9 1. 2 0.1 9 1. 1 64.5
505.7 9.9 495.8 447.1 • Subscription research income represents income earned from research services provided
Subscription research income 1.9 - 1.9 2.1
to ‘Macquarie Capital’ and ‘Schroder Investment’ amounting to Rs 1.05 million and Rs
Financial advisory fee
Custody services
Profit on margin trading system -
2.0
5.2
(1.0)
-
0.1
UN 3.0
5.1
-
28.6
1.2
2.2 •
0.81 million, respectively.
Financial advisory fee is mainly earned from Nestle Pakistan Ltd. for acting as financial
5 14 . 8 9.0 505.8 4 8 1. 2 advisor in respect of its gratuity fund, pension fund and provident fund. KSL receives a
monthly fee of Rs 0.19 million per month. In 2013, the company received Rs 26.5 million
ED
for managing the share buy back/de-listing of shares of Unilever Pakistan Ltd.
• The increase in custody services is mainly due to income earned on shares of KES Power
Source: Management Information Ltd. placed in the custody of KSL in 2014.
Y
LA
SP
DI
246
R
DE
Equity brokerage earned on trading by Merrill constituted 18.8% of total
OR
equity brokerage in 2014 and 13.7% in 2013
T
Equity brokerage for 2014 (customer-wise) Equity brokerage for 2013 (customer-wise)
UR
13.7%
CO
18.8%
3.5%
R
1.6%
1.4%
DE
5.0% 1.3%
1.1%
0.9%
1.6%
1.5%
UN 1.2%
1.1%
1.0%
ED
69.8%
Y
76.5%
LA
Merrill Pesh-Sayed Imran Shah

SP
Portman Limited Lhr-Mohammad Rafiq Merrill Pesh-Sayed Imran Shah Portman Limited
Efg Private Bank (Channel Island) Limited Stanhope Investments Stanhope Investments Abdul Qayyum Asif Lhr-Muhammad Hasan
Unilever Physical Shares Buy Back Others Gul-Rashid Khan Others
DI
247
R
DE
Faisalabad branch was closed. Equity brokerage earned on trading through
OR
the branch constituted 2.5% of total equity brokerage in 2014 and 2.4% in 2013
T
Equity brokerage - by source (2014) Equity brokerage - by source (2013)
UR
2.2% 2.5% 1.3% 0.2% 2.3% 2.4% 0.2%
2.0% 2.2%
1.9% 18.1% 1.7% 19.3%
CO
R
22.2%
DE
27.2%
13.8%
19.0%
UN Note: The equity brokerage is
gross of rebates and does not 2.0%
include income earned on off-
ED
7.6% market transaction.
3.1% 6.0%
6.9%
6.8% 4.3%
5.6% 10.4%
Y
8.8%
LA
Karachi Merrill Other Foreign Karachi Merrill Other Foreign

Islamabad Lahore Peshawar - Individual Islamabad Lahore Peshawar - Individual
SP
Gulshan Karachi KASB Direct Rahim Yar Khan Gulshan Karachi KASB Direct Rahim Yar Khan
Multan Gujranwala Faisalabad Multan Gujranwala Faisalabad
Rawalpindi Sialkot Rawalpindi
DI
248
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DE
Volume-based market share of KSL in trading on the KSE (all share) index,
OR
excluding Merrill-related business and generated through the Faisalabad
branch declined from 9.62% in 2013 to 8.7% in 2014
T
UR
KSE (all share) volume per day and KSL market share
300 11%
CO
10.16%
10.10%
250 10%
245
9.62% 233
R
200 9.40% 10%
Shares traded in million
9.62%
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Market share (%)

186
150 9%
9.05% UN 9.06%
8.70%
100 9%
ED
85
50 8%
Y
LA
- 8%
2011 2012 2013 2014
SP
KSE All share volume per day Total market share Market share excluding Merrill-related business and Faisalabad branch
DI
249
R
DE
Staff cost has increased by 8.9% during 2014
OR
T
Operating and administrative expenses • As per Discussions with Management, the increase in salaries, allowances
UR
Rupees in m illion 2014 Dec-2014 11M 2014 2013 and other benefits was due to an average 10% increment in staff salaries.
Salaries, allowances and other benefits 266.5 3.9 262.6 244.8
However, the amount of performance bonus in 2014 was Rs 59.9 million as
Staff training and development 0.6 (0.0) 0.6 0.2 compared to Rs 62.8 million in 2013.
CO
Rent, rates and taxes 32.6 3.0 29.6 16.4
Insurance charges 0.5 (0.0) 0.5 0.3
• Salaries include:
Depreciation 14.9 1.5 13.4 10.1 • basic salaries;
Amortisation - - - 0.5
Repairs and maintenance 13.0 0.3 12.7 12.4 • house rent allowance computed at 45% of basic salary;
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Power and utilities 14.9 1.2 13.7 11.9
Communication 13.7 1.1 12.6 17.7 • utility allowance computed at 10% of basic salary;
DE
Trading costs 22.3 0.5 21.8 21.2
Information technology related cost 14.8 1.1 13.7 15.2
• fuel allowance computed at 5% of basic salary;
Fees and subscription 5.2 0.1 5.1 4.7 • car allowance was 18% of basic salary up to February 2014 after which it
Director fee 1.7 0.0 1.7 1.6
was reduced to 17%; and
Printing and stationery
Papers and periodicals
Advertisement and business promotion
3.0
0.2
0.7
UN 0.1
(0.0)
(0.0)
2.9
0.2
0.7
4.1
0.2
0.9
• medical allowance computed at 7% of basic salary.
Sales and marketing 5.6 0.8 4.8 3.7 Deductions for provident fund are made at 8%.
Travelling and conveyance 4.7 0.2 4.5 6.0
ED
Entertainment 1.0 0.0 1.0 2.6 • Eid bonuses have also been given twice in the year at approximately 92% of
Brokerage expense 29.8 2.7 27.1 15.8 one-month’s basic salary.
Auditors' remuneration 1.1 0.1 1.0 1.0
Y
Stamp charges 0.0 0.0 - -

Donations 1.9 (0.0) 1.9 2.1
LA
Workers' Welfare Fund 2.8 (0.1) 2.9 2.6

Loss on disposal of property and equipment - - - 2.1
Kitchen expenses 2.0 0.2 1.8 -
SP
Others 0.2 (0.0) 0.2 0.2

462.1 17 . 2 444.9 400.7

DI
250
R
DE
Rent, rates and taxes includes a tax charge of Rs 19.1 million paid to Sindh
OR
Revenue Board in 2014
T
Operating and administrative expenses • Rent, rates and taxes mainly include rent expenses of the premises. However,
UR
Rupees in m illion 2014 Dec-2014 11M 2014 2013 for 11M 2014, it also includes Rs 19.1 million in respect of tax charged by
Salaries, allowances and other benefits 266.5 3.9 262.6 244.8
Sindh Revenue Board.
Staff training and development 0.6 (0.0) 0.6 0.2 • Power and utilities mainly include Rs 11.8 million in respect of electricity
CO
Rent, rates and taxes 32.6 3.0 29.6 16.4
Insurance charges 0.5 (0.0) 0.5 0.3
charges of offices.
Depreciation 14.9 1.5 13.4 10.1 • Repair and maintenance includes an amount of Rs 3.9 million incurred in
Amortisation - - - 0.5
Repairs and maintenance 13.0 0.3 12.7 12.4
respect of renovation of KSL’s branches in Islamabad and Sialkot.
R
Power and utilities 14.9 1.2 13.7 11.9 • Trading costs include direct variable cost for undertaking brokerage activities.
Communication 13.7 1.1 12.6 17.7
These charges include CDC custodian charges, NCSS charges, SECP charges
DE
Trading costs 22.3 0.5 21.8 21.2
Information technology related cost 14.8 1.1 13.7 15.2 and KSE LAGA charges.
Fees and subscription 5.2 0.1 5.1 4.7
• Information technology related cost mainly comprises of license and other
Director fee 1.7 0.0 1.7 1.6
fees for usage of various software as a well as an expense of Rs 4.2 million
Printing and stationery
Papers and periodicals
Advertisement and business promotion
3.0
0.2
0.7
UN 0.1
(0.0)
(0.0)
2.9
0.2
0.7
4.1
0.2
0.9
incurred in respect of Bloomberg terminal.
• Brokerage expense comprises of commission paid to brokers for trading in
Sales and marketing 5.6 0.8 4.8 3.7
Travelling and conveyance 4.7 0.2 4.5 6.0 equity, money market and commodity instruments. As per Discussions with
ED
Entertainment 1.0 0.0 1.0 2.6 Management, up to 50% of the capital gain is also paid to traders as
Brokerage expense 29.8 2.7 27.1 15.8 commission on profitable deals in money market. During 11M 2014, money
Auditors' remuneration 1.1 0.1 1.0 1.0
market brokerage expense amounts to Rs 20 million.
Y
Stamp charges 0.0 0.0 - -

Donations 1.9 (0.0) 1.9 2.1
LA
Workers' Welfare Fund 2.8 (0.1) 2.9 2.6

Loss on disposal of property and equipment - - - 2.1
Kitchen expenses 2.0 0.2 1.8 -
Others
SP
0.2 (0.0) 0.2 0.2

462.1 17 . 2 444.9 400.7

DI
251
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DE
25 Property and equipment Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Market value of office premises is Rs 115.4 million
OR
T
Property and equipment • Based on the fixed assets register, we analysed the depreciation expense for
UR
Accum ulated Net book Rate of 11M 2014.
Rupees in m illion Cost depreciation value depreciation
• Valuation of office premises was carried out by Akbani & Javed Associates on
Office premises- lease hold 39.8 (22.3) 17.5 5.00% December 20, 2014.
CO
Furniture and fixtures 23.7 (15.9) 7.8 10.00%
Computers and office equipment 86.7 (62.0) 24.7 33.33%
Motor vehicles 9.8 (3.0) 6.8 20.00% Valuation of office premises
Tota l 16 0 . 0 (10 3 . 2 ) 56.8 Market Net book
Rupees in m illion value value
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Office Nos. 501 to 508, 5th Floor, Trade Centre, I.I.
DE
Chundrigar Road, Karachi 45.0 11.4
Office Nos. 601 to 608, 6th Floor, Trade Centre, I.I.
Chundrigar Road, Karachi 48.8 3.8
Office Nos. 1005, 1006, 1007 & 1008, 10th Floor, Trade
UN Centre, I.I. Chundrigar Road, Karachi

21.6
115.4
2.3
17.5
ED
However, operating fixed assets are recorded on the basis of ‘cost model’
under IAS 16 ‘Property, plant and equipment’.
Y
• Last physical inspection of operating fixed assets was carried out in 2013.
Please refer following page for details.
LA
SP
DI
252
R
DE
100% physical inspection of property and equipment of net book value of Rs 43
OR
million was carried out by Avais Hyder Liaquat Nauman & Co. in 2013
T
Summary of key findings as per report of Avais Hyder Liaquat Nauman & Co.:
UR
Items required to be written-off
• Items costing approximately Rs 65 million (office equipment of Rs 35.6
CO
million, computers and IT equipment of Rs 28.2 million and furniture and
fixtures of Rs 1.9 million) were recommended to be written-off.
Un-recorded items
• Certain items (office equipment of Rs 17 million, computer and IT
R
equipment of Rs 42 million and furniture and fixtures of Rs 87 million)
DE
were physically available but were not recorded in the fixed assets register.
Discrepancies in fixed assets register
• There were certain discrepancies in terms of quantity, model, make etc. in
UN
the fixed assets register. In addition, certain items were incorrectly
classified.
• Certain items were recorded in a single head which should have been
ED
separately recorded.
• It was noted that there was no policy of periodical fixed assets count.
• Fully depreciated assets were shown at ‘zero’ value instead of nominal
Y
value.
LA
Actions taken by Avais Hyder Liaquat Nauman & Co

• All discrepancies were rectified.
SP
• Fixed assets register was prepared in compliance with Technical Release 6

of ICAP.
DI
253
R
DE
Market value of rooms and booths at KSE amounts, in aggregate, to Rs 28.5
OR
million
T
Intangible assets as at November 30, 2014 ! We have been given to understand that 4,007,383 shares in Karachi Stock Exchange Ltd.
UR
Rate of
Accum ulated Net book am ortis- (“KSE”) were allotted to KSL under the terms of the Stock Exchange (Corporatization,
Rupees in m illion Cost am ortisation value ation Demutualization and Integration) Act, 2012 (“Demutualisation Act”). Under the
! Membership of KSE 1.3 - 1.3 - demutualisation process, KSE was converted from a company limited by guarantee to a
CO
@ Rooms at KSE 5.8 - 5.8 - company limited by shares and equal number of shares and a ‘Trading Rights Entitlement
@ Booths at KSE 1.0 - 1.0 - Certificate’ (“TREC”) was issued to each membership card holder of KSE.
# Membership of PMEL 0.8 - 0.8 -
Computer software 8.6 (8.6) - 33.33% The carrying value of the membership card of KSE at the time of receipt of the above shares
Tota l 17 . 5 (8 . 6 ) 8.9 and TREC was Rs 4.95 million. In the absence of an active market for the shares of KSE and
R
TREC, the Management of KSL allocated the carrying value of the membership card of KSE
between shares (financial asset) and TREC (intangible asset) in the ratio of 73% and 27% on
DE
the basis of face value of ordinary shares of KSE (approximately Rs 40.1 million) and the
notional value of TREC of Rs 15 million assigned by KSE for minimum capital requirement
purposes. Consequently, the proportionate carrying value of Bank’s TREC and shares works
Valuation of intangibles
UN
Market Net book
out to Rs 1.34 million and Rs 3.61 million, respectively.
In accordance with the Demutualisation Act, 60% of KSL’s investment in KSE (i.e. 2,404,430
Rupees in m illion value value shares) are kept in a blocked sub-account opened in KSL’s name under KSE’s participant ID
with Central Depository Company of Pakistan Ltd. (“CDC”). We have been given to understand
ED
Room No. 93, 94 & 95, 2nd Floor, New Stock
Exchange Building, Stock Exchange Road, off I.I. 27.0 5.8 that 2/3rd of these shares will be sold to strategic investor(s) and the remaining shares (i.e.
Chundrigar Road, Karachi. 1/3rd of the blocked 60% of KSL’s investment in KSE) will be issued to the public through an
Telephone Booth Nos. 25, 30 & 54, New Stock ‘Initial Public Offer’. In addition, we understand that Deutsche Bank AG is advisor and sole
Y
Exchange Trading Hall, New Stock Exchange 1.5 1.0 book-runner for the purpose of placement of KSE’s shares. There is no restriction on KSL for
Building, off I.I. Chundrigar Road, Karachi.
LA
@ 28.5 6.8
sale of the remaining 40% of its investment in KSE (i.e. 1,602,953 shares).
Source: Management Information • Valuation of rooms, booths and membership card of PMEL was carried out by Akbani & Javed
Associates on December 20, 2014. As per the valuations, market value of:
SP
@ rooms and booths is Rs 27 million and Rs 1.5 million, respectively. At present, these rooms
have been rented out to the Bank; and
# membership card of PMEL is Rs 2.2 million.
DI
254
R
DE
26 Long-term investments Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
In view of various factors, we recommend reversal of revaluation surplus of
OR
Rs 7.6 million and provision against KSL’s investment in the Bank of Rs 21.8
million
T
Long-term investments ! For details, please refer the following slide.
UR
Mark-to-
No. of m arket Carrying @As at November 30, 2014, KSL holds 19,858,649 shares in the Bank. We understand
Rupees in m illion shares Cost gain value that under BPRD Circular No. 4 dated May 22, 2008 issued by SBP, these shares
have been blocked by the CDC. No activity, including pledge and withdrawal, in
CO
S ubsidia ry c ompa ny
! Structured Venture (Private) Ltd. 48,858,120 488.6 - 488.6 these shares is allowed without prior written permission of SBP.
'Ava ila ble for sa le ' inve stme nts As per Discussions with Management of KSL, we understand that KSL had written
Q uote d sha re s a letter to SBP requesting authorisation for sale of shares of the Bank. In its
@ response, dated February 11, 2015, SBP did not accede to the request and specified
R
KASB Bank Ltd. 19,858,649 21.8 7.6 29.4
that, under the terms of the moratorium imposed on the Bank, SBP is in the process
DE
Unquote d sha re s
# Karachi Stock Exchange Ltd. 2,915,925 3.6 - 3.6 of finalising scheme of reconstruction/amalgamation in respect of the Bank.
$ Al Jomaih Power Ltd. 3,370 184.2 122.0 306.2
As per information on www.ksestocks.com, shares of the Bank were traded on 117
% New Horizon Exploration and Production
days during the period of six months from June 1, 2014 to November 30, 2014 with
Ltd. - Class 'A' ordinary shares

14,760,000
UN
31.6
729.8
-
12 9 . 6
31.6
859.4 an average volume of 453,910 shares. As per the company’s website, free float of the
Bank as at December 31, 2014 was 23.6 million shares. Market price per share of
the Bank ranged between Rs 1.29 per share to Rs 1.84 per share during the six-
month period. As at November 30, 2014, market price of shares of the Bank was Rs
ED
1.48 per share.

In view of the restriction on sale of shares of the Bank, limited trading in the Bank’s
shares and considering the financial position of the Bank, we recommend reversal
Y
of surplus on revaluation of ‘available for sale’ investment of Rs 7.6 million and

LA
provision against KSL’s investment in the Bank of Rs 21.8 million.

# Please refer ‘Valuation Report’ for investment in shares of KSE.
$ In respect of the company's investment in unquoted shares of Al-Jomaih Power
SP
Ltd., please refer following pages 259 to 261 for details.

% Please refer section 7 for investment in shares of NHEPL.
DI
255
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DE
Structured Venture (Pvt.) Ltd. is a 100% owned subsidiary of KSL. It’s assets
OR
consist mainly of shares in NHEPL and investment in 375 plots in Korangi
Housing Scheme
T
• Structured Venture (Pvt.) Ltd. (“SVL”) was incorporated in Pakistan on June 25, 2010 under the Structured Venture (Pvt.) Ltd.
UR
Companies Ordinance, 1984. It is a wholly owned subsidiary of KSL. Balance sheet
• The company is invested mainly in:
Non- c urre nt a sse ts
CO
• 10.24 million class ‘A’ shares and 10 million class ‘B’ shares in NHEPL. For details in respect of Investment properties 375.0 375.0
NHEPL, please refer section 7. Long- term investments 101.2 101.2
476.2 476.2
• 375 plots in Korangi Housing Scheme. Background and current status of the investment is Curre nt a sse ts
summarised below: Taxation - net 0.2 0.1
R
Cash and bank balances 3.4 3.4
Investment in plots 3.6 3.5
DE
• As per Discussions with Management, we understand that Mr. Arif Ali Shah Bukhari (‘’AASB’’), a Tota l a sse ts 479.8 479.7
customer of KSL, had a long outstanding brokerage-related debt of Rs 384.7 million as at December Curre nt lia bilitie s
31, 2009. In this regard, on November 10, 2010: Accrued expenses (1.3) (1.2)
UN
• the company entered into a settlement agreement with AASB and waived an amount of Rs 110
million. AASB agreed to pay the remaining amount.
Ne t a sse ts
Equity a nd Lia bilitie s

478.5 478.5
S ha re c a pita l a nd re se rve s
• SVL entered into a sale agreement with Noor Developers (Pvt.) Ltd. (“NDPL”), a company owned
Issued, subscribed and paid- up capital 488.6 488.6
ED
by AASB, for purchase of 375 residential plots (each measuring 80 square yards) for Accumulated loss (10.1) (10.1)
consideration of Rs 300 million. In addition, under the sale agreement, SVL also paid 478.5 478.5
development charges of Rs 75 million. We would like to point out that legal opinion on NDPL’s
valid title to the 375 residential plots has not been provided.
Y
Profit and loss acccount

Rupees in m illion 11M 2014 2013
• Consequently, AASB paid dues of Rs 274.7 million. NDPL issued provisional allocation certificates
LA
to SVL in respect of the 375 plots on September 5, 2011. We are not aware of the reason for the Profit and bank balance 0.2 0.2
delay in provision of certificates. Operating and administrative expenses (0.2) (0.4)
Loss be fore ta x - (0 . 2 )
SP
Taxation - -
Loss a fte r ta x - (0 . 2 )
DI
256
R
DE
We have assumed the higher end of the range of value for the investment in
OR
plots in Korangi Housing Scheme to be equivalent to its carrying value of Rs
375 million. In the worst case scenario, the investment may be fully impaired
T
• The Management has provided us with the legal opinion of Ahmed & Qazi sale value of the plot is Rs 1.6 million and Rs 1.28 million, respectively.
UR
dated March 18, 2014. As per the legal opinion: However, in his remarks, the valuer has noted that they have not ‘sighted
• the above provisional allocation certificates are an ‘Allotment Order’ nor searched’ the original title/ownership documents of the plot. The
and a property held on the basis of Allotment Order can be sold and Management contends that based on the above valuation, the aggregate
CO
purchased. market value and forced sale value of the 375 plots works out to Rs 600
million and Rs 480 million, respectively. We would like to highlight that in
• NDPL is required to execute sub-leases for the plots in favour of SVL the working for assessment of impairment of the Bank’s investment in KSL
after the development work is completed. As per Management for the year ended December 31, 2013, the Management had also adopted
Information, we understand that the development work can start after
R
the carrying value of the investment in above plots as the estimate of value
the layout plan is approved by the Cantonment Board, Korangi. In this and the investment was not taken on the basis of value determined by
DE
regard, NDPL had filed the revised layout plan with Cantonment Board professional valuer.
on June 10, 2010. However, the plan has not been approved. In this
• We have requested the Management to obtain a revised valuation of the
connection, the lawyers have recommended that if NDPL is unable to
aforesaid plots from the valuer which takes into consideration the
UN
execute separate sub-leases for each plot, SVL should pursue NDPL to
execute and register a sub-lease in respect of the total area of the 375
plots so that a right of SVL is created in respect of this area.
following factors:
• the revised layout plan filed with the Cantonment Board in 2010 has not
been approved till date and that, pending this approval, the
• If early execution of a sub-lease is not possible, then SVL should ask
ED
development work on the project has not started.
NDPL/its owner (Mr. Arif Ali Shah Bukhari) to issue shares in NDPL
to SVL, equivalent to the value of these 375 plots. • NDPL has issued a provisional allocation certificate in respect of the
• The Management of SVL requested updates from NDPL on June 26, 2014 above plots to SVL and that sub-lease in favour of SVL has not been
Y
and December 17, 2014 on the progress of approvals in relation to the executed.
LA
proposed development plan and timeframe by which the project was However, the revised valuation has not been provided to us.
expected to be commercially launched. However, no response was
• In the absence of the revised valuation and taking into consideration the
received from NDPL.
above factors, we have assumed the higher end of the range of value for
SP
• The Management has also provided us with the valuation report of this investment to be equivalent to its carrying value of Rs 375 million
Sadruddin Associates dated December 27, 2014 in respect of one of the while in the worst case scenario, the investment may be fully impaired.
residential plots. As per the valuation report, the market value and forced
DI
257
R
DE
As the company is not actively involved in any activity and merely holds
OR
investment property and available-for-sale investments, direct or indirect tax
implications are not expected to arise
T
• We understand from SVL’s financial statements that the company’s
UR
income comprises only of profit earned on bank deposits, which are
taxable, but adjusted against expenses / business loss for the year. As
the company is not actively involved in any activity and merely holds
CO
investment property and available-for-sale investments, direct or
indirect tax implications are not expected to arise.
R
DE
UN
Y ED
LA
SP
DI
258
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DE
KSL has 1.55% shareholding in Al-Jomaih Power Ltd.
OR
T
Al-Jomaih Power Ltd. (“AJP”) was incorporated as a limited liability company on August 25, 2005 in the Cayman Al-Jomaih Power Ltd.
UR
Islands. As per its latest available reviewed financial statements for the year ended December 31, 2013, the principal USD 31-Dec-13
business of AJP is acquiring shares of KES Power Ltd. and exercising rights attached thereto. Asse ts
Partnership investment 193.2
As per Management Information, KSL acquired 3,000 shares of AJP on June 13, 2007 for a purchase consideration of Rs
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Due from related parties 1.0
151.2 million. In addition, we have been informed by the Management of KSL that, in 2010, AJP declared a dividend of Cash and cash equivalents 0.4
which KSL’s share amounted to Rs 33 million. However, KSL requested AJP to reinvest this dividend and issue further 19 4 . 6
shares of AJP to KSL. Consequently, a further 370 shares in AJP were issued to KSL. As per a confirmation provided by Lia bilitie s
AJP on January 19, 2015, KSL held 3,370 shares in AJP as at December 31, 2014 which represents 1.55% of total issued Loans (2.1)
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Ne t a sse ts 19 2 . 5
shares of AJP. We would like to highlight that we have not been provided with information on the classes of shares of
AJP and the rights relating thereto.
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Equity 19 2 . 5
Since 2011, the investment of KSL in shares of AJP has been “marked-up” on the basis of break-up value per share of AJP Source: Management Information
appearing in the latest available reviewed financial statements. As per the latest available reviewed financial statements
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of AJP, for the year ended December 31, 2013, net assets amounted to USD 192.6 million and the break-up value per
share of the company worked out to USD 886.5 per share. Based on the above break-up value and exchange rate of Rs
101.8828/USD (as at November 28, 2014) the value of KSL’s investment in AJP amounts to Rs 304.4 million. However,
as per the management accounts of KSL for 11M 2014, the carrying value of KSL’s investment in AJP amounted to Rs
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306.2 million.
The Management has also provided us with a working for the effective holding of KSL in K-Electric Ltd. due to its
shareholding in AJP. This is summarised on the following page.
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SP
DI
259
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OR
available and uncertainties involved, we have retained the carrying value of
investment in AJP (cont’d)
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S ha re holding pe rc e nta ge Comme nts
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KSL's investment in 1.55% The shareholding percentage was traced from confirmations obtained by KSL from AJP as at December 31, 2014 and December 31, 2013.
AJP The total assets of AJP of USD 194.6 million mainly consist of ‘Partnership Investments’ of USD 193.2 million. As per reviewed financial statements of
AJP for the year ended December 31, 2012, the 'Partnership Investments' are carried at fair value. We would like to highlight that we have not been
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provided with a break- up of ‘Partnership Investments’. In addition, the underlying working / information used for determining the fair value of these
investments is also not available. We have also not been provided with information on shareholders of AJP including arrangements, if any, between
shareholders of AJP, any restrictions on sale of shares of AJP, tag along/drag along rights/right of first refusal etc.
AJP's investment in 28.56% The shareholding percentage was traced from confirmation obtained by KSL from AJP as at December 31, 2013.
KES Power Ltd. We have not been provided with financial statements of KES Power Ltd. and shareholding of AJP in KES Power Ltd. as at November 30, 2014. We have
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also not been provided with information on any arrangements between:
- the shareholders of KES Power Ltd., including any restrictions on sale of shares of KES Power Ltd., tag along/drag along rights/right of first refusal
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etc.
- KES Power Ltd. and the Government of Pakistan (which holds 24.36% shareholding in K- Electric Ltd.)
KES Power Ltd.'s 69.20% The shareholding percentage was traced from the financial statements of K- Electric Ltd. for the year ended June 30, 2014. Total shares issued by K-
investment in KEL Electric Ltd.were 27,615,194,246.
0.306%
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The market value of K-Electric Ltd. was Rs 7.63 per share as at November 28, 2014. As per information available on
www.ksestocks.com, during the period of three months from September 1, 2014 to November 30, 2014, the price of K-Electric
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Ltd. ranged between Rs 7.15 per share to Rs 8.57 per share with average volume of 4.98 million shares.
As per information obtained from website www. tribune.com.pk, we understand that approximately 774.6 million shares of K-
Electric Ltd. were sold by KES Power Ltd. on February 3, 2015 at the price of Rs 8.5 per share.
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However, we noted that in the working for assessment of impairment of the Bank’s investment in KSL for the year ended
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December 31, 2013, the Management had also adopted the carrying value of the investment in AJP as the estimate of value and
the investment was not valued on the basis of effective holding in K-Electric Ltd.
Based on the above information, the factors considered in respect of the investment in AJP included the following:
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• There is limited information available on AJP. We have not been provided with the audited financial statements of AJP. The
last reviewed financial statements provided to us relate to the year ended December 31, 2013.
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260
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OR
available and uncertainties involved, we have retained the carrying value of
investment in AJP
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• Based on the break-up value as per the reviewed financial statements for the year ended December 31, 2013 and exchange rate
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of Rs 101.8828/ USD (as at November 28, 2014), the value of KSL’s investment in AJP amounts to Rs 304.4 million. However,
the carrying value of this investment appearing in the Management accounts of KSL for 11M 2014 is Rs 306.2 million.
• The net assets approach (where appropriate) represents a “controlling interest” level of value. As KSL’s investment in AJP
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• As disclosed in AJP’s reviewed financial statements for the year ended December 31, 2012, the investments are carried at fair
value. However, the value of investments disclosed in the financial statements are significantly lower than the implied value
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determined on the basis of AJP’s effective holding in K-Electric Ltd. Although, we do not have information on these
investments, including the working and basis used for determining their fair value, it appears that this fair value estimate
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accounts for a discount due to the nature of the investment.
• Based on the above, the investment made by KSL in AJP should also incorporate appropriate discounts.
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involved, we have retained the carrying value of investment in AJP.
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SP
DI
261
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27 Short-term investments Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
As at November 30, 2014, the carrying value of the company’s investment in
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listed shares and TFCs amounted, in aggregate, to Rs 25.6 million
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Short-term investments No. of Shares pledged w ith KSE • As per Management Information:
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shares / Market Market No. of Market
Rupees in m illion certificates price value shares value • a trade involving 2,000 PACE TFCs was made on March 7, 2014 at a
per TFC price of Rs 15. On the basis of this price, the value of KSL’s
Liste d sha re s
investment in the PACE TFCs works out to Rs 7.5 million.
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International Steels Ltd. 20,000 23.9 0.5 17,500 0.4
United Bank Ltd. 5,000 177.1 0.9 5,000 0.9 Information on other trades in the TFC are not available.
Oil & Gas Development Co Ltd. 2,500 213.1 0.5 - -
Pakistan Petroleum Ltd. 13,800 189.6 2.6 13,000 2.4
• investors in the PACE TFC appointed RIAA Law as legal solicitors to
Pakistan Oilfields Ltd. 19,300 446.6 8.6 18,800 8.4 prepare draft of restructuring term sheet on February 9, 2015.
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13 . 1 12 . 2 Information on the restructuring terms has not been provided by
TFCs Management.
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Pace Pakistan (Pvt.) Ltd. 10,000 1,254.9 12.5 - -
Tota l Inve stme nts 25.6 • the TFCs are secured by (i) hypothecated assets consisting of fixed
Source: Management Information assets, excluding land and building, and (ii) Memorandum of Deposit
of Title Deeds in respect of immovable properties of PACE Pakistan
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• The number of shares and TFCs as at November 30, 2014 were traced from
CDC statement as at November 28, 2014. The market price of shares was
Ltd. and PACE Super Mall (Pvt.) Ltd. We have not been provided with
the valuation reports and legal opinion(s) in respect of the above
obtained from www.kse.com.pk. collateral.
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• The TFCs of PACE Pakistan Ltd. (“PACE”) were acquired by KSL in • In view of the above, we have recommended provision of Rs 5.1 million
February 2008. The current outstanding face value of the TFCs is Rs 4,994 against the net carrying value of KSL’s investment in TFCs of PACE
and these TFCs were recorded at Rs 45.4 million. We understand that only a Pakistan Ltd.
principal repayment per TFC of Rs 2, made in February 2011, has been
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received to date. KSL has made total provision of Rs 32.8 million against
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these TFCs during the period from June 2011 to December 2012. We have
not been provided with the basis for provision made against these TFCs.
SP
DI
262
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Loans and advances are given to executives and employees for purchase of
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motor vehicles and as general purpose cash advance in accordance with their
terms of employment
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! Loans and advances are given to executives and employees for purchase of motor vehicles
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! Long-term loans and advances - considered good
Rupees in m illion 30-Nov-14 31-Dec-13 and as general purpose cash advance in accordance with their terms of employment.
Loa ns a nd a dva nc e s to: These loan and advances, except for loan given for purchase of motorcycle, carry mark-up at
Employees 9.0 1.0 the rate of 12% per annum and are recovered through deduction from salaries over varying
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Executives 1.2 0.5 periods upto a maximum period of 120 months.
10.2 1.5
Current maturity shown in current assets 1.9 1.0 The motor vehicle loans are secured by way of title of motor vehicles, which are held in the
8.3 0.5 name of the company. The general purpose cash advances are secured against staff
provident fund balance.
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Long-term deposits and prepayments
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De posits with:
@ This represents appeal fee deposited with KSE in respect of arbitration on an issue with a
Karac hi Stoc k Exchange Limited 0.3 0.3 customer, Mr. Javed Iqbal. The balance has been outstanding for approximately 3 years. The
Management has not provided us any information in respect of this case.
National Clearing Company of Pakistan Limited
Pakistan Merc antile Exchange Limited
Central Depository Company of Pakistan Limited
0.4
2.5
0.2
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2.5
0.2
Rent deposits 1.4 1.4
@ Karac hi Stoc k Exchange Limited - Appeal fee 1.3 1.3
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Fuel deposit 0.1 0.1
K- Elec tric Corporation Limited 0.1 0.1
MY Solutions Corporation Limited 0.1 0.1
6.4 6.4
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P re pa yme nts 0.1 -

6.5 6.4
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SP
DI
263
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29 Trade debts Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
We have recommended provision of Rs 20.7 million against trade debts
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Trade debts • As at November 30, 2014, the KSE-related trade debts of the company amounted to
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Rupees in m illion 30-Nov-14 31-Dec-13 Rs 514.2 million. This included trade debts of Rs 145.1 million which had not been
Receivable against purchase of marketable
cleared by January 31, 2015. Based on a review of the outstanding trade debts, we
securities - net of provisions 391.4 378.8 noted that:
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Inter- bank brokerage 4.3 2.7
• Rs 42.9 million was receivable from Prudential Stock Funds Ltd. The company
Fees 2.2 1.1
397.9 382.6 had made total provision of Rs 25.2 million against this receivable. As per
Discussions with Management of KSL, we understand that the customer had been
Re c e iva ble a ga inst purc ha se of ma rke ta ble se c uritie s - ne t of provisions in litigation for the last few years due to which sub-account of the customer
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Conside re d good maintained with KSL is blocked. As at November 30, 2014, the sub-account
Secured 342.8 338.9
included securities with a market value of Rs 46.2 million. However, details of the
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Unsecured 5.3 0.5
348.1 339.4 case, legal opinion in respect of the case and the basis for not making provision
Conside re d doubtful 162.5 159.6 against the remaining amount of Rs 17.7 million has not been provided by
510.6 499.0 Management of KSL.
Less: provision for doubtful debts UN (119.2)
391.4
(120.2)
378.8 • provision has not been made for trade debts of Rs 3 million against which no
collateral is held by the company.
Re c onc ilia tion of provisions a ga inst tra de de bts
Opening balance 120.2 115.9 • In view of the above, we have recommended provision of Rs 20.7 million against
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trade debts.
Provision for the period /year - 13.1
Reversal of provision during the period /year (1.0) (8.8)
(1.0) 4.3
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119.2 120.2
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SP
DI
264
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30 Advances, deposits, prepayments and other receivables Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Exposure deposit with KSE represents margin required to be maintained with
OR
KSE as per risk management regulations of KSE. As per Management
Information, the deposit carries interest at 6% per annum
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Advances, deposits, prepayments and other receivables • Advances to suppliers represent amount paid to ‘Softech’ for development and related works
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Rupees in m illion 30-Nov-14 31-Dec-13 of different IT systems. The advance includes an amount of Rs 1.6 million relating to
Adva nc e s to:
automation of ‘General Ledger Reporting System’.
Suppliers 2.6 4.5 • Exposure deposit with KSE represents exposure margin required to be maintained by
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Current portion of long- term loans and
brokers with KSE as per risk management regulations of KSE. As per Management
advances to employees and executives 1.9 1.0
4.5 5.5 Information, the deposit carries interest at 6% per annum.
De posits:
• Prepaid rent comprises of advance rent paid for various branches of KSL through out
Exposure deposit with KSE 241.9 207.0
Pakistan. It mainly includes Rs 1.42 million paid for Islamabad branch.
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Exposure deposit with PMEL 0.9 1.2
242.8 208.2
• Prepayment - others include Microsoft licensing fees amounting to Rs 1.2 million.
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P re pa yme nts:
Rent 3.7 1.9 • Please refer section 36 for details of receivables from related parties.
Insurance 0.7 0.4
Software development and maintenance 0.4 1.0
Others
O the r re c e iva ble s:

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2.4
7.2
2.6
5.9
Profit on bank deposits 2.4 0.1

Profit on exposure deposit with KSE 1.3 0.8
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Current portion of long- term receivable - 37.3
Receivable from related parties
KASB Funds Ltd. 0.2 0.2
KASB Bank Ltd. 2.1 -
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Mr. Nasir Ali Shah Bukhari 0.2 -

Others 1.0 0.1
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7.2 38.5
2 6 1. 7 258.1
SP
DI
265
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31 Cash and bank balances Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
As at November 30, 2014, total funds of KSL held with the Bank amounted to
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Rs 368 million
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Cash and bank balances As at November 30, 2014, total funds of KSL held with the Bank amounted to Rs 368 million.
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Ca sh a t ba nk in:
Current accounts 28.2 68.7
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Savings accounts 402.7 268.7
430.9 337.4
Cash in hand and stamps 0.25 0.04
4 3 1. 2 337.4
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Balance as per
General Bank
Am ounts in Rupees Account num ber ledger statem ent Difference Com m ents
Curre nt a c c ounts
Habib Bank Limited
UBL - KSE
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0035- 00311755- 03
010- 3394- 6
10,196
21,889
10,161
21,854
(35)
(35)
UBL R/F- KSE 660- 0002- 8 10,491 10,456 (35) The Management has informed us that these reconciling items were
Habib Metropoliton Bank Limited 714- 179630 172,089 182,089 10,000 subsequently cleared.
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KASB Bank Limited- ISB 0008- 103767- 001 (112,065) 10,000 122,065
Faysal Bank Limited 2046318- 001 29,615 738,759 709,144
KASB Bank Limited- KSE R/F 0020- 112900- 001 496,916 724,403 227,487 Cheques of Rs 117,237 are unpresented.
KASB Bank Limited- Client Group Account KSE 0020- 130746- 001 (227,017) 10,000 237,017 Cheques of Rs 3,804 are unpresented.
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KASB Bank Limited- LHR 0012- 104952- 001 3,557,893 4,310,524 752,631 Cheques of Rs 10,508 are unpresented.
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MCB Bank Limited- Client Account Group 0521588741000697 20,388,171 21,803,541 1,415,370 Cheques of Rs 370 are unpresented.
JS Bank Limited- KSE 0000123800 115,065 10,865,575 10,750,510 Cheque of Rs 53,984 is unpresented.
MCB Bank Limited- R/F 1063- 01- 01- 0011655 9,636 39,039,765 39,030,129 Cheques of Rs 132,271 are unpresented.
JS Bank Limited- Client Account 0000554334 957,373 48,200,314 47,242,941 Cheques of Rs 277,000 are unpresented and Rs 5,000 have been credited
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by the Bank but not recorded in cash book.

Remaining 10 bank accounts 2,787,177 2,787,177 -
Tota l c urre nt a c c ounts 2 8 , 2 17 , 4 2 9 12 8 , 7 14 , 6 18 10 0 , 4 9 7 , 18 9
The M anagement has info rmed us that the remaining balances were subsequently cleared.
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266
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As at November 30, 2014, total funds of KSL held with the Bank amounted to
OR
Rs 368 million (cont’d)
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Balance as per
General Bank
Am ounts in Rupees Account num ber ledger statem ent Difference Com m ents
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De posit a c c ounts
NIB Bank- PLS 6912311 4,710,898 4,710,283 (615)
Allied Bank Limited (Client account) 01- 167- 0007- 6(1850025) 38,082 38,279 197
The Management has informed us that these reconciling items were
Bank Al Habib Limited- KSE 002070- 01- 2 16,614 82,844 66,230
subsequently cleared.
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Habib Metropoliton Bank Limited- KSE 714- 101081 111,608 436,071 324,463
KASB Bank Limited- Online account 0020- 112967- 116 (1,600,696) 440,123 2,040,819
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KASB Bank Limited- Client Account PLS 0020- 131117- 121 364,737,387 358,569,026 (6,168,360) Cheques of Rs 922,838 are unpresented.
MCB Bank Limited- PLS 1063- 01- 01- 000150- 2 6,122,221 3,860,449 (2,261,772) Cheque of Rs 10,000 is unpresented.
Bank Al Falah Limited 0012- 1004208- 858 28,440,860 40,908,306 12,467,446 Cheques amounting to Rs 48,395 are unpresented and Rs 27,500
have been credited by the bank but not recorded in cash book.
Remaining 2 bank accounts
Tota l de posit a c c ounts UN 152,681
402,729,655
The M anagement has info rmed us that the remaining balances were subsequently cleared.
152,681
4 0 9 , 19 8 , 0 6 3
-
6,468,408

Y ED
LA
SP
DI
267
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32 Trade and other payables Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Trade creditors of Rs 585 million mainly relates to cash balances of clients
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held with KSL
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Trade and other payables • Trade creditors mainly relate to cash balances of clients held with KSL.
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Rupees in million 0-60 days 61 to 365 days 1 - 2 years Above 2 years Total
Trade creditors 585.0 896.9
Accrued expenses 112.4 19.7 Trade creditors 392.7 113.9 38.2 40.2 585.0
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Withholding tax 22.0 11.8 Source: Management Information
Unclaimed dividends 0.6 0.6
Dividend payable 0.8 0.7
Others 1.2 9.7
• Accrued expenses include:
722.0 939.4 • accrual of performance bonus amounting to Rs 72 million. As per Discussions with Management,
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Source: Management Information Rs 12 million has been subsequently reversed.
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• Rs 10.8 million for salaries for the month of November 2014.
• Rs 2.7 million payable to MySolutions Corporation Ltd. in respect of internet services pertaining
to one quarter.
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• Rs 4.9 million payable to the Bank in respect of shared cost relating to renovations and related
costs.
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• Rs 1.6 million payable to Digital Media Services in respect of IT related services.

• Rs 1.4 million payable to Empac Engineering in respect of renovations at Islamabad and Sialkot
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branches.
• Please refer section 33 for withholding tax.
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SP
DI
268
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33 Taxation - direct Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Finance cost needs allocation over dividend income and capital gain for tax
OR
years 2010 to 2015, which will result in an exposure of Rs 16.57 million
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• KSL’s last amendment of assessment was made in tax year 2009, wherein Tax year
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some expenses were disallowed under section 21(l) of the Ordinance. We Rupees in m illion 2015 2014 2013 2012 2011 2010
are also informed that KSL’s return for tax year 2007 was also amended, Finance Co st 19.358 8.942 18.439 69.774 72.6 85.32
however, amended order was not provided to us to assess the potential
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exposure. Capital gain (CG) 21.212 - 28.503 51.194 39.454 83.289
Dividend inco me (DI) 1.118 1.549 0.776 7.791 8.496 42.425
• KSL’s returns of income from tax year 2010 to 2014 can be amended by tax To tal Revenue (TR) 604.793 508.33 394.241 295.099 325.616 519.354
authorities under section 122 of the Ordinance, by
June 30, 2015; 2016; 2017; 2018 and 2019 respectively. There is however CG as a %age o f TR 3.51% 0.00% 7.23% 17.35% 12.12% 16.04%
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no open assessments to date, as per the information provided to us. DI as a % age o f TR 0.18% 0.30% 0.20% 2.64% 2.61% 8.17%
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• In the returns of income filed for tax years 2010 to 2015, we have noted A llo c a t io n o f f ina nc e c o s t t o :
that KSL has not allocated finance cost to dividend income and capital Dividend inco me 0.679 - 1.333 12.105 8.797 13.683
Capital gain 0.036 0.027 0.036 1.842 1.894 6.97
gain. To tal allo cated finance co st 0.715 0.027 1.369 13.947 10.691 20.652
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• The tax department has a practice of allocating finance cost on dividend
income and capital gain. There are arguments for not allocating the same if
Tax rate 33% 34% 35% 35% 35% 35%
such cost is not incurred for earning capital gains and dividend income. In
the absence of any substantive evidence, we consider that allocation of P o t e nt ia l t a x e xpo s ure 0 .2 3 6 0 .0 0 9 0 .4 7 9 4 .8 8 1 3 .7 4 2 7 .2 2 8
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finance cost is possible and not easily defendable. T o tal 16 .5 7 6

• In the light of above, we have calculated tax exposure of Rs. 16.576 million,
as a result of allocation of finance cost to dividend income and capital gain
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in adjacent table:
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SP
DI
269
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KSL has not provided proper reconciliation of ‘other than salary’ payments
OR
subject to withholding, resulting in an exposure of Rs 3 million
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• KSL is required under the tax law to withhold tax from various payments, • The reconciliations show reconciling items of Rs. 253 million and
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inter alia, on account of the following : Rs. 308 million, in the name of ‘adjustments’. No explanation / basis has
however been provided as to why these were not subject to tax
– payment of salary to employees (withholding required under section
withholding.
149
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– payment against supply of goods and services and against execution • Resultantly, Company’s exposure (if any) cannot be determined with
of contracts (withholding required under sections 152 & 153) reasonable certainty. On a prudent basis, we would however suggest to
make adjustment of Rs 3 million [Rs 0.5 million x 6 years] on account of
• We inform you that in the recent past, the tax authority has been stringent non-withholding of tax, based on our experience in other cases.
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regarding monitoring of tax withholdings and huge demands have been
raised in case of many taxpayers, mainly for the following reasons: • The reconciliations provided for tax years 2013 and 2014 in respect of
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salary payments are reasonably correct. Hence, on the basis of comfort
• tax challans evidencing deposit of tax collected by the withholding agent available for tax years 2013 and 2014, no provision is being recommended
were not available; and for tax years 2009 through 2012 as well as for the tax year 2015.
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• Neither any reference to tax exemption nor any other reasonable
justification could be provided by withholding agents during the
monitoring proceedings in respect of instances in which tax was not
P = Provided
O = Not provided
deducted by them.
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• Based on the above, it is likely that the tax authority may conduct
monitoring of tax withholdings made by KSL for any of the tax years 2010
through 2015 (time limitation for tax year 2010 will expire on December 31,
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2015).
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• To enable us to assess the KSL’s exposure in this regard, we requested the

Management to provide reconciliations. The status is as under:
Tax years
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Expansion 2010 2011 2012 2013 2014 2015

Salary O O O P P O
Other expenses O O O P P O
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Source Management Information
270
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KSL has advanced loan to staff at lower than benchmark rate and has not
OR
included such benefit of lower rate in the taxable salaries of employees,
resulting in exposure of Rs 0.267 million
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• Under Section 13(7) of the Income Tax Ordinance, 2001 , if an employee is • As the Tax Authority may attempt tax deemed interest in the hands of KSL,
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provided with a loan at a rate lower than the prescribed benchmark rate it is recommended that provision of Rs. 0.267 million
and the loan amount exceeds Rs. 500k, the profit on debt computed at the (35% of Rs. 0.764 million) be made.
difference in rate is required to be added to employee’s taxable salary. We
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have been informed that this has not been done by KSL. We are aware that
in case of many taxpayers, the tax authorities have raised demand by
computing deemed income of the employer on the difference between
benchmark rate and actual rate charged to employees, even where deemed
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interest is considered in employee’s salary.
• We, however, understand that adverse action, if any, of tax authorities in
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the hands of employer is defendable if the same is already considered in
the hands of employee. Following is the summary of details available:
Rate
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Outstanding
Loan at the
Differential incom e
(assum ing the
Calendar Benchm ark charged end of the average rate charged
year Tax year rate by KSL year to be 8%)
ED
Rupees in thousand
A B (A- 8%)*B
2009 2010 13.00% 6% to 10% 2,224 89
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2010 2011 14.00% 6% to 10% 2,361 118

2011 2012 15.00%
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6% to 10% 3,999 240

2012 2013 10.00% 6% to 10% 4,523 317
Source AFF analysis
SP
DI
271
R
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Capital gain computed by KSL is not as per tax laws, however; such erroneous
OR
computation does not carry any tax exposure
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• We have noted that the amount of capital gains as per financial statements • Gain on sale of such investment is computed as follows:
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and capital gains appearing in tax computation is the same. This is As per
practically not possible due to difference in calculation methodologies inform ation
between tax law and financial reporting framework. Rupees in thousand available As per our view Difference
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• In addition to the above, we have not been provided with detailed working Sales pro ceeds 12,000 12,000 -
of capital gains for our review. Although we have been provided with Carrying Value / Co st 11,696 20,000 -8,304
G a in o n dis po s a l 304 - 8 ,0 0 0 - 8 ,3 0 4
workings for Tax Years 2010, 2012 and 2013, the detail of cost is not
available in these workings. Due to this limitation, we are unable to
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Source Management Information
comment on the adequacy of capital gain figure.
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• We have noted that KSL had sold shares of KASB Funds Ltd. in tax
• We however understand there is no tax effect of the above, as the loss
year 2013 after obtaining approval of SECP. These shares were blocked
has arisen on disposal of securities with holding period of over one year
in compliance with SECP Circular No NBFCD/D/Misc/271-9 dated
(gain/loss on disposal of securities with holding period over one year is
UN
June 15, 2006 upto tax year 2013. KSL recorded gain on disposal
amounting to Rs 0.304 million; however, for the purpose of computing tax
gain, management erroneously considered impaired value
not chargeable /allowable for tax purposes).
(i.e. accounting value) instead of original cost of the investment.

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Tax payments as per income tax returns are mostly in line with tax payments
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as per cash flow statements forming part of financial statements, hence no
adjustment is proposed in this regard.
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We have analysed tax payments as appearing in the returns of income with
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the amount of tax payments appearing in the cash flow statements and noted
no material adverse difference. Hence, we assume that Company has tax
challans in support of claims made in the return of income and no adjustment
CO
is proposed:
Tax paym ents

As per cashflow
As per return Difference
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Rupees in thousand Statem ent
2014 37,738 37,741 -3
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2013 23,122 23,123 -1
2012 21,246 21,246 0
2011 21,158 39,534 - 18,376
2010 41,083 26,972 14,111
Tota l
14 4 , 3 4 7 UN14 8 , 6 16 - 4,269
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34 Taxation - indirect Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Provision of Rs 11.83 million suggested for potential demand on failure to
OR
withhold SST
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• Consequent to the applicability of the Sales Tax Withholding Rules, the
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Company was required to withhold:
• Sindh Sales Tax @ 20% of the sales tax charged in invoices in
respect of taxable services (with effect from July 1, 2014);
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• 100% withholding of sale tax on payments to un-registered persons
(with effect from July 1, 2014); and
• 100% withholding of sales tax on payments for advertisement
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services (with effect from July 1, 2011).
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• We have noted that the Company is not compliant with the withholding
Rules stated above. Based on the details of expenses available in the
financial statements, the quantum of sales tax that should have been
withheld by the Company is worked out at around Rs. 5 million whereas
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the Default Surcharge and Penalty to which the Company is exposed are
estimated at Rs. 1.830 million and
Rs. 5 million (restricted to 100% of principal amount) respectively.
ED
• It is therefore advised to make a provision of
Rs. 11.830 million (Rs.5 million + Rs. 1.830 million + Rs. 5 million) in
respect of amount not withheld by the Company along with Default
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Surcharge and penalty, as the same may be required by the tax

authority.
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274
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DE
Provision of Rs. 3 million suggested for potential sales tax demand on fixed
OR
asset disposals
T
• From tax years 2009 to 2014, it is observed that KSL has not charged sales
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Sales Proceeds from
tax on disposal of fixed assets. As per the Sales Tax Act, 1990 (STA), sales
Rupees Disposal of fixed assets
tax should be charged on disposal of fixed assets. However, there may be
an argument that being a service provider, the Company is not required to 2014 272,000
CO
2013 1,744,000
be registered under STA. The tax department is however of the view that 2012 175,000
sales tax should be charged on disposal of fixed assets even by a service 2011 5,041,000
provider. 2010 3,754,000
2009 6,429,000
• We have computed the expected tax exposure of KSL in respect of the said 17,415,000
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Tax rate* 16%
matter which is Rs. 2,786,400 (refer table), based on the details available P o t e nt ia l t a x im pa c t R s . 2 ,7 8 6 ,4 0 0
in the audited financial statements.
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• Based on the above, we propose an adjustment of Rs. 3 million (including
effect of Default Surcharge) on account of potential exposure to a demand
by the Tax Authority in this regard. UN
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275
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DE
No further provisioning recommended in respect of pending orders of the
OR
Sindh Revenue Board
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• The Company is principally engaged in the business of stocks, money
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market, foreign exchange and commodity broking. Other activities
include investment in a mix of listed and unlisted equity and debt
securities, economic research and advisory services.
CO
• During the period from July 1, 2009 to June 30, 2011, the stock
brokerage services provided by the Company were subject to Federal
Excise Duty, which was duly paid on time. Also, as per the records made
available to us, no adverse order was issued by the tax authority during
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that period.
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• With effect from July 1, 2011, FED on Company’s services was replaced
by SST. Also, foreign exchange brokerage services provided by the
Company were brought into the ambit of SST w.e.f. July 1, 2011. As per
the information available on records, the Company started charging SST
UN
on stock brokerage services w.e.f. July 1, 2011 but failed to charge SST
on foreign exchange brokerage services.
• Through the orders dated January 30, 2014 relating respectively to the
ED
periods from January to December 2012, and from January to December
2013, the Assistant Commissioner – SRB raised SST demands of Rs.
5,422,289 and Rs. 9,420,647 respectively by contending that various
other receipts of the Company (including Late payment charges, receipts
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for financial advisory and Commodity brokerage services etc.) triggered

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SST on which the Company allegedly failed to charge SST. The Company
made payment of impugned SST demand of Rs. 5,422,289 on April 30,
2014 whereas stay was obtained against SST demand of Rs. 9,420,647.
SP
Although Company’s appeals against the above referred impugned

demands are pending with the appellate authorities, the Company has
provided for these impugned SST demands on prudent basis. Hence, no
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further provisioning is required.

276
R
DE
No provisioning proposed for Penalty on delayed/non-filing of quarterly
OR
reconciliation and SST returns
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• The Company is required under Rule 30 of the Sindh Sales Tax on Services
UR
Rules, 2011 to prepare and submit a reconciliation statement, reconciling
the value of services on which SST is charged with the value of total
services provided by the Company. Such reconciliation statement is
CO
required to be submitted on a quarterly basis, by the 24th day of the month
following the end of the quarter.
• We have noted that the Company has not been compliant with the above
requirement and has so far not submitted any such reconciliation
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statement. As the failure to comply with the above requirement exposes the
Company to a penalty of Rs. 10,000 per month. The Company is expose to
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imposition of penalty of Rs. 430,000 (approx.) on account of non-filing of
quarterly reconciliation statements.
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• As the imposition of penalty is subject to discretion of higher appellate
authorities, it is expected that penalty will not be maintained by appellate
authorities if the Company is able to convince that the delay or failure to
file sales tax returns and quarterly statements was not wilful or intentional.
ED
No adjustment in this regard is therefore proposed.
• Apart from the above, we have also checked the compliance in timely
monthly filing of Sales tax returns. We have not found any material
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discrepancy in relation to timely filing of returns.

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DE
Tax on KSL’s services may be demanded by other provincial revenue
OR
authorities, which if required will be recoverable from SRB, as KSL is paying
tax on services to SRB. KSL may approach court if such issue arises
T
• The Company is involved in providing brokerage services from its office
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based in Karachi to customers, some of which are also based in other
provinces. As the Company’s registered office is situated at Karachi, the
Company has obtained registration with Sindh Revenue Board (SRB) and is
CO
not registered with any other Provincial Revenue Authority .
• A notice dated July 15, 2014 was received from Punjab Revenue Authority
(“PRA”) requiring the Company to obtain registration with PRA as a service
provider. The notice was responded by the Company’s tax consultants
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informing the PRA official that the Company is not required to get
registered with PRA as the services provided by the Company originate
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from and terminate into Sindh, for which it is already registered with SRB.
As no further notice has so far been issued by PRA, it is likely that the
matter stands resolved. Even otherwise, if PRA raises any demand, the
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same will be recoverable from SRB, in which case the Company may
approach High Court for settlement of the issue. In our view, the chances
for double taxation of services under two Provinces are remote, hence no
provision is proposed.
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278
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DE
35 Deferred tax Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Deferred tax as at November 30, 2014 amounting to Rs 37.229, as booked by
OR
KSL is appropriate and requires no adjustment
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Rupees in thousand
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D e f e rre d T a x A s s e t
- P ro visio n against trade debts * 39,182
CO
- Others ** (1,953)
T o t a l D e f e rre d T a x A s s e t 3 7 ,2 2 9
* Write-off of trade debts is an allowable expense, so deferred tax asset on provision for bad debts can be
booked. Furthermore, we have also been provided with financial forcast showing taxable income to absorb
write off of bad debts. Hence, deferred tax already booked needs no adjustment.
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** We have not been provided with the details. Moreover, the amount is immaterial. Hence, no adjustment is
proposed.
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279
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DE
List of related parties and related party balances
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T
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List of related parties Related party balances
Particulars Basis Key m anagem ent
Rupees in m illion Bank KFL MSC personnel
KASB Bank Limited Parent
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KASB Funds Ltd (KFL) Associated company Trade receivables - - - 1.0
My Solution Corporation Ltd Associated company Long- term deposits - - 0.1 -
KASB Invest (Pvt) Ltd. Associated company Profit receivable on bank deposits 2.2 - - -
KASB Modaraba Associated company Receivable against expenses 2.1 0.2 0.1 0.2
KASB Corporation Limited Associated company Bank balances 368.0 - - -
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KASB International Limited Associated company Trade payable - - - 1.2
KASB Income Opportunity Fund Mutual fund of KFL Long- term Demand Finance 150.0 - - -
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KASB Asset Allocation Fund Mutual fund of KFL Payable against expenses 0.3 - 2.8 -
KASB Cash Fund Mutual fund of KFL Prepaid rent 0.6 - - -
Trustee KASB Securities Employees Provident Fund Trustee of Provident Fund Accrued mark- up on borrowing 3.3 - - -
KASB Foundation Associated company
KASB I T
Muzaffar Ali Shah Bukhari
Key management personnel
UN Associated company
Director in associated company

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280
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DE
As per Discussions with Management, we understand that the Bank, KFL and
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MSC pay KSL for the costs associated with usage of its data centre
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Related party transactions (11M 2014)
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KASB Trustee KASB Key Mr.
Corporation KASB Securities Em ployees KASB m anagem ent Muzzaffar Ali
Rupees in m illion Bank KFL MSC Ltd. KCL Cash Fund Provident Fund Foundation personnel Shah Bukhari
CO
Profit and loss related
Brokerage income 0.3 - - - - - - - 0.5 -
Rent income 4.2 - - - - - - - - -
Profit on bank deposits 34.1 - - - - - - - - -
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Other advisory fee 0.5 - - - - - - - - -
Custody service charges - - - 0.1 - - - - - -
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Rent expenses (1.4) - - - - - - - - -
Bank charges (0.5) - - - - - - - - -
Email internet charges/communication expense - - (6.4) - - - - - - -
Mark- up expense (15.0) - - - - - - - - -
Provident fund contribution
Donation
Remuneration to key management personnel
-
-
-
-
-
-
UN -
-
-
-
-
-
-
-
-
-
-
-
(6.4)
-
-
-
(1.9)
-
-
-
(1.9)
-
-
-
Others
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Mutual fund's bonus units issued - - - - - 8.7 - - - -
Mutual fund units purchased - - - - - 125.0 - - - -
Mutual fund units redeemed - - - - - 242.4 - - - -
O Reimbursement of expenses 3.2 1.6 0.8 0.2 1.6 - - - 1.3 -
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Purchase of fixed assets - - (4.3) - - - - - - -

Loan repayment by key management personnel - - - - - - - - 2.3 -
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Short- term borrowing/repayment - - - - - - - - - 100.0

Loan to key management personnel - - - - - - - - 5.3 -
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O These mainly relate to expenses reimbursed by the Bank, KFL and MSC to KSL for the costs associated with usage of data centre of KSL.
In addition, the transaction related to the Bank includes amount paid by KSL to the Bank for use of premises of the Bank in Gulshan-e-Iqbal.
Break-up of the amount has not been provided by Management.
DI
281
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DE
My Solutions My Solutions 282
OR
38 Balance sheet 284
T
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40 Operating fixed assets 292
41 Trade debts 293
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43 Creditors, accrued and other liabilities 295
44 Taxation - direct 296
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45 Taxation - indirect 301
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46 Deferred tax 305
UN
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282
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DE
MSC is a fully owned subsidiary of the Bank
OR
T
• My Solutions Corporation Ltd. (“MSC”) was incorporated as a private
UR
limited company on November 05, 1995 and was converted into a public
limited company on March 24, 2003.
• The Company provides the following services:
CO
• import and sale of IBM products in Pakistan;
• internet connectivity, telecommunication and networking services
(“Networking”) to the Bank, KSL, KFL and NHEPL;
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• coordination in respect of electronic utility bill payment switch
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(“eUBS”) services provided by the Bank.
• secondment of administrative staff to KASB Modaraba.
• MSC is a fully owned subsidiary of the Bank. UN
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283
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DE
As per management accounts for the period ended November 30, 2014, net
OR
assets of MSC amounted to Rs 52.2 million
T
Balance sheet • Operating fixed assets consist of furniture and fixtures of Rs 1.4 million, electrical, office and
UR
Rupees in m illion 30-Nov-14 31-Dec-13 computer equipment of Rs 1.5 million and motor vehicles of Rs 0.1 million.
AS S ETS • Security deposits amounting, in aggregate, to Rs 0.8 million are placed with Pakistan
Telecommunication Company Ltd. for bandwidth, co-location and digital cross-connect system.
CO
Non- c urre nt a sse ts
Operating fixed assets 3.0 2.1
Long term security deposits 0.8 0.8 • Trade debts mainly consist of Rs 40.8 million receivable from three IBM business-related customers
Deferred tax asset - net 28.4 28.6 and Rs 12.5 million due from eUBS customers.
32.2 3 1. 5
• Advances and prepayments consist of prepayments of Rs 0.8 million and advance subscription
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Curre nt a sse ts
Trade debts 58.0 11.2 against shares of PEX Ltd. of Rs 2.5 million, against which provision has been made in the financial
statements. As per Discussions with Management, advance subscription was paid in 2003 to PEX
DE
Advances and prepayments 0.8 0.5
Earnest money 7.4 -
Advance tax - net 14.3 5.2
Ltd., a securities and exchange company owned by Mr. Nasir Ali Shah Bukhari. However, the
Cash and bank balances 7.5 21.1 company has not yet commenced its operations nor has it issued shares against the above
subscription money.
TO TAL AS S ETS
EQ UITY AND LIABILITIES

88.0
12 0 . 2 UN
38.0
69.5
• The company has provided earnest money to customers of IBM-related business in accordance with
the requirements of tender documents. Amounts of Rs 5.5 million and Rs 1 million have been
S ha re c a pita l a nd re se rve s submitted with Sui Northern Gas Pipeline Ltd. and Karachi International Container Terminal. Both
ED
Share capital 250.0 250.0 these IBM-related contracts have been terminated due to non-availability of funding.
Accumulated loss (197.8) (190.6)
52.2 59.4 • Cash and bank balances include cash in hand of Rs 0.05 million and bank balances of Rs 7.44 million.
Non- c urre nt lia bilitie s Balance of Rs 6 million is deposited with the Bank.
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Long- term security deposits 0.2 0.2

• Creditors, accrued and other liabilities mainly consist of Rs 11.5 million payable to Infotech in respect
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Creditors, accrued and other liabilities 27.8 9.9 of IBM-related business and Rs 9.2 million payable to Lahore Electric Supply Company Ltd. for eUBS
Short- term borrowings 40.0 - services.
TO TAL EQ UITY AND LIABILITIES 12 0 . 2 69.5
• Mr. Muzzaffar Ali Shah Bukhari has provided a loan of Rs 40 million to the company. As per the
SP

terms of loan agreement, dated July 21, 2014, mark-up is charged on the loan at 3M KIBOR + 4%,
with quarterly interest payments. The loan is repayable on the 90 th day from date of disbursement,
unless extended by Mr. Muzzaffar Ali Shah Bukhari, at his discretion.
DI
284
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DE
MSC incurred a loss before taxation of Rs 7.2 million in 11M 2014
OR
T
Profit and loss • MSC commenced marketing of certain IBM products and services in Pakistan in 2014 under an
UR
Rupees in m illion 11M 2014 2013 agreement with IBM World Trade Corporation. In 11M 2014:
IBM- related sales 45.7 • 86.4% of sales were made to Pakistan Navy and Sui Southern Gas Company Ltd.
IBM- related expenses (44.8)
• cost incurred in respect of sales made during 11M 2014 amounted to Rs 38.6 million. Rs 3.8 million
CO
0.9
related to sales made after November 30, 2014, Rs 0.3 million related to documentation charges for
eUBS income for the year - gross 22.9
Less: eUBS share of member institutions (13.2) various tenders and Rs 2.1 million has been reversed subsequently.
9.7
• the company hired sales staff specifically for the IBM-related business. Cost of this staff for the
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Networking services 12.4 period amounted to Rs 9.5 million while the cost of remaining staff of MSC was Rs 3.2 million.
Connectivity charges (9.7)
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2.7 • We have been informed by the Management that financial charges of Rs 2.1 million, incurred on
Consultancy services 2.9 loan obtained from Mr. Muzzaffar Ali Shah Bukhari, related to IBM-related business.
Salaries and wages - Modaraba (2.1)
• The company also provides networking and internet services, infrastructure support services and
0.8
G ross ma rgin 14 . 1
UNtechnical expertise, as required, to the Bank, KSL, KFL and NHEPL. As per Discussions with
Management, we understand that the company provides these services at cost plus margin of 20% to
Bank and KFL and at cost plus fee of Rs 1.8 million to KSL. Financial terms for services to NHEPL
Operating and administrative expenses (20.0)
Financial charges (2.1) have not been provided by Management of MSC.
ED
(2 2 . 1)
(8 . 0 ) • MSC also provides coordination, reconciliation and collection services for eUBS provided by the Bank.
Other operating income 1.0 It collects a ‘per bill’ charge from the utility companies and transfers a certain proportion to the Bank
Loss be fore ta xa tion (7 . 0 ) and certain other parties. However, as per Management of MSC, consequent to the imposition of
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Taxation 0.2 moratorium on the Bank, eUBS services have been suspended and eUBS accounts of member
Loss a fte r ta xa tion (7 . 2 )
institutions in the Bank as well as accounts of customers have been blocked.
LA
Information not provided • MSC had entered into a service agreement with KASB Modaraba under which MSC provided
Source: Management Information administrative staff to the Modaraba. As per the agreement, KASB Modaraba agreed to pay a service
SP
charge of 9%, inclusive of 6% withholding tax, on gross invoice amount which included gross salary,
Normalised profit and loss was not prepared due perquisites, overtime and all statutory payments. The Management of MSC has informed us that
to insufficient information in respect of “non- KASB Modaraba terminated the agreement in February 2015. However, we have not been provided
recurring” items
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with the termination notice.

285
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DE
MSC and IBM World Trade Corporation entered into a one-year agreement on
OR
October 10, 2013 under which MSC was allowed to re-market certain IBM
products and services in Pakistan
T
MSC and IBM World Trade Corporation (“IBM WTC”) entered into an
UR
agreement on October 10, 2013 under which MSC was allowed to re-market
certain IBM products and services in Pakistan. The terms of the agreement
were as follows:
CO
• agreement was to expire in one year. We have not been provided with an
extension letter/agreement in respect of this business. However, as per
Discussions with Management, the agreement is still being honoured by
IBM WTC.
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• minimum annual attainment of USD 500,000 for ‘System x’, USD
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500,000 for ‘Power’ and USD 250,000 for ‘CHW Storage’ have been
provided in the agreement. As per Discussions with Management,
attainment of these targets is not mandatory. However, on meeting these
UN
targets the company will be allowed better purchase terms.
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SP
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286
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DE
IBM-related business generated sales of Rs 45.7 million in 11M 2014. These
OR
included sales of Rs 23.5 million and Rs 16 million made to Pakistan Navy and
Sui Southern Gas Company Ltd., respectively
T
• We have been informed that all purchases from IBM WTC are required to be Date of
UR
made on cash basis. In order to meet the associated funding requirements, Custom er Agreem ent Services Sum m ary of key term s
the company obtained a loan of Rs 40 million from Mr. Muzzaffar Ali Shah Pakistan 26- Jun- 14 Supply and - Total contract value is Rs. 24.5 million.
Bukhari. Navy (Ministry installation of - Bank guarantee amounts to Rs 1.98
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of Defence) specified million.
• The company generated sales of Rs 45.7 million in 11M 2014. These consisted equipment. - In case the equipment does not pass the
mainly of: test and trials, the buyer has a right to
outrightly reject the equipment or impose
• sale of Rs 23.5 million to Pakistan Navy. We understand that the penalty at rates ranging from 2% to 5% of
equipment ordered by Pakistan Navy was acquired/imported from IBM
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the value of the relevant equipment.
WTC and ‘others’. - Liquidated damages up to 2% per month
DE
are liable to be imposed on the supplier by
• sale of Rs 16 million to SSGC. We understand that the equipment ordered the purchaser if the equipment is delivered
by SSGC was acquired from ‘Infotech’, a local IBM distributor. We afer the delivery expiry date. Total value of
understand that ‘Infotech’ sold the equipment to MSC on credit basis. liquidated damages shall not exceed 10% of
Management.
UN
However, details of the credit terms have not been provided by
total contract value.
- Warranty period for hardware and software
is one year. As per Discussion with
Management, warranty claims will be borne
• However, as per Management Information, the company also lost a number of by IBM WTC.
high-value projects due to non-availability of funding. These included:
ED
SSGC 5- Nov- 14 Maintenance and - Total contract value is Rs. 16 million.
support for data
• orders from Central Depository Company of Pakistan Ltd, National Bank of warehouse MSC provided a performance bank
Pakistan Ltd. and Karachi International Container Terminal Ltd. with an licenses for the guarantee as per terms of the tender. The
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aggregate value of USD 1,339,000; and period from April 1, guarantee was for the period from June 27,
2014 to June 30, 2014 to June 26, 2015 and was for Rs 1.6
LA
• two projects of Sui Northern Gas Pipelines Ltd. with an aggregate value of 2015. million.
USD 2,650,000.
Note: Reason for difference in the value of sales to Pakistan Navy as per contract (Rs 24.5 million) and as
• In addition, the company also deferred a number of projects. These included per general ledger (Rs 23.5 million) has not been provided by Management.
SP
three projects with an aggregate value of USD 683,000. We were informed Source: Management Information
that these projects were deferred till first quarter of 2015. However, as per
Discussions with Management, no progress has been made on these projects
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to date.
287
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DE
IBM-related business incurred a loss of Rs 3.6 million in 11M 2014
OR
T
We would like to highlight that we have not
UR
IBM-related business
been provided with supporting Rupees in m illion Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Total Cost Margin
documents/agreements in respect of the
Re ve nue
above lost/deferred projects.
CO
Navy - - - - 23.5 - - - - 23.5 (20.9) 2.6
• As per Discussions with Management, the DIB - - - - 1.5 1.0 - - - 2.5 (2.9) (0.4)
Tapal Tea - - - - - - 0.9 - - 0.9 (0.6) 0.3
only source of funds available to the
Orient Electric - - - - - - 0.5 - - 0.5
company, at present, are: DIC Pakistan - - - - - - 1.3 - - 1.3 (2.2) (1.7)
Packages - - - - - - 1.0 - - 1.0
• loan from Mr. Muzzaffer Ali Shah
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SSGC - - - - - - - - 16.0 16.0 (12.0) 4.0
Bukhari; and - - - - 25.0 1. 0 3.7 - 16 . 0 45.7 (3 8 . 6 ) 7.1
DE
Cost (Note) (38.6)
• funds generated from the company’s
Documentation charges (0.3)
IBM-related business and eUBS and (3 8 . 9 )
networking services. However, the IBM- 6.8
related business incurred a loss of Rs 3.6
million during 11M 2014 and the margins
UN
Staff cost
Finance cost
(0.6) (0.7) (0.8) (0.9) (0.9) (1.0) (1.1) (1.1) (1.2) (8.3)
(2.1)
(3 . 6 )
4
of the eUBS and networking services are

Note: The IBM-related cost for 11M 2014 has been adjusted for the following:
relatively insignificant.
ED
• cost of Rs 3.8 million incurred on acquisition of equipment contracted to be provided to National Bank of Pakistan as per contract dated
4 In addition, we understand that, from November 2014. Revenue relating to the sale had not been recognised up to November 30, 2014.
March 2014, the company started to hire • cost of purchases from ‘Infotech’, in respect of sales made to Sui Southern Gas Company Ltd., have been adjusted for discount allowed of Rs 2.1
sales staff specifically for the IBM WTC- million.
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related business. Gross salary, including Source: Management Information

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benefits, relating to this staff during 11M

2014 was Rs 8.3 million. In December
2014, the aggregate monthly cost of 9 IBM
SP
sales staff was Rs 1.2 million.

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288
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DE
Majority of the company’s eUBS-related income is derived through services
OR
provided to Lahore Electric Supply Company Ltd.
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eUBS income eUBS m em ber institutions
UR
Crescent BankIslam i Tam eer Rate per bill as The Bank and MSC entered into a
Com m ercial Pakistan Microfinance per respective service level agreement on
Bank Bank Ltd. Ltd. Bank Ltd. Total agreem ents eUBS
August 1, 2006. Under the
agreement, MSC would provide
CO
Rupees in m illion --------------------------- Num ber of bills --------------------------- Rupees incom e
eUBS services to institutions
Sui Southern Gas Company Ltd. 49,659 50 1,152 - 50,861 8.00 0.4
which have, through agreement
Sui Northern Gas Pipelines Ltd. 50,476 63 1,316 - 5 1, 8 5 5 8.00 0.4
Gujranwala Electric Power Company 16,534 70 17 - 16 , 6 2 1 8.00 0.1 with the Bank, provided their
customers the facility of paying
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Islamabad Electric Power Company 29,916 88 2,865 - 32,869 8.00 0.3
Lahore Electric Power Company ("LESCO") 1,454 - - 2,862,709 2 , 8 6 4 , 16 3 7.00 4 20.0 utility bills through the Bank's
DE
Karachi and Water Sewerage Board 14,948 1,990 1,306 - 18 , 2 4 4 8.00 0.1 system. Financial terms were not
Wi- tribe Pakistan Ltd. 273 1 - - 274 8.00 -
Karachi Electric Ltd. 60,807 1 10,207 - 7 1, 0 15 8.00 0.6
given in the agreement.
Pakistan Telecommunication Company Ltd. 99,340 1,494 1,973 - 10 2 , 8 0 7 4.45 0.5 A letter dated August 4, 2006
323,407
UN 3,757 18 , 8 3 6 2,862,709 3,208,709
euBS revenue as per general ledger

22.4
22.9
from CEO of MSC to CEO of the
Bank has been provided which
Note: Working and basis for eUBS expense has not been provided by Management. Difference 0.5 states that MSC would collect Rs
8 per bill from utility companies
ED
and share this amount equally
with the Bank.
4 The Bank entered into a tripartite agreement with LESCO and Mobile Commerce (Pvt.) Ltd. (“MCPL”) on February 11,
2008. As per the agreement: (i) MCPL wanted to establish a service which enables customers of LESCO to pay utility bills However, the above is not
Y
through mobile phones; (ii) MCPL and LESCO accepted the Bank'e eUBS system as the final processing service for applicable for LESCO.
LA
LESCO bills; and (iii) the Bank was appointed as settlement bank for eUBS services in respect of customers of LESCO.
The agreement was amended on May 11, 2008 and MSC was required to pay Rs 1 per utility bill to MCPL as revenue-
share on the bills processed through eUBS for LESCO.
SP
Based on Discussions with Management, we understand that MCPL collects Rs 8 per bill from LESCO. After deducting Rs
1 per bill, transfers the remaining amount to MSC. Thereafter, MSC transfers Rs 4 per bill to the Bank and retains Rs 3
per bill.
DI
289
R
DE
The company provides Networking services to the Bank and KFL at cost plus
OR
margin of 20% and to KSL at cost plus fee of Rs 1.8 million
T
Networking services (11M 2014) The company provides networking and internet services, infrastructure
UR
Incom e support services and technical expertise (“Networking” services), as required,
Rupees in m illion KSL Bank KFL Total Expense Margin to the Bank, KSL, KFL and NHEPL.
Bandwidth 0.46 0.31 0.26 1.03 (0.96) 0.07 Based on Discussions with Management, we understand that the company
CO
PRI Rental 1.59 - 0.35 1.94 (1.80) 0.14
Fiber connectivity 0.74 - 1.40 2.14 (2.28) (0.14)
provides these services at:
ISP - service charges (Pin sales) 0.10 - 0.10 0.20 • cost plus margin of 20% to the Bank and KFL;
Corporate mail service 0.04 0.18 0.04 0.26
Sales - computer equipment 4.28 - - 4.28 • cost plus fee of Rs 1.8 million to KSL; and
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9.85
Repair & service income 1.94 • fixed annual fee of USD 10,032 to NHEPL.
DE
Software & Cds revenue 0.63
Other costs (0.40)
We would like to highlight that we have not been provided with the current
12 . 4 2 agreements relating to Networking services provided to the Bank and KFL.
Connectivity charges (9.70) Some of the key financial terms of the agreements with KSL and NHEPL are as
UN
2.72
Note: Information for 2013 has not been provided by Management.
follows:
Date of Renew al of
Source: Management Information, Discussions with Management agreem ent Key term s of agreem ent agreem ent
ED
KSL 4- Jun- 12 - WAN connectivity amounting to Rs 62,350 for 3 years
four branches, including the headoffice.
- LAN support services at branches per annum at
actual cost
Y
- LAN/WAN support services amounting to Rs

1.45 million.
LA
NHEPL 1- Dec- 13 Monthly cost of services as per agreement is USD 3 years

836.

SP
DI
290
R
DE
From March 2014, the company started to hire sales staff specifically for the
OR
IBM WTC-related business. Staff strength increased from three personnel in
March 2014 to nine in November 2014
T
Operating and administrative expenses
UR
Trend in staff cost and numbers
Rupees in m illion 11M 2014 2013
Salaries and wages 12.7 1.6 17 18.0
Rent, rates and taxes 0.8
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16 16
Repairs and maintenanc e 0.7
1.4 15 15 16.0
Elec tric ity 0.8
Communic ation 0.6 14 14
Printing and stationery 0.4
14.0
Travelling and c onveyanc e 0.9 1.2
R
Entertainment 0.1 12 12
Deprec iation 0.6
DE
12.0
Legal and professional c harges 2.2
Lic ense fee 0.1 Rupees in million 1.0 1.0
Auditors' remuneration 0.1
No. of staff
9 10.0
20.0 0.9
Information not provided by the Management

UN 0.8 8
0.7
0.8
0.9
1.0
1.1
1.2
8.0
0.6 0.6
ED
6.0
0.4
4.0
Y
-
0.5
0.2 - 0.4
LA
2.0
0.3 0.3 0.3 0.3
0.2 0.2 0.2 0.2 0.2
0.0 -
SP
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14
IBM-related Others No. of staff

DI
291
R
DE
Avais Hyder Liaquat Nauman & Co. were appointed on May 16, 2014 to
OR
perform a physical count and tagging of fixed assets. However, as per
Management of the Bank, the exercise has not been completed
T
Operating fixed assets • Based on the fixed assets register, we analysed depreciation expense for
UR
Accum ulated Net book Rate of
Rupees in m illion Cost depreciation value depreciation 11M 2014.
Furniture and fixtures 4.6 3.1 1.5 10.00% • As per Discussions with Management, we understand that physical count
Electrical, office and computer equipment 10.1 8.6 1.5 20% - 33.33% of fixed assets has not been performed to date. We have been informed
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Motor vehicles 0.1 0.1 - 20.00%
Technical equipment 118.3 118.3 - 33.33%
that Avais Hyder Liaquat Nauman & Co. was appointed on May 16, 2014
13 3 . 1 13 0 . 1 3.0 to perform, interalia, a physical count and tagging of fixed assets.
However, as per Management of the Bank, the exercise has not been
completed.
R
DE
UN
Y ED
LA
SP
DI
292
R
DE
41 Trade debts Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
As per Discussions with Management, as at January 31, 2015, Rs 40.4 million
OR
of the total trade debts of Rs 58.1 million remained outstanding
T
Trade debts
UR
Rupees in m illion Am ount Com m ents
KASB Bank Ltd.
Receivable salary of Mr. Kashif Riasat 0.4 As per Discussion with Management of MSC, Rs 0.2 million has been written off in
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from Bank respect of the period from January 2013 to June 2013. In addition, Management
of MSC does not expect recovery of the remaining amount.
Fiber connectivity charges of branches 0.1 These relate to the period from October 2013 to December 2013.
Nationwide connectivity charges 0.6 Amount received in January 2015.
KASB Funds Ltd. 0.4 Represents nationwide connectivity charges for the period from July 2014 to
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December 2014.
KASB Securities Ltd. 3.3 Represents nationwide connectivity charges of Rs 2.4 million and LAN support
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charges of Rs 0.9 million for the period from July 2014 to December 2014. 4 EUBS - Lahore Electric Supply Company
Rupees in m illion Am ount Days overdue
NHEPL 0.2 LAN and data back- up service charges for August 2014 to November 2014.
4 eUBS - Lahore Electric Supply Company 11.8 As per Management of MSC, LESCO settles its dues in 7 to 8 months. The month- May 2014 2.1 184
eUBS - Others
right.
UN
wise break- up of amount receivable from LESCO is given in the table on the
0.5 Represents receivable of Rs 0.2 million from K- Electric Ltd., and receivables of
June 2014
July 2014
August 2014
0.8
2.0
2.1
153
125
93
Rs 0.1 million each from PTCL, Sui Southern Gas Company Ltd., Sui Northern September 2014 1.9 61
Gas Pipeline Ltd., and Islamabad Electric Supply Company. October 2014 2.0 30
ED
Sale of IBM equipment to Pakistan Navy 23.6 Management expects this amount to be settled in February / March 2015. November 2014 0.9 2
Sale of IBM equipment to SSGC 16.0 Amount received on January 12, 2015. 11. 8
Sale of IBM equipment to Packages Ltd. 1.2 Amount received on December 1, 2014. Source: Management Information
58.1
Y
Note: Minor differences due to rounding.

LA

SP
DI
293
R
DE
As at November 30, 2014, balances maintained by MSC in bank accounts with
OR
the Bank amounted to approximately Rs 6 million
T
UR
Balance as per
General Bank
Details Account num ber ledger statem ent Difference Com m ents Am ount Restrictions on bank accounts
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----------------------- Rupees -----------------------
Current accounts
KASB Bank 02- 115321- 01 1,637,123 1,637,123 - The Management has informed us that there - - The Bank has issued a guarantee of Rs 1.6 million to Sui
are no reconciling items. Southern Gas Company Ltd. on behalf of MSC. The Bank
has marked a lien in respect of this amount in the account.
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The guarantee will expire on June 26, 2015.
- In addition, movement in these funds is also restricted till
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end of moratorium imposed by SBP on the Bank.
KASB Bank 0002- 114343- 001 (41,319) 717 42,036 Unpresented cheques. These were issued 42,036 Movement in these funds, over and above Rs 0.3 million, is
on August 26, 2013 for retainership of tax restricted till end of moratorium period imposed by SBP on
advisor for period from November 2012 to July the Bank.
Citibank 1- 000999- 926 5,900

UN
5,900 -
2013. Specific details inquired from
Management, however, not provided.
The Management has informed us that there - MSC requested Citibank to close the account in 2007.
are no reconciling items. However, the account remains open.
Standard 01- 9868879- 01 49,577 49,577 - The Management has informed us that there - Notice for closure has been sent by Management - tentative
ED
Chartered Bank are no reconciling items. January 2015.
MCB Bank Ltd. 0711369641001871 1,401,979 1,401,979 - The Management has informed us that there -
are no reconciling items.
Y
Savings accounts
LA
KASB Bank Ltd. 02- 115321- 121 4,388,861 4,612,239 223,378 Details in respect of this amount have not 194,362 - The Bank has issued a guarantee of Rs 1.978 million to
been provided by Management. Pakistan Navy on behalf of MSC. The Bank has marked a
Unpresented cheques. These were issued 29,016 lien in respect of this amount in the account. The guarantee
on February 24, 2014 for retainership of tax will expire on September 26, 2015.
SP
advisor for period from August 2013 to - In addition, movement in these funds is also restricted till
January 2014. Specific details inquired from end of moratorium imposed by SBP on the Bank.
Management, however, not provided.
7,442,120 7,707,534 265,414 265,414
DI
294
R
DE
43 Creditors, accrued and other liabilities Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Creditors, accrued and other liabilities consist mainly of payable of Rs 11.5
OR
million to ‘Infotech’ in respect of IBM-related business and Rs 9.2 million
payable in respect of eUBS business
T
Creditors, accrued and other liabilities
UR
Rupees in m illion 30-Nov-14 Com m ents
Management of MSC has not made
accruals for expenses incurred, but not
Tra de c re ditors paid, as at November 30, 2014.
Pakistan Telecommunication Company 0.7 These have been paid in December 2014.
Management has not provided this
CO
Ac c rue d e xpe nse s information to date.
E & Y Chartered Accountants 0.2
Others payable 12.1 The balance consists mainly of Rs 11.5 million payable to 'InfoTech', a local IBM
distributor, for purchases made in respect of SSGC tender. Based on Discussion
R
with Management of MSC, we understand that the amount was paid in December
2014.
DE
State Life Insurance Corporation of Pakistan 0.7
W.H.T suppliers and services 0.1
W.H.T salaries 0.2
Avanza (eUBS) 1.2 Rs 1.2 million relates to share of Avanza, the system developer for eUBS
KASB Bank Ltd. (eUBS)

UN
9.9
transactions for the Bank, for the period from April 2012 to November 2014.
Rs 0.7 million relates to Bank's share of eUBS from utility companies for May 2014
to November 2014.
Rs 9.2 million relates to the Bank's share of eUBS from LESCO for the period from
ED
March 2014 to November 2014. The amount will be paid when LESCO settles the
receivable.
Payable to KSL 0.1
Others 0.8
Y
Unearned revenue 0.8 Details of this balance have not been provided by Management.
Mark- up payable To Mr. Muzzaffer Ali Shah Bukhari 1.0
LA
27.8
SP
DI
295
R
DE
MSC has recorded income tax refundable of Rs 14.296 million as at November
OR
30, 2014. However, income tax refundable needs to be restricted to Rs 11.6
million due to non-verification of refunds for tax years prior to tax year 2008
T
• We have not been provided with return of income / assessment order prior
UR
to tax year 2008, hence we are unable to verify the status of tax refunds
prior to tax year 2008. As per returns of income, the following tax amounts
are refundable:
CO
Rupees in thousand
T a x re f unda ble a s pe r re t urn o f inc o m e
2008 1,354
R
2009 1,125
2010 1,266
DE
2011 -
2012 49
2013 858
2014 530
2015
T o tal
A dd: Input tax no t claimed by M SC
UN 5 ,18 2
6,448
-
11,6 3 0
A s per management acco unts (14,296)
ED
Unre c o nc ile d dif f e re nc e ( a djus t m e nt pro po s e d) 2 ,6 6 6
Y
LA
SP
DI
296
R
DE
MSC was involved in Commercial Imports during tax year 2015, subject to tax
OR
under FTR. However, MSC did not book liability on commercial imports under
clause 41(A) of the Ordinance, resulting in an exposure of Rs 2.2 million
T
• In tax year 2015, the company has sold some equipment which was
UR
imported from IBM USA. The equipment was sold to customers in same
condition which constitute commercial import. Under Section 148 and 169
of the Income Tax Ordinance, 2001, commercial imports are subject to tax
CO
under Final Tax Regime (“FTR”) unless opt out option is exercised under
Clause (41A) of Part IV of Second Schedule to the Ordinance. The said
Clause allows Opt out option subject to the condition that tax liability upto
5% of value of commercial imports is admitted and discharged. If MSC opts
R
out from FTR, no allocation of expenses between Normal Tax Regime
(“NTR”) and FTR will be required as income/loss from commercial imports
DE
will be part of normal business income. However, by doing so, additional
tax liability of Rs 2.2 million (Rs 44 million x 5%) needs to be booked,
hence, we propose an adjustment of Rs 2.2 million.
UN
Y ED
LA
SP
DI
297
R
DE
Tax payments as appearing in the income tax returns are consistent with tax
OR
payments appearing in cash flow statements of financial statements, hence
there is no exposure in this respect
T
• We have analysed tax payments as appearing in the returns of income with
UR
the amount of tax payments appearing in the cash flow statements and
noted no material adverse difference. Hence, we assume the Company has
tax challans in support of claims made in the return of income:
CO
Tax paym ents
As per cashflow
Rupees in thousand As per returns statem ents Difference
R
2008 1,656 1,656 0
DE
2009 1,125 1,125 0
2010 1,433 1,433 0
2011 300 300 0
2012 427 427 0
2013
2014
2015
1,009
670
2,678
UN 1,009
1,007
9,126
0
-337
* (6,448)
* Amounts pertain to input tax not claimed by MSC.
ED
Source Management information
Y
LA
SP
DI
298
R
DE
MSC has not provided reconciliation of salary and other than salary
OR
payments subject to withholding, resulting in an exposure of Rs 0.15 million
T
• Under the tax law, MSC was required to deduct tax from various payments, • As evident from above table, we have not been provided reconciliation of
UR
inter alia, on account of following major heads: expenses (other than ‘salary’ and ‘salary’); hence exposure, if any, cannot
• salary payments to employees (section 149) be ascertained. However, based on our experience in similar cases,
we expect an exposure of Rs 0.15 million [Rs 0.025 million x 6 years] on
CO
• payments against supply of goods and services / payments for execution account of non-withholding of tax.
of contracts (sections 152 / 153)
• It has been noted that monitoring of tax withholding (WHT Audit)
particularly has been extensively conducted and demands of substantial
R
amounts have been raised recently by tax authorities in case of many
taxpayers for the following reasons:
DE
• tax challans are not available with the taxpayer; and
• tax withholding, not made in respect of exempt goods/ services, which
UN
are not supported by either provision of law or underlying records.
• It is our view that monitoring of WHT of MSC can be conducted for tax
years 2010 to 2015, and time limitation for tax year 2010 will expire on
December 31, 2015. Likewise time limit for other years will apply.
ED
• In this respect we have requested the MSC to provide reconciliations. The

status of reconciliation provided is as under:
Y
TAX YEARS
LA
2010 2011 2012 2013 2014 2015

P = Provided
Salary O O O O O O O = Not provided
Other expenses O O O O O O
SP

DI
299
R
DE
MSC has not properly computed Minimum Tax in tax years 2010 and 2011.
OR
However, effect of such error is not material
T
In tax years 2010 and 2011, MSC has discharged MTL. While reviewing
UR
computation, we have noted that MTL has not been properly computed.
However, net effect of error is not material having tax effect of only
Rs 7,788.
CO
R
DE
UN
Y ED
LA
SP
DI
300
R
DE
MSC has failed to charge Sindh Sales Tax on Taxable Services. Exposure in
OR
this respect amounts to Rs 28 million (including amount of penalty and
default surcharge)
T
• The Company is engaged in providing data communication network • In view of the above, it is advised to make provision for the following:
UR
services, eUBS and consultancy services. Earlier, the services of MSC was
Rupees
exempt under FED and SRB, but effective from July 1, 2013 every
Company providing data communication network services of more than Rs Sales tax not charged 13,339,795
CO
100 % Penalty for not charging sales tax 13,339,795
1,500 per month per service recipient is taxable vide notification no 3-
Default surcharge 1,325,858
4/7/2013 dated June 18, 2013 and consultancy services have also become Adjustme nt propose d 28,005,448
taxable by virtue of inclusion in the second schedule to the Sindh Sales Tax Source: AFF Analysis
on Services Act, 2011 (“SSToSA”), from the same date. Hence, MSC is liable
R
to charge and pay SST to SRB since July 2013. However, we have been
• Apart from the above, the Company is also exposed to penalty of
given to understand that MSC has not yet received any letter from any of
DE
Rs 190, 000 (@ Rs 10,000 per month) on account of late / non-filing of
the Provincial Tax Authority to pay Sales Tax hence they have not
SRB return. However, as the imposition of penalty is subject to discretion
registered and paid Sales Tax. Moreover, the Company has changed its Tax
of higher appellate authorities, it is expected that the penalty (if any)
Consultants and the newly appointed Tax Consultants are of the view that
imposed by the Tax Authority will not be maintained by appellate
received from the Tax Authority.
UN
they will advise MSC to get registered with SRB only after a notice is
authorities if the Company is able to convince that the delay or failure to
file SRB returns was not wilful or intentional. No adjustment for penalty
of Rs 190,000 is therefore proposed.
Y ED
LA
SP
DI
301
R
DE
MSC is non-compliant with Sindh Sales Tax Withholding Rules. Provision of
OR
Rs 0.23 million suggested for potential demand on failure to withhold SST
T
• Consequent to the applicability of the Sales Tax Withholding Rules, the
UR
Company was required to withhold:
• Sindh Sales Tax @ 20% of the sales tax charged in invoices in respect
of taxable services (with effect from July 1, 2014);
CO
• 100% withholding of sale tax on payments to un-registered persons
• 100% withholding of sales tax on payments for advertisement services
R
(with effect from July 1, 2011).
DE
withheld by the Company is worked out at around Rs 110,000 whereas
UN
the Default Surcharge and Penalty to which the Company is exposed are
estimated at Rs 10,000 and Rs 210,000 respectively. Penalty of Rs
210,000 is computed under section 43, which provides penalty of Rs
10,000 per month or 5% of tax which ever is higher. Since penalty is
ED
subject to discretion of higher appeal authorities, it is expected that the

same would be restricted to the aggregate amount of principal of Rs
110,000 and Default Surcharge of Rs 10,000.
Y
• It is therefore advisable to make a provision of Rs 230,000

LA
(Rs 110,000+Rs 10,000 + Rs 110,000) in respect of amount not

withheld by the Company along with Default Surcharge and penalty, as
the same may be required by the tax authority.
SP
DI
302
R
DE
MSC has not been filing Quarterly Reconciliations with SRB. No provisioning
OR
is however proposed for exposure to penalty
T
• Rule 30 of the Sindh Sales Tax on Services Rules, 2011 requires a
UR
Company to prepare and submit a reconciliation statement, reconciling
the value of services on which SST is charged with the value of total
services provided by the Company. Such reconciliation statement is
CO
required to be submitted on a quarterly basis, by the 24th day of the
month following the end of the quarter.
• We have noted that the Company has not been in compliance with the
above requirement and has so far not submitted any such reconciliation
R
statement. As the failure to comply with the above requirement exposes
the Company to a penalty of Rs 10,000 per month, the Company is
DE
exposed to provision of Rs 0.190 million (approx) on account of
non-filing of quarterly reconciliation statements.
UN
• As the imposition of penalty is subject to discretion of higher appellate
authorities, it is expected that penalty will not be maintained by
appellate authorities if the Company is able to convince that the delay
or failure to file sales tax returns and quarterly statements was not
ED
wilful or intentional. No adjustment is therefore proposed.
Y
LA
SP
DI
303
R
DE
MSC has not charged Sales Tax on disposal of fixed assets under Sales Tax Act,
OR
1990, which can be recovered by FBR. No provisioning is however proposed as
the amount is not material
T
• For tax years 2009 to 2014, it is observed that MSC has not charged sales
UR
Sale Proceeds from
Years
tax on disposal of fixed assets. As per the Sales Tax Act, 1990 (STA), sales Disposal of fixed assets
tax should be charged on disposal of fixed assets. However, there may be 2014 -
an argument that being a service provider, the Company is not registered 2013 5,000
CO
under STA. The tax authority is however of the view that tax should be 2012 -
charged on disposal of fixed assets even by a service provider. 2011 -
2010 122,000
• We have computed the expected tax exposure of MSC in respect of the said 2009 -
matter which is Rs 20,320 (refer table), based on the details available in 12 7 , 0 0 0
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the audited financial statements.
Tax rate* 16%
DE
• Being not material, no provision is recommended. P ote ntia l Ta x impa c t 20,320
* We have used rate of 16% for simplicity

UN
Y ED
LA
SP
DI
304
R
DE
46 Deferred tax Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Deferred tax asset recognised on losses amounts to Rs 22.8 million as at
OR
November 30, 2014. However, deferred tax asset needs to be restricted to
Rs 14.6 million due to non-verification of losses prior to tax year 2008
T
• MSC has booked deferred tax asset of Rs 22.8 million on depreciation Deferred tax asset
UR
losses of Rs. 67.089 million @ 34%. However the supporting documents, Rupees in thousand
being return of income filed / provided to us show depreciation losses of Tax losses 22,810
Rs. 14.620 million for the following years which are apparently unadjusted: Accelerated depreciation 4,766
CO
Others 850
Depreciation Tota l De fe rre d Ta x Asse t 28,426
Rupees Accounting year loss
2014 31-Dec-13 2,938,281
* Depreciation on Fixed asset is an allowable deduction for tax, which can
R
2010 30-Jun-10 1,937,277
2009 30-Jun-09 3,872,176 be carried forward for indefinite period. Hence, deferred tax asset
DE
2008 30-Jun-08 5,873,087
* 14 ,6 2 0 ,8 2 1
booked requires no adjustment.
T o tal
* We have considered tax rate of 33% as it is expected that present tax rate **We have not been provided with the details. Moreover, the amount is
of 33% would atleast be continued in future, although Finance Minister has immaterial. Hence, no adjustment is proposed.
UN
announced reduction of tax rate to 30% over next few years

ED
• It appears that income declared in tax returns for tax year 2011 till tax year
2013 was adjusted from depreciation losses of prior years and that
depreciation losses of Rs. 14.620 million are still intact and available for
Y
adjustment in future. Hence, we propose deferred tax asset of Rs. 4.824

million on depreciation losses of Rs. 14.620 million at the rate of 33%;
LA
hence downward adjustment of Rs 18 million is proposed.

• Please note that depreciation losses are adjustable even if the company is
amalgamated under section 97A of the Ordinance.
SP
DI
305
R
DE
Related party transactions
OR
T
Related party transactions
UR
Equipm ent Consultancy Repair and Salaries and
Rupees in m illion Netw orking sale services service benefits
Bank 2.2 - - - -
CO
KSL 6.9 4.3 - - -
KFL 0.7 - - - -
KM - - 2.9 - -
NHEPL - - - 0.2 -
Key management personnel - - - - (10.5)
R
DE
UN
Y ED
LA
SP
DI
306
R
DE
KASB Funds KASB Funds 307
OR
49 Balance sheet 309
T
UR
51 Property and equipment 313
52 Intangible assets 314
CO
54 Prepayments and other receivables 316
55 Investments 317
R
DE
57 Trade and other payables 320
58 Taxation - direct 322
UN
59
60
Taxation - indirect
Related party transactions and balances
329
334
Y ED
LA
SP
DI
307
R
DE
As at November 30, 2014, approximately 77% of KFL’s funds under
OR
management comprised of investments made by related parties
T
• KFL was incorporated in Pakistan on January 24, 2005 under the Summary of Funds under Management
UR
Companies Ordinance, 1984 as an unlisted public limited company. Category of FuM as Basis of Related party
• The company is licensed to carry out ‘asset management’ and ‘investment open-end at m anagem ent investm ent in ow n
advisory services’ under the Non-Banking Finance Companies Rupees in m illion fund 30-Nov-14 fee* funds as at 30-Nov-14
CO
(Establishment and Regulation) Rules, 2003 and the Non-Banking Finance KASB Income Aggressive 261.4 2.0% 242.2 92.7%
Companies and Notified Entities Regulations, 2008 (“NBFC Rules and Opportunity Fund Income
Regulations”). The objective of the company is to float and manage open- KASB Asset Allocation Asset Allocation 305.2 2.0% 289.5 94.9%
Fund
end mutual funds and to provide investment advisory services. At present,
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KASB Islamic Income Islamic 266.8 1.5% 136.8 51.3%
KFL manages the following five open-end mutual funds: Opportunity Fund Aggressive
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Income
• KASB Income Opportunity Fund. KASB Cash Fund Money Market 346.8 0.8% 212.8 61.4%
• KASB Asset Allocation Fund. Crosby Dragon Fund Equity 153.8 2.0% 141.2 91.8%
1, 3 3 4 . 0 1, 0 2 2 . 5 76.65%
• KASB Islamic Income Opportunity Fund.
• KASB Cash Fund.
UN *per annum of the average annual net assets of the Fund.
In addition to the above FuM, specially managed accounts under the management of KFL
amounted to Rs 58.6 million as at November 30, 2014.
• Crosby Dragon Fund. Source: Management Information
ED
• The Bank holds 43.89% shareholding in KFL. The other major shareholder
is KASB Corporation Ltd. which holds approximately 46% shareholding in Proposed merger between KFL and Pak Oman Asset
KFL. Management Company Ltd.
Y
• The Bank acquired the investment in KFL consequent to the merger with As per Management Information, the Board of Directors of KFL approved
KASB Capital Ltd. in 2008. The Bank applied the “purchase method” of
LA
the merger of KFL with Pak Oman Asset Management Company Ltd.
accounting for the business combination under IFRS 3 and recorded the (“POAMCL”) in April 2014.
investment at Rs 432.3 million. However, in subsequent years, the Bank
made cumulative provision of Rs 370.2 million against this investment. However, we have been informed by the Management that the Board of
SP
Accordingly as at November 30, 2014, the carrying value (net of provision) Directors of KFL and POAMCL decided to abandon the merger in
of the Bank’s investment in KFL amounted to Rs 62.1 million. February 2015.
DI
308
R
DE
As per management accounts for the period ended November 30, 2014, net
OR
assets of KFL amounted to Rs 124.9 million
T
• The NBFC Rules and Regulations specify the minimum equity requirement for NBFCs. Based on
UR
Balance sheet
Rupees in m illion 30-Nov-14 31-Dec-13 these requirements, the minimum equity (free of losses) required for carrying out ‘investment
advisory’ and ‘asset management services’ as at November 30, 2014 amounts to Rs 230 million.
AS S ETS
Property and equipment 1.4 1.4 However, as at November 30, 2014, KFL’s equity amounted to Rs 124.9 million. In addition, the
CO
Intangible assets 6.3 6.4 company had obtained a subordinated loan of Rs 75 million.
Long term security deposits 0.4 0.4
• The subordinated loan of Rs 75 million was received from Mr. Muzzaffar Ali Shah Bukhari (6.2%
Long term loan 2.7 1.7
Deferred tax asset - net 34.1 34.4 shareholder of KFL). The loan is interest-free and is required to be repaid within three years or as
Non- c urre nt a sse ts 44.9 44.3 both parties may agree. As per the agreement, the loan is subordinate to all other payment obligations
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Loans and advances 5.2 2.8 of KFL due to financial institutions and banking lenders and may be converted to secured debt
obligation or equity instrument, subject to fulfilment of requisite corporate and regulatory
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Prepayments and other receivables 22.6 27.1
Due from funds under management 2.6 5.6 formalities.
Investments 125.4 51.9
Taxation- net of provisions 14.0 25.6 • Other liabilities include an amount of Rs 15.2 million payable to House Building Finance Corporation
(“HBFC”) in respect of a suit filed by HBFC against KFL and KASB Income Opportunity Fund
Cash and bank balances
Curre nt a sse ts
Tota l a sse ts
11.5
18 1. 3
226.2
UN
1.6
114 . 6
15 8 . 9
(previously AMZ Plus Income Fund). A corresponding receivable is also appearing in other
receivables in respect of indemnity from AMZ Asset Management Company Ltd. in the situation that
LIABILITIES the case is decided against KFL and the fund.
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Trade and other payables (26.3) (27.8) • The remaining assets, other than tax refundable and deferred tax, consist mainly of:
Non- c urre nt lia bilitie s • Investment in units of funds under management of Rs 107.6 million, non-performing TFCs of
Subordinated loan (75.0) - Agritech Ltd., Azgard Nine Ltd. and Trust Investment Bank Ltd. with an aggregate book value of Rs
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Ne t a sse ts 12 4 . 9 13 1. 1 14.2 million and shares in Agritech Ltd. at book value of Rs 3.6 million.
• Management rights in respect of Crosby Dragon Fund amounting to Rs 6.3 million.
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EQ UITY
Issued, subscribed and paid- up • Loan provided to an employee, Mr. Hussain Khoja, of Rs 3.9 million and advance given to Ahmed &
share capital 321.8 321.8
Qazi, advocates, of Rs 1.9 million.
Less: discount on issue of right shares (36.8) (36.8)
SP
Accumulated loss (160.1) (153.9) • Due from “funds under management” consists mainly of management fee receivable of Rs 2.2
Equity 12 4 . 9 13 1. 1 million.
Source: Management Information • Break-up and working of deferred tax asset – net as at November 30, 2014 has not been provided by
DI
Management.
309
R
DE
KFL incurred a loss of Rs 6.2 million in 11M 2014
OR
T
Profit and loss • The break-up of management fee is given below:
UR
Rupees in m illion 2014 Dec-2014 11M 2014 2013
Management fee
Re ve nue Rupees in m illion 2014 Dec-2014 11M 2014 2013
Management fee 36.8 2.1 34.7 36.3
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Load income 1.9 0.1 1.8 1.7 KASB Income Opportunity Fund 9.5 0.4 9.1 10.7
Advisory income (0.1) 1.1 (1.2) 14.2 KASB Asset Allocation Fund 6.7 0.6 6.1 6.3
Unrealised gain / (loss) on Crosby Dragon Fund 3.3 0.2 3.1 3.2
revaluation of investments (2.2) 1.6 (3.8) 0.4 KASB Islamic Income Opportunity Fund 9.1 0.6 8.5 5.9
Net realized gain on sale of available KASB Cash Fund 8.2 0.3 7.9 10.2
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for sale investments 9.4 0.2 9.2 11.2 36.8 2.1 34.7 36.3
Mark- up income on sukuks - - - 1.9 Source: Management Information
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Mark- up income on bank deposit 0.6 0.2 0.4 0.3
Other income 1.0 - 1.0 7.7
• KFL earned front-end load of Rs 1.8 million in 11M 2014. Basis for earning load is given in
47.4 5.3 42.1 73.7 the table below:
Expe nse s
Load
Impairment loss on intangible asset
Provision for impairment in value
56.5
- -
8.6 UN
47.9
-
62.1
3.0 KASB Income Opportunity Fund
KASB Asset Allocation Fund
Front end load
Nil
2% of the Offer Price.
Back-end loan
Nil
Nil
of available for sale investment - - - 6.8 KASB Islamic Income Opportunity Fund 1% of the Offer Price. Nil
Financial charges - - - 0.6 KASB Cash Fund 1% of the Offer Price. Nil
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56.5 8.6 47.9 72.5 Crosby Dragon Fund Up to 2% of the Net asset Value Nil
P rofit / (loss) be fore ta xa tion (9 . 1) (3 . 3 ) (5 . 8 ) 1. 2 Source: Management Information
Ta xa tion • As per Management Information, KFL recorded a receivable of Rs 1.2 million in 2013 in
Y
Current - - (0.4) (0.7)

Prior - - - (0.5)
respect of advisory income on performance of funds/specially managed accounts
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Deferred - - - (35.2) (“SMA”). In 11M 2014m, this was reversed. We have not been provided SMA agreements.
Loss a fte r ta xa tion (9 . 1) (3 . 3 ) (6 . 2 ) (3 5 . 2 )
• KFL has incurred unrealised loss of Rs 3.8 million on TFCs of Agritech Ltd. and Azgard
For presentation purposes only. Nine Ltd. based on a ‘SBP circular’ and shares of Agritech Ltd. based on market value at
SP
Source: Management Information June 30, 2014. We have not been provided details of SBP circular.
Normalised profit and loss was not prepared due to • Other income includes a reversal of a liability of Rs 0.8 million recorded in 2013 in respect
insufficient information in respect of “non-recurring” items of director’s remuneration.
DI
310
R
DE
KFL incurred a loss of Rs 6.2 million in 11M 2014 (cont’d)
OR
T
Salaries, allowance and other benefits • Salaries, allowances and other benefits include:
UR
Rupees in m illion 2014 Dec-2014 11M 2014 2013
• house rent and utilities which are computed at the rate of 45% and
Chief executive officer and secretariat 2.8 0.4 2.4 10% of basic salary, respectively.
Investor services 1.7 - 1.7
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Operations 0.7 - 0.7 • medical and fuel allowance. Basis for medical and fuel allowance has
Finance 4.9 0.5 4.4 not been provided by Management.
Administration 2.8 0.2 2.6
Information technology 0.9 - 0.9 • car allowance is allowed at a fixed monthly rate of Rs 22,500, Rs
Fund management 6.2 0.6 5.6 30,000, Rs 40,000 to managers, senior managers, and assistant vice
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Compliance and rsk management 1.3 - 1.3 president, respectively. Car allowance to chief executive officer is
Business development and strategy 5.8 0.7 5.1
allowed as approved by the board of directors.
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Stipend 0.3 - 0.3
Bonus accrued 0.4 - 0.4 • We have been informed by the Management that the decline in staff cost
27.8 2.4 25.4 33.2
was due to the vacancy of the CEO position during 11M 2014. However,
UN the period of vacancy and salary package of previous and new chief
Information not provided by Management. As per Management, performance
bonus of Rs 1 million was accrued in executive officer, has not been provided by Management.
April in respect of Mr. Hussain Khoja. • We have also been informed that a performance bonus of Rs 1.3 million
Trend in staff cost Cost Employees and Eid-ul-Fitr bonus of Rs 0.1 million was accrued by Management.
ED
3.5
29 29
3.3
29 29 29
30 However, bonus amount of Rs 1million has not been separately disclosed
29
3.0 29 in the break-up of staff cost provided. In 2013, the bonus amounted to
28 28
2.4 2.5 2.5 2.4 2.4 Rs 1.2 million. information on the
Rupees in million
No. of employees
2.3 2.3
Y
2.5 28
2.1 2.1 2.0
1.9
2.0 27
LA
27
1.5 26
26 25 25
1.0 25
SP
0.5 24
0.0 23
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14
DI
311
R
DE
KFL incurred a loss of Rs 6.2 million in 11M 2014 (cont’d)
OR
T
Other administrative expenses • Based on Discussions with Management of KFL, we understand that FuMs are sold through
UR
Rupees in m illion 2014 Dec-2014 11M2014 2013 three channels:
Fac ilitation c ommission 4.5 - 4.5 4.9 • Direct sales team –Rs 3.6 million facilitation commission was paid to the team in 11M
Rent and elec tric ity 3.2 0.3 2.9 3.6 2014. Terms and conditions of commission paid to direct sales team were not provided
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Fees and subscription 7.3 4.3 3.0 1.7
to us by the Management of KFL.
Repair and maintenanc e 3.4 0.3 3.1 3.7
Marketing and advertising 0.9 0.1 0.8 1.5 • Distributors - Rs 0.9 million facilitation commission was paid to distributors. Terms of
Direc tors fee 0.6 - 0.6 4.8 agreement with distributors were not provided by Management of KFL.
Communic ation c ost 2.1 0.4 1.7 2.3
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Printing & stationery 0.3 - 0.3 0.3 • KASB Bank.
Traveling and c onveyanc e 0.6 0.1 0.5 0.5
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Entertainment 0.5 - 0.5 0.7 • We have also been given to understand by the Management of KFL that:
Training and development 0.3 - 0.3 0.4
Professional c harges 2.6 1.3 1.3 2.2 • Rent and electricity expenses include rent of Rs 1.2 million and electricity expense of Rs
Audit fee 1.0 (0.8) 1.8 0.7 1.7 million. For terms of rent agreement, please refer section 54.
Deprec iation - tangibles
Amortization - intangibles
Insuranc e
0.5
0.1
0.9
-
-
0.2
UN
0.5
0.1
0.7
0.7
0.1
0.7
• Fee and subscription include MUFAP annual subscription fee, CDC custodian fee and
miscellaneous subscription fee.
Financ ial c harges - - - 0.6
28.8 6.2 22.6 29.4
• Repair and Maintenance mainly includes computer hardware and accessories, computer
ED
software, internet connectivity charges and data centre co-location charges.
For presentation purposes only
• Expenses also include costs incurred by KFL in respect of the proposed acquisition of Pak
Minor differences due to rounding. Oman Asset Management Company Ltd. These expenses consist of legal advisor fee of Rs 3
Y

million, cost of newspaper notices of Rs 0.4 million and fee paid to Competition
Commission of Pakistan of Rs 0.2 million. Classification of these expenses has not been
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provided.
SP
DI
312
R
DE
Physical count of property and equipment has not been conducted during the
OR
last 4 years
T
Property and equipment • Based on the fixed assets register, we analysed the depreciation
UR
Accum ulated Net book Rate of expense for 11M 2014.
Rupees in m illion Cost depreciation value depreciation
• As per Discussions with Management of KFL, we understand that no
Computer hardware 8.50 (8.00) 0.50 33.00% physical count has been conducted in respect of property and
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Office equipments 7.00 (6.50) 0.50 20.00% equipment during the last four years.
Furniture and fixtures 1.00 (0.60) 0.40 10.00%
Vehicles 0.50 (0.50) - 20.00%
Tota l 17 . 0 0 (15 . 6 0 ) 1. 4 0
R
DE
UN
Y ED
LA
SP
DI
313
R
DE
52 Intangible assets Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
We have recommended provision against the carrying value of ‘Management
OR
Rights’ intangible asset of Rs 6.3 million
T
Intangible assets • KFL acquired Crosby Asset Management (Pakistan) Ltd. in 2011. KFL applied the
UR
Accum ulated Rate of ‘purchase method’ to account for the acquisition. As per IFRS 3 ‘Business Combinations’,
am ortisation / Net book am ort- identifiable assets acquired, including intangible assets, and liabilities and contingent
Rupees in m illion Cost im pairm ent value isation liabilities assumed in a business combination are measured initially at their fair values at
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Computer software 11.9 (11.8) 0.1 33.33% the acquisition date. KFL had identified and recorded the management rights of Crosby
Management Rights 17.3 (11.0) 6.30 - Dragon Fund, an ‘equity’ open-end mutual fund, as an indefinite life intangible asset with
Tota l 29.20 (2 2 . 8 0 ) 6.40 a value of Rs 17.3 million.
• As a result of annual impairment test reviews of the intangible asset, KFL recorded
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Source: Management Information impairment of Rs 8 million in 2012 and Rs 3 million in 2013. Accordingly, the carrying
value of the intangible asset (net of impairment) as at November 30, 2014 amounted to Rs
DE
6.3 million.
• Based on Management Information, we understand that units representing approximately
UN 91.8% of the net assets of Rs 153.8 million of the fund were held by the Bank as at
November 30, 2014. The proportion of the Bank’s investment in the fund has remained
above 87% during 2014.
ED
Rupees in million 31-Mar-14 30-Jun-14 30-Sep-14 31-Oct-14 30-Nov-14 31-Dec-14
Investment of the Bank 162.7 133.7 131.8 135.2 141.2 146.4

Total net assets of the fund 184.5 152.7 148.7 152.7 153.8 158.9
Y
88.2% 87.6% 88.6% 88.5% 91.8% 92.1%

LA
• The above level of funds under management do not appear sufficient to support the
carrying value of the intangible asset. Accordingly, we have recommended provision
SP
against the carrying value (net of impairment) of the intangible asset.

DI
314
R
DE
We have recommended provision against the unsecured loan balance relating
OR
to Mr. Hussain Khoja of Rs 3.9 million
T
Loans and advances • As per the financial statements of KFL:
UR
Rupees in m illion
• loans are allowed to employees in accordance with their respective terms of
Loans to employees 6.0 employment.
Advances 1.9
CO
Tota l 7.9 • mark-up is charged on the basis of 6-month KIBOR on loans above Rs 50,000
and 6-month KIBOR minus 2% on loans up to Rs 50,000.
Loans to employees Disbursem ent Maturity • loans are secured against provident fund balance of respective employees.
Rupees Am ount Interest rate date date
• Based on discussion with Management of KFL, we understand that loans were
R
Israr Ali 258,158 9.5% 17- Jul- 13 16- Jul- 16
Mohsin Raza 596,051 9.5% 9- Sep- 13 15- Sep- 14
given to the following personnel for an amount higher than their respective
DE
Hussain Khoja 3,938,848 7.5% 8- Sep- 14 7- Sep- 19 provident fund balances:
Syed Adnan Abdali 52,652 9.5% 8- May- 14 7- May- 16
Muhammad Kashif Khan 287,861 9.5% 1- Aug- 13 31- Jul- 16
• Mr. Hussain Khoja. As at November 30, 2014, there was an outstanding loan
Muhamamd Adnan Iqbal 198,305 9.5% 6- May- 13 5- May- 16 balance of Rs 3.94 million relating to Mr. Hussain Khoja. The provident fund
Mustafa Mehmood
Irfan Nepal
Muhammad Rafi
52,000
323,679
39,000
9.5%
9.5%
9.5%
UN 26- Mar- 14 1- Dec- 14
9- Oct- 12 9- Oct- 15
29- Aug- 14 1- Dec- 14
balance of the employee was Rs 0.05 million. We have not been provided the
(i) employment contract of Mr. Hussain Khoja; (ii) purpose of loan; and (iii)
reason for approval of loan above provident fund balance to Mr. Hussain
Michael Khursheed 17,000 9.5% 30- Sep- 14 31- Mar- 16
Abdul Qadir 20,000 9.5% 7- Nov- 14 8- May- 17 Khoja. In view of the above, we recommend provision against the unsecured
ED
Muhammad Meesum 212,537 9.5% 16- Jan- 14 15- Jan- 17 loan balance of Rs 3.9 million; and
Total 5,996,091
• Mr. Mohsin Raza. We have been given to understand that Mr. Mohsin Raza
resigned on September 14, 2014. The loan to ex-employee amounted to Rs 0.6
Y
Advances million and his provident fund balance amounted to Rs 0.5 million.
LA
Rupees Am ount • We have been given to understand by Management of KFL that an advance of Rs
Faisal ur Rehman 8,000 1.9 million was given to Ahmed & Qazi advocates in respect of the proposed
Hussain Khoja 17,008 merger of KFL with POAMCL. This amount has been charged to profit and loss
SP
Muhammad Rafi 3,000

account in December 2014.
Muhammad Meesum 15,000
Ahmed and Qazi 1,908,079
1, 9 5 1, 0 8 7
DI
315
R
DE
54 Prepayments and other receivables Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
The company has prepaid rent in respect of its office. The rent agreement will
OR
expire on May 31, 2016
T
Prepayments and other receivables • Prepayment -rent consists of rent of 9th floor , Trade Centre, I. I. Chundrigar Road,
UR
Rupees in m illion Karachi. Some of the key terms of agreement of tenancy, entered into on June 1, 2013, are
Prepayments - rent 0.1
summarised below:
Prepayments - parties 3.3 • monthly rent for first year was Rs 102,435.
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Other receivable 19.1
22.5 • rent is payable on a quarterly basis commencing from June 1, 2013. Consequently, there
Minor differences due to rounding. should have no prepaid rent balance. However, a prepaid balance of Rs 0.1 million was
outstanding as at the date.
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• the three-year rent agreement will expire on May 31, 2016.
Prepayments - parties
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Rupees in m illion • rent shall be payable in advance with annual increase of 10% for second and third year.
Prepaid - KSL (Nation- wide connect) 0.1 • KFL shall pay all utility bills relevant to aforementioned premises during the period of
Prepayment - Softech 0.1 tenancy.
Prepayment - DWP Technologies (DR server warranty extension)
Prepayment - Jubilee Life and Health Insurance
Prepaid - AMC license renewal paid to SECP
UN 0.1
0.2
0.4
• three months prior notice, in writing, shall be served to either party in case the premises
is required to be vacated. Minimum period of occupancy will not be less than one year.
Prepaid - Advisory license renewal paid to SECP 0.6
Prepayment - Premier Systems (Pvt.) Ltd. (Microsft licence fee) 0.6 • We have been given to understand by Management of KFL that the prepayment of Rs 1.5
ED
Prepaid - MUFAP 0.6 million was made for license fee for carrying out ‘Investment Advisory’ and ‘Asset
Acquisition prepayment - SEC license and advisory license fee 1.5 Management Services’ by Crosby Asset Management Ltd. before its merger with KFL. We
Others (0.9)
have not been provided information on the period covered by this prepayment.
3.3
Y
• A corresponding payable to FED receivable has been recorded. We understand that asset
management companies have obtained stay against payment of FED to the Federal Board
LA
Other receivable
Rupees in m illion of Revenue.
FED recievable 3.9 • For details on receivable from AMZ Asset Management Company Ltd., refer section 57.
SP
Receivable from AMZ Asset Management Company Ltd. 15.2

19 . 1
DI
316
R
DE
We have adjusted the carrying value of the company’s investment in shares of
OR
Agritech
T
Investments Investment in shares of Agritech
UR
• We have been provided a letter dated October 31, 2012 from Faysal Bank Ltd., confirming that the
At fa ir va lue through profit a nd loss bank holds, in its capacity as trustee, Crosby Asset Management Ltd.’s investment of 350,950 shares of
Unit trust sc he me s Agritech Ltd. Since KFL acquired Crosby Asset Management Ltd. in 2010, these share are appearing in
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KASB Cash Fund 97.3 3.1
KASB Asset Alloc ation Fund 10.3 -
books of KFL. We have not been provided a similar confirmation as at November 30, 2014 from Faysal
KASB Inc ome Opportunity Fund - 24.7 Bank Ltd..
Ava ila ble for sa le inve stme nt

• In order to compute market value of the shares, we traced market price of Agritech Ltd. as at
R
Te rm Fina nc e Ce rtific a te s November 28, 2014 from www.kse.com.pk.
Trust Investment Bank Ltd 1.5 1.5
• Please refer section 7 for out analysis on the shares of Agritech Ltd. Due to the low trading volume of
DE
Azgard Nine Limited 3.3 4.7
Agritec h Limited 9.4 13.5 the company’ shares and taking into consideration the restriction on sale of shares of Agritech Ltd. and
the adverse financial condition of the company, we recommend a provision against the carrying value
Liste d sha re s
of investment of KFL in Agritech Ltd. amounting to Rs 3.6 million.
Agritec h Limited

3.6
12 5 . 4
4.4
5 1. 9
UN
• Based on our analysis, we have adjusted the outstanding carrying value (net of provision) of these
shares.
ED
Investments in mutual funds No. of Net asset value Net asset
Rupees in m illion units per unit value
Rupe e s
Y
KASB Cash Fund 921,297 105.5996 97.3

KASB Asset Allocation Fund 239,829 43.1200 10.3
LA
10 7 . 6
SP
• For computing net asset value of the investment in units of mutual fund as at November 30, 2014, we
traced number of units from the mutual fund account statements as at November 28, 2014 and the net
asset value as at November 28, 2014 from www.mufap.com.pk.
DI
317
R
DE
We have adjusted the carrying value (net of provision) of the company’s
OR
investment in TFCs of Agritech, Azgard Nine Ltd. and Trust Investment Bank
Ltd.
T
TFCs Based on these factors, the auditor notes that there
UR
Per TFC Outstanding Provision Value of TFC -
Rupees in m illion Units face value face value Cost held net of provision is material uncertainty about the company’s ability
Rupees
to continue as a going concern and therefore it may
Ava ila ble for sa le
be unable to realize its assets and discharge its
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! Azgard Nine Limited (20- 09- 05) 5,800 1,626.9 9.4 6.3
! Azgard Nine Limited (5th issue) 1,247 5,000.0 6.2 -
(3.0) 3.3 liabilities in normal course of business.
! Agritech Limited (3rd issue) 5,000 4,687.5 23.4
! Agritech Limited (5th issue) 759 5,000.0 3.8
18.8 (9.4) 9.4 Based on the above factors, we have adjusted the
@ Trust Investment Bank Limited 5,000 624.8 3.1 1.5 - 1.5 carrying value of these TFCs.
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45.9 26.6 (12 . 4 ) 14 . 2
DE
! Please refer section 7 for details in respect of Agritech Ltd. and Azgard Nine Ltd. Based on our
analysis, we have adjusted the carrying value (net of provision) of these TFCs.
@
the half year ended December 31, 2014:
UN
As per the review report of the auditors of the company in respect of the financial statements for
• the Company has accumulated losses of Rs 2,283.2 million, shareholder’s equity is negative Rs
ED
1,159.3 million, its current liabilities exceed its current assets by Rs 781.8 million and overdue
installments of financing from banking companies and financial institutions and TFCs amount
to Rs 1,141.7 million;
Y
• the company is defendant/petitioner in various law suits;

LA
• the SECP has not renewed the company’s license to operate Investment Finance Services and
also suspended the permission for raising deposits in any form
• PACRA has withdrawn long term and short term rating of the company since November 19,
SP
2012.
DI
318
R
DE
We have not been provided with bank statements and bank reconciliation
OR
statements of a number of bank accounts. In addition, the break-up of cash at
bank as per management accounts and trial balance is unreconciled
T
UR
Balance as per
General Bank
Rupees Account no. Currency ledger statem ent Difference Com m ents Am ount
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KASB Bank Limited 0002- 123397- 121 PKR 11,555,084 11,570,062 (14,978) Payments through cheque of Rs 4,382 and Rs 125 relating to (4,507)
DHL courier charges and SECP bank charges have not been
cleared as at December 31, 2014.
We have been informed by the Management that these (10,471)
reconciling items were subsequently cleared.
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KASB Bank Limited 87467- 01 PKR 10,383 Bank statement, bank reconciliation statement and subsequent clearance as at November 30, 2014 not provided.
DE
Standard Chartered Bank 08- 4980360- 01 PKR 2,690 Bank statement, bank reconciliation statement and subsequent clearance as at November 30, 2014 not provided.
Citibank 6003619441 PKR 3,166 Bank statement, bank reconciliation statement and subsequent clearance as at November 30, 2014 not provided.
Dawood Islamic Bank 01- 11- 5860006275 PKR 3,465 Bank statement, bank reconciliation statement and subsequent clearance as at November 30, 2014 not provided.
Al Baraka Islamic Bank 18- 36- 75- 00-

00012
PKR
UN 4,873 Bank statement, bank reconciliation statement and subsequent clearance as at November 30, 2014 not provided.
Meezan Bank Limited 454- 7 PKR 5,000 Bank statement, bank reconciliation statement and subsequent clearance as at November 30, 2014 not provided.
ED
KASB Bank Limited 002- 123617- 001 PKR 3,402 Bank statement, bank reconciliation statement and subsequent clearance as at November 30, 2014 not provided.
National Bank Pakistan 567016 PKR 5,000 Bank statement, bank reconciliation statement and subsequent clearance as at November 30, 2014 not provided.
11, 6 12 , 8 0 2
Y
• Cash at bank as per management accounts amounts to Rs 11.481 million whereas the cash at bank as per the trial balance provided by the Management
LA
amounts to Rs 11.612 million. We have not been provided with a reconciliation of the difference between these balances.
• Cash and bank balances also include petty cash amounting to Rs 35,000.
SP
DI
319
R
DE
The Management has not provided reasons for long outstanding payables
OR
T
Trade and other payables • The break-up of trade payables has not been provided by Management of KFL. Based on
UR
Rupees in m illion Discussions with Management of KFL, we understand that the balance includes FED payable.
Ageing analysis of trade payables is given below:
Trade payables 5.7
Tax advisor payable 0.1 Trade payables
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Payable to employees 2.0 Rupees in million More than
Sales load and management fee sharing payable 2.3
30 days 90 days 180 days 365 days 365 days
Contingent payable to HBFC - Contra CAMSAL 15.2
Audit fee payable 0.5 0.4 0.4 0.3 0.6 4.0
Directors' remuneration payable 0.1
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Witholding tax payable 0.4
26.3 Reason for long outstanding balances has not been provided by Management of KFL.
DE
• Ageing analysis of balances payable to employees is given below:

Based on Discussions with Management of KFL, we
understand that KFL does not record accruals for
utility expenses. As per Management Information,
UN Payable to employees
Rupees in million More than
utility bill for the month of November 2014 for 30 days 90 days 180 days 365 days 365 days
ED
electricity was Rs 186,061, the bill for water was Rs 0.1 - 0.6 1.3 -
1,690 and the bill for telephone and Source: Management Information
communication was Rs 130,354.
Y
Reason for long outstanding balances has not been provided by Management of KFL.
LA
As per management accounts for 11M 2014, KFL:

• has a contingent liability of Rs 15.36 million in
respect of WWF payable to funds.
SP
• does not have any commitments.

DI
320
R
DE
Other liabilities and other receivables include contra balances of Rs 15.2
OR
million in respect of a suit filed by House Building Finance Corporation
T
As per communication from lawyer of KFL, dated February 17, 2015, the • Due to delay in filing of ‘leave to defend’ application, it is possible that the
UR
background to the payable to House Building Finance Corporation (“HBFC”) Court might require security to be furnished for grant of application for
of Rs 15.2 million and the contra receivable from AMZ Asset Management leave to defend. In such event, KFL may have to furnish the security or
Company Ltd. is as follows: deposit money in Court to the extent of Rs 15.2 million.
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• AMZ Plus Income Fund (the “Fund”) entered into a sale and buy-back • The next date of hearing for application for leave to defend of KFL is
agreement with HBFC in 2008 in respect of sale of 15,000 sukuks of Maple March 3, 2015.
Leaf Cement Limited.
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• At the time of buy-back, the fund did not purchase the sukuks due to
liquidity issues and the contract was extended at the request of AMZ Asset
DE
Management Limited. Subsequently, HBFC filed suit against AMZ Asset
Management Company Ltd and the fund.
• Crosby Asset Management (Pakistan) Ltd. acquired management rights of
UN
AMZ Plus Income Fund from AMZ Asset Management Company in 2010.
Under the terms of purchase, Crosby Asset Management (Pakistan) Ltd. is
indemnified from the HBFC suit. HBFC included name of Crosby Asset
Management (Pakistan) Ltd. into the previously filed suit. Application for
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‘leave to defend’ was to be filed by Crosby Asset Management (Pakistan)

Limited within 30 days from service which was not done by legal counsel
engaged by management of Crosby Asset Management (Pakistan) Ltd.
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• Crosby Asset Management Company Ltd. was merged into KFL in 2011.
LA
KFL recorded the contingent liability in respect of the suit in accordance

with the requirements of IFRS 3 ‘Business Combinations’, as well as the
corresponding receivable from AMZ Asset Management Company Ltd.
SP
Subsequently, Iqbal L. Bawany was engaged as legal counsel and they filed
application for ‘leave to defend’.
DI
321
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DE
Deferred Tax asset on losses amounts to Rs 31.5 million as at December 31,
OR
2013. However, deferred tax asset on losses needs to be restricted to Rs 4.9
million due to non-availability of forecast of taxable profits in future
T
• While reviewing deferred tax working, we have identified that KFL has
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Tax year
included loss of tax year 2009 amounting to Rs. 3.332 million, which has 2014 2013 2012 2011 2010
become time barred, hence should not be considered for the purpose of ------------------------------------Rupees -------------------------------
deferred tax. Furthermore, we suggest not to book deferred tax asset on Unadjusted Depreciatio n
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business losses of Rs. 75.152 million (see break-up and details below), as 2,910,142 2,664,267 3,433,751 3,333,725 2,693,728
B usiness lo ss 51,480,704 59,298,073 29,723,536 9,871,471 3,697,580
KFL has not provided us with financial forecasts to assess the realisability A djustments 1,050,479 667,396 102,545 70,789 767,048
of such business losses against projected business income. Please note that A djusted business lo ss 50,430,225 58,630,677 29,620,991 9,800,682 2,930,532
depreciation losses are adjustable even if the company is amalgamated
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lo sses to be utilised
under section 97A of the Ordinance. Since depreciation losses have based o n fo recast - - - - -
unlimited life, hence we suggest recognition of deferred tax asset of Rs.
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4.961 million on depreciation losses of Rs. 15.036 million. Lo sses to be lapsed 50,430,225 58,630,677 29,620,991 9,800,682 2,930,532
Year o f lo sses to be lapse 2015 2016 2017 2018 2019
• We have proposed some tax adjustments in other areas which will affect the
A djus t e d t o t a l lo s s 2 ,9 10 ,14 2 2 ,6 6 4 ,2 6 7 3 ,4 3 3 ,7 5 1 3 ,3 3 3 ,7 2 5 2 ,6 9 3 ,7 2 8
losses of KFL for relevant years. Owing to these adjustments, tax losses for
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tax years 2010 to 2015 would be reduced and consequently deferred tax
asset will also be reduced. The revised calculation of deferred tax asset is
T o t a l Lo s s **15 ,0 3 5 ,6 13
tabulated in the adjacent table. D e f e rre d T a x @ 3 3 % ** 4 ,9 6 1,7 5 2
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A s per KFL wo rking 3 1,5 4 3 ,4 4 8
P ro po s e d a djus t m e nt 2 6 ,5 8 1,6 9 5
Source Management Information and AFF analysis

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* Please note that Company’s return of income for tax year 2014 shows tax loss of Rs. 6,391,308; however
LA
KFL has considered tax loss of Rs. 11,165,317, while computing deferred tax asset. We have not been
apprised about the reason for this difference.
** We have considered tax rate of 33% as it is expected that present tax rate of 33% would atleast be
continued in future, although Finance Minister has announced reduction of tax rate to 30% over next
SP
few years.
DI
322
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DE
KFL has booked Income Tax Refundable of Rs 25.281 million as at November
OR
30, 2014, which is verifiable from its records. Hence, no adjustment is
proposed
T
• We have not been provided with return of income / assessment order prior
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to tax year 2007, hence we were unable to verify the status of tax refunds
prior to tax year 2007. As per return of income for tax years 2007 to 2014,
income tax refunds of Rs. 25.281 million are available (see break-up below)
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whereas tax refunds of Rs. 25.631 million are booked in the financial
statements. Since the amount of difference is not material, therefore, we do
not propose any adjustment in the financial statements.
Rupees in thousand Tax refundable
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2007 842
DE
2008 2,991
2009 8,650
2010 -
2011 367
2012
2013
2014
UN 9,235
2,663
533
Tota l 25,281
As pe r fina nc ia l sta te me nts 25,631
ED
Diffe re nc e (Adjustme nt) 350
Y
LA
SP
DI
323
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DE
KFL has not provided reconciliations for ‘salary’ and ‘other than salary’
OR
payments subject to withholding, resulting in an exposure of Rs 3 million in
case of monitoring of tax withholdings
T
• KFL is required under the tax law to withhold tax from various payments, • As evident from above table, we have not been provided reconciliations for
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inter alia, on account of the following : other than ‘salary’ and ‘salary’; hence exposure, if any, cannot be
• payment of salary to employees (withholding required under section ascertained. We, therefore, on prudent side suggest adjustment of
149 Rs 3 million [Rs 0.5 million x 6 years] on account of non-withholding of tax
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at the time of payment.
• payment against supply of goods and services and against execution of
contracts (withholding required under sections 152 & 153)
• We inform you that in the recent past, the tax authority has been stringent
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regarding monitoring of tax withholdings and huge demands have been
raised in case of many taxpayers, mainly for the following reasons:
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• tax challans evidencing deposit of tax collected by the withholding
agent were not available; and
UN
• Neither any reference to tax exemption nor any other reasonable
justification could be provided by withholding agents during the
monitoring proceedings in respect of instances in which tax was not
deducted by them.
ED
• Based on the above, it is likely that the tax authority may conduct
monitoring of tax withholdings made by KFL for any of the tax years 2010
through 2015 (time limitation for tax year 2010 will expire on December 31,
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2015).
LA
• To enable us to assess the KFL’s exposure in this regard, we requested the

Management to provide reconciliations. The status is as under:
Expansion 2008 2009 2010 2011 2012 2013 2014 2015
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Salary O O O O O O O O P = Provided
Other expenses O O O O O O O O O = Not provided

DI
324
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DE
Error in computation of KFL’s tax liability for tax year 2014, resulting in tax
OR
exposure of Rs 1.177 million
T
• In tax year 2014, Alternative Corporate Tax (ACT) was payable @ 17% of
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Workings of ACT is tabulated in the below table:
accounting profit, if higher than Corporate Tax. ACT is defined under
Alternative Corporate Tax
Section 113C of the Income Tax Ordinance, 2001.
As per As per our
• While calculating accounting profits for the purpose of ACT, impairment of Rupees Com pany w orking Difference
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intangible asset has not been accounted for. Furthermore, tax on capital
Normal income A 52,970,018 52,970,018 -
gain has been considered while computing Corporate Tax, for which
although there is an argument (as per plain reading of law); however, the Financial charges 455,555 455,555 -
intent of law and FBR’s Circular do not allow that capital gain tax be
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Impairment of intangible assets (management rights) - (2,202,496) 2,202,496
considered as Corporate Tax. Administrative expenses 44,819,129 44,819,129 -
Expe nse s a lloc a te d to norma l Inc ome B 45,274,684 43,072,188 2,202,496
DE
• In the light of above we propose an adjustment of Rs. 1.18 million, which is
calculated as follows: Accounting income u/s 113C(7) C=A- B 7,695,334 9,897,830 (2,202,496)
Alte rna tive Corpora te Ta x @ 17 % D= C* 17 % 1, 3 0 8 , 2 0 7 1, 6 8 2 , 6 3 1 (3 7 4 , 4 2 4 )

Rupees
Adjustme nts to be ma de
Alternate corporate tax
UN 1,682,631
Corpora te ta x u/ s 113 C(2 )(c )
Turnover tax on normal income 505,616 505,616 -

Tax on capital gain 1,490,792 - 1,490,792
Capital gain tax 1,490,792
ED
Final tax 170,820 Tax on commission 170,820 170,820 -
Corpora te ta x E 2 , 16 7 , 2 2 8 676,436 1, 4 9 0 , 7 9 2
Highe r of ACT or Corpora te ta x 2 , 16 7 , 2 2 8 1, 6 8 2 , 6 3 1 484,597
3,344,243
Liability already booked (2 , 16 7 , 2 2 8 )
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Adjustme nt propose d 1, 17 7 , 0 15
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SP
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325
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DE
Advertisement and distribution expenses need to be allocated over sales load
OR
for tax years 2010 to 2014, which will result in an exposure of Rs 0.653 million
T
• In the computations provided to us for tax years 2010 and 2014, we have
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Tax year
noted an error in allocation of expenses to FTR and capital gains. Rupees 2014 2013 2012 2011 2010
A summary thereof is tabulated below: A dvertisement and distributio n expenses (A ) 6,391,826 3,623,546 5,199,167 24,665,933 16,095,401
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Gro ss receipts sales lo ad (B ) 1,708,200 812,502 823,332 1,985,922 7,263,884
Expenses allocated to FTR
Gro ss receipts NTR (C) 52,817,443 40,777,663 41,743,827 73,396,569 140,585,812
As per tax As per our Expense attributable to sales lo ad [A *B /(B +C)] 2 0 0 ,2 4 6 7 0 ,7 8 9 10 2 ,5 4 5 6 6 7 ,3 9 6 8 3 1,6 2 8
Rupees com putation w orking Difference
Tax rate 34% 35% 35% 35% 35%
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2010 1,160,395 941,544 - 218,851 P o tential tax expo sure 68,084 24,776 35,891 233,589 291,070
2014 5,225,696 5,792,498 - 566,802 T o tal 6 5 3 ,4 10
DE
6,386,091 6,734,042 - 785,653
Source Management Information and AFF analysis
• On reviewing computations and related workings, we have identified that

UN
advertisement and distribution expenses were not allocated to sales load
(commission income), which, in our view, should be allocated, unless the
• Please note that above adjustment will affect business losses of relevant
tax years and will be reflected in related deferred tax working in this
same are exclusively related to management fee. A summary of correct report.
calculation and its tax effect is tabulated in adjacent table:
Y ED
LA
SP
DI
326
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DE
Tax payments as appearing in the income tax returns are consistent with tax
OR
payments appearing in cash flow statements of financial statements, hence no
adjustment is proposed in this regard
T
• We have analysed tax payments as appearing in the returns of income with
UR
the amount of tax payments appearing in the cash flow statements and
noted no material difference. Hence, we assume that the Company has tax
challans in support of claims made in the return of income:
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Tax paym ents
As per
cashflow
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Rupees in thousand As per return statem ent Difference
DE
2010 109 109 -
2011 367 767 (400)
2012 1,761 1,762 (1)
2013 2,864 2,864 -
Tota l
2014 1,039
6 , 13 9 UN 1,037
6,538
2
(3 9 9 )
Y ED
LA
SP
DI
327
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DE
MSC has not properly computed Minimum Tax in tax year 2010 and in
OR
tax years 2012 through 2015. However, effect of such error is not material
T
• In tax year 2010 and from tax years 2012 to 2015, KFL has discharged
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MTL. While reviewing computation, we have noted that MTL has not been
properly computed; however net effect of error is not material having tax
effect of Rs. 31,000.
CO
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LA
SP
DI
328
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DE
KFL is non-compliant with Sindh Sales Tax Withholding rules. Provision of
OR
Rs. 1.27 million suggested for potential demand on failure to charge SST
T
• Consequent to the applicability of the Sales Tax Withholding Rules,
UR
the Company was required to withhold:
• Sindh Sales Tax @ 20% of the sales tax charged in invoices on
taxable services (with effect from July 1, 2014);
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• 100% withholding on payments to un-registered persons
• 100% withholding on payments for advertisement services
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(with effect from July 1, 2011).
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withheld by the Company is worked out at around Rs. 0.610 million
whereas the Default Surcharge and Penalty to which the Company is
exposed are estimated at Rs. 0.05 million and
Rs. 0.610 million ( restricted to 100% of principal amount) respectively.
ED
• It is therefore recommended to make a provision of Rs. 1.270 million

(Rs. 0.610 million+ Rs. 0.05 million + Rs. 0.610 million) in respect of
amount not withheld by the Company along with Default Surcharge and
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penalty, as demand for the same may be raised by the tax authority.
LA
SP
DI
329
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DE
KSL has not charged Sales Tax on disposal of fixed assets under Sales Tax Act,
OR
1990, which can be recovered by FBR. Exposure of Rs 1 million (including
Default surcharge), may arise in this respect
T
• From 2009 to 2014, it has been observed that KFL has not charged sales
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Sales Proceeds from Disposal
tax on the disposal of fixed assets. As per The Sales Tax Act, 1990, (STA) Rupees of fixed assets
sales tax should be charged on the sale of fixed asset. However, there
2014 -
may be an argument that the Company is not registered under Sales Tax
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2013 30,000
Act, 1990 (being a service provider hence does not fall in the ambit of 2012 30,473
STA). The tax department is however of the view that the tax should be 2011 2,327,870
charged on disposal of fixed assets even by service provider. 2010 732,786
2009 1,452,669
• We have computed the expected tax exposure of KFL in respect of the
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4,573,798
said matter which is Rs. 731,808 (refer adjacent table), based on the
Tax rate* 16%
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details available in audited financial statements.
• Therefore, we propose adjustment of Rs. 1 million (including effect of P ote ntia l Ta x impa c t 7 3 1, 8 0 8
Default Surcharge). * We have used rate of 16% for simplicity

UN
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LA
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DI
330
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KFL has not been compliant with filing Quarterly Reconciliations and
OR
monthly SST returns with SRB, which can expose KFL to penalty
T
Months 2011 2012 2013 2014 • Moreover, Rule 30 of the Sindh Sales Tax on Services Rules 2011, requires
UR
January N/A * 218 days 58 days a Company to prepare and submit a reconciliation statement, reconciling
February N/A * 1 day P the value of services on which SST is charged with the value of total
March N/A P 159 days P services provided by the Company. Such reconciliation statement is
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April N/A 10 days 3 days 1 day
May N/A 2 days 99 Days P
required to be submitted on a quarterly basis, by the 24th day of the month
June N/A * 69 days P following the end of the quarter.
July * 47 days 50 days 2 days
August * 16 days 6 days P
• We have noted that the Company has not been compliant with the above
requirement and has so far not submitted any reconciliation statement. As
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September * P P 3 days
October * 1 day * 1 day the failure to comply with the above requirement exposes the Company to
P P a penalty of Rs. 10,000 per month, the Company is exposed to penalty of
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November * 33 days
Rs. 430,000 (approx.). As the imposition of penalty is subject to discretion
• Filing of monthly SST return is required by 18th of the month immediately of higher appellate authorities, it is expected that penalty (if any) imposed
following the month to which it relates. by the Tax Authority will not be maintained by appellate authorities if the
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• During the course of our assignment, we noted a number of instances
where the Company failed to file monthly SST returns by the due date
Company is able to convince that the delay or failure to file sales tax
returns and quarterly reconciliations was not wilful or intentional. No
adjustment in this regard is therefore proposed.
(refer table). We have also been provided with a copy of the notice dated
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December 10, 2014 received by the Company from SRB requiring the * SST returns for these months have not been provided to us. It is therefore
Company to e-file the SST returns for January & February 2012 and assumed that these SST returns remain unfiled.
October 2013. Copy of the reply (if any ) filed with SRB has not been ** Not in Scope
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provided to us. P Submitted by the due date for return filing.

• The SST Act prescribes a penalty of Rs. 10,000 per month on late filing of N/A Not applicable
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SST return. The Company’s exposure to penalty on account of late/non-

filing of SST returns is worked out at Rs. 220,000 (approx.).
SP
DI
331
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Tax on KFL’s services may be demanded by other provincial revenue
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authorities, which if required will be recoverable from SRB, as KFL is paying
tax to SRB. KSL may approach court for resolution if such issue arises
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• The Company is involved in providing asset management services to its
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customers who are spread all over the country. As the Company’s
registered office is situated at Karachi, the Company is registered with
Sindh Revenue Board (SRB) and is not registered with any other Provincial
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Revenue Authority. There is however a likelihood of the Company being
required by any other Provincial Revenue Authority to obtain registration
therewith and to pay sales tax in respect of services provided to customers
based in any province other than Sindh.
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• In this regard, we have been given to understand by the management that
a notice dated June 20, 2014 was received by the Company from PRA,
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requiring the Company to pay a demand of Rs. 2,167,140 on account of
Punjab Sales Tax (PST) payable by the Company in respect of services
provided to Punjab based customers. As per the management, the above
referred notice remains un-responded. UN
• In our view, even if PRA raises any demand, the same will be recoverable
from SRB, for which the Company may approach the High Court for
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settlement. In our view, the chances for double taxation of services under
two Provinces are remote, hence no adjustment is proposed.
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DI
332
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KFL has not claimed input tax in its SRB’s return. However, no adjustment is
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proposed as the effect is immaterial
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• During the course of our assignment, we have observed that the Company
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has not claimed input tax in its sales tax returns. Due to this, the Company
has made excess tax payments to SRB. However, we understand from
review of financial statements that the impact of such input tax is not
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material to the Company.
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Particulars Basis Particulars Basis
Dire c tors Assoc ia te s

Mr. Robert Owen Chairman Board of KASB Corporation Limited Parent
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Directors
Mr. Qaisar P. Mufti Chairman Audit Committee KASB Bank Limited Major shareholder
Mr. Muzaffar Ali Shah Bukhari Sponsor Director KASB Securities Limited Subsidiary of KASB Bank
Limited
Mr. Khaldoon Bin Latif Chief Executive Officer KASB Modaraba Limited Associate of KASB Bank
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Limited
My Solution (Private) Limited Subsidiary of KASB Bank
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Limited
New Horizon Exploration and Associate of KASB Bank
Ke y ma na ge me nt pe rsonne l Production Limited Limited
Mr. Khaldoon Bin Latif Chief Executive Officer O the r re la te d pa rtie s
Mr. Hussain Khoja
Syed Adnan Abdali

Chief Investment Officer
Chief Financial Officer

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KASB Income Opportunity Fund
KASB Islamic Income Opportunity

Mutual fund under
management
Mutual fund under
Fund management
Mr. Irfan Nepal Fund Manager KASB Asset Allocation Fund Mutual fund under
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management
Mr. Saqib Shah Fund Manager KASB Cash Fund Mutual fund under
management
Mr. Sarwat Nisar Ahmed Head of Sales Crosby Dragon Fund Mutual fund under
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management
Mr. Adeel Hussain Compliance Officer KASB Funds Employees' Provident Staff Provident Fund of KFL
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Fund
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Related party transactions and balances
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Related party - transactions during 11M 2014 Related party - balances outstanding
Rupees in m illion 11M 2014 Rupees in m illion 30-Nov-14
KAS B Ba nk Ltd. - Assoc ia te KAS B Ba n k L imite d - Asso c ia te
Mark- up income 0.5 Balanc e in bank ac c ount 11.6
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Bank charges - KAS B S e c u ritie s L imite d - Asso c ia te
KAS B S e c uritie s Ltd. - Assoc ia te Shared servic es expense payable 0.4
Shared expenses 1.7
KAS B F u n d s Emp lo ye e s' P ro vid e n t F u n d
My S olution (P vt. ) Ltd. Monthly provident fund c ontribution payable 0.2
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IT expenses 0.7
F u n d s u n d e r ma n a g e me n t
KAS B Funds Employe e s' P rovide nt Fund
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Providend Fund contribution 2.1 KAS B Ca sh F u n d
Investment in mutual fund 97.3
Funds unde r ma na ge me nt Management fee and sales load rec eivable 0.5
KAS B Ca sh Fund
Net purchase of units.
Management fee & sales load income
KAS B Inc ome O pportunity Fund
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93.4
8.2
KAS B In c o me O p p o rtu n ity F u n d
Management fee and sales load rec eivable
KAS B Isla mic In c o me O p p o rtu n ity F u n d
0.5
Net redemption of units 24.7 Management fee and sales load rec eivable 0.6
Management fee & sales load income 9.1 KAS B Asse t Allo c a tio n F u n d
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KAS B Isla mic Inc ome O pporunity Fund Investment in mutual fund 10.3
Management fee & sales load income 10.0 Management fee and sales load rec eivable 0.6
KAS B Asse t Alloc a tion Fund Cro sb y Dra g o n F u n d

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Net purchase of units 8.5 Management fee and sales load rec eivable 0.3
Management fee & sales load income - 6.1 KAS B Ca p ita l P ro te c te d G o ld F u n d
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Crosby Dra gon Fund Formation c ost rec eivable - 0.1

Management fee & sales load income 3.1 Ke y ma n a g e me n t p e rso n n e l
Ke y ma na ge me nt pe rsonne l Salary and other benefits payable 0.7
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Salary 8.7 Direc torship fee payable 0.1

Directorship fee 2.8 Subordinated loan payable 75.0
Source: Management Information Source: Management Information

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Appendices Appendices 336
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1 Agreement 337
2 Scope & process: supplementary information 352
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3 Customers in the Non-Consumer portfolio in respect of which 353
repayments are delayed
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4 Non-funded exposure above Rs 500 million 354
5 List of key outstanding information 356
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1 Agreement Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
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2 Scope & process: supplementary information Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
Scope and process: supplementary information
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Scope Process
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Scope We point out that the scope of our work did not include a review of the companies’ markets or its competitive position in those markets.
Due diligence Our work was performed during the period from December 16, 2014 to March 3, 2015. Information requested for the purpose of due diligence was
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process provided via e-mail, hardcopy as well as through a virtual dataroom set-up at the head office of the Bank (collectively referred to as “Management
Information”). We also had discussions with management of the Bank, KSL, SVL, MSC, KFL and NHEPL (“Discussions with Management”). The
personnel we had access to included:
Bank - Mr. Bilal Mustafa, CEO - Mr. Muhammad Ghufran , Manager Credit Risk
R
- Syed Liaquat Ali, CFO - Mr. Samiullah, Team Leader Middle Market
- Mr. Aamir Ahmadani, Financial Controller - Mr. Shahzad Nazir Khan, Team Leader Corporate
DE
- Mr. Muhammad Ali, Manager Financial Reporting & Tax - Syed Ghazanfar Ali, Regional Manager Compliance (South)
- Syed Fazal Hasnain, Head of SAM - Mr. Muhammad Asif Hozam, Manager Call Centre
- Mr. Mohammed Pervaiz Siddiqui , Executive (SAM) - Syed Imran Haider, Manager Treasury Operation
UN
- Mr. Masroor Ahmed, Head MIS (SAM)
- Syed Zawwar Husssain, Regional Head CAD (South)
- Mr. Jamshed Jamal, Manager CAD (South)
- Ms. Huma Kamani, FI Head
- Mr. Waleed Iqbal, Head Admin
KSL and SVL - Mr. Asad Mustafa Shafqat, CFO - Mr. Asif Riaz, Head of Finance and Accounts
ED
KFL - Syed Adnan Abdali, CFO
MSC - Mr. Ghulam Mustafa, CFO

Y
NHEPL - Mr. Osama Ahmed, CFO

LA
In addition, we also held meetings with SBP to discuss certain aspects of the due diligence, including in respect of deposits and other balances
relating to Iranian entities. We have shown a draft of the executive report to SBP. To the extent that we considered appropriate, we have
incorporated their comments in this report.
SP
Basis of our work We have not carried out anything in the nature of an audit nor, except where otherwise stated, have we subjected the financial or other information
contained in this report to checking or verification procedures. Accordingly, we assume no responsibility and make no representations with respect
to the accuracy or completeness of the information in this report, except where otherwise stated herein, and no assurance is given.
DI
352
R
3 Customers in the Non-Consumer portfolio in respect of which
DE
repayments are delayed Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
There are certain customers in the Non-Consumer portfolio in respect of
OR
which repayments are delayed. However, as per Bank’s Management, it is
unlikely that these customers will default in the payment of amount due
T
Customers in the Non-Consumer portfolio in respect of which repayments are delayed
UR
Outstanding
No. Nam e Facility Funded Non-funded
Rupees in m illion
CO
1 Four Brothers Seed Corporation Pakistan Cash finance 76.2 -
Acceptances - 11.0
2 Four Brothers Agri Services Pakistan Finance against imported marchandise 25.4 -
Finance against imported marchandise (past due) 14.3 -
R
Cash finance 185.2 -
3 Orange Protection (Pvt.) Ltd Finance against imported merchandise 34.8 -
DE
Cash finance 34.2 -
Acceptances - 19.1
4 Wire Manufacturing Industry Ltd. Finance against trust receipt 53.9 -
Letters of guarantee - 26.2
5 Amin Textile Mills Pvt. Ltd.
Cash finance
Acceptances
UN
Running finance 39.0
29.4
-
-
51.5
Overdue acceptances 15.6 -
Finance against imported merchandise 69.1 -
ED
Letter of credit – sight foreign - 143.6
6 Ittefaq Sons (Pvt.) Limited Cash finance 145.3 -
Finance against imported merchandise 91.1 -
7 Surgicon (Pvt) Limited. SBP refinance - pre shipment II 119.9 -
Y
8 Pak China Chemicals (Pvt) Limited Finance against imported merchandise 59.1
Cash finance 49.8
LA
9 Sharry Shipbreakers Finance against imported merchandise 169.5 -

1, 2 11. 8 2 5 1. 4
SP
DI
353
R
DE
4 Non-funded exposure above Rs 500 million Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
The Bank’s non-funded exposure above Rs 500 million through issued letters
OR
of guarantee
T
The Bank’s non-funded exposures above Rs 500 million through issued letters of guarantee are summarised below:
UR
Applicant Beneficiary Purpose Outstanding - non- Limit- non- Brief description of Expiry date
funded funded security
Dongfang Electric Corporation Northern Power Performance Eur 9,584,611 Eur 9,584,611 Counter guarantee of Bank of December 31, 2014, extended till June 30, 2015
CO
Limited, China Generation Company guarantees USD 16,441,455 USD 16,441,455 China Limited
Limited - WAPDA, PKR Rs 305,006,227 PKR Rs
Pakistan 305,006,227
Advance payment Eur 9,584,611 Eur 9,584,611 Counter guarantee of Bank of December 31, 2014 extended till June 30, 2015
guarantees USD 16,441,455 USD 16,441,455 China Limited
Rs 305,006,227 Rs 305,006,227
R
[check if the above
DE
amounts sum up to Rs
4,994 million ] – sum
checked – conversion
rates dated July 8,
2014
Albayrak Turizm Seyhat Sanayi Rawalpindi Waste
Ve Ticaret AS Management Company
Limited
UN
Performance bond USD 1,162,727 USD 1,162,727 Counter guarantees of Deniz
Bank, Turkey
June 1, 2018 (issued at 13-5-2014)
ED
Rawalpindi Waste Advance payment USD 4,069,545 USD 4,069,545 Counter guarantees of Deniz December 31, 2017 (issued at 14--7-2014)
Management Company bond Bank, Turkey
Limited
Lahore Waste Advance payment USD 4,783,140 USD 4,783,140 Counter guarantees of Deniz May 31, 2015 [renewed at December 15, 2014]
Y
Management Company guarantee Bank, Turkey

Limited
LA
Gunes Albayrak Turizm, Lahore Waste Performance USD 2,502,885 USD 2,502,885 Counter guarantees of Deniz January 1, 2016 [Last renewed on February 18, 2014]
Istanbul Management Company guarantee Bank, Turkey
Limited

SP
DI
354
R
DE
4 Non-funded exposure above Rs 500 million Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
The Bank’s non-funded exposure above Rs 500 million through issued letters
OR
of guarantee
T
The Bank’s non-funded exposures above Rs 500 million through issued letters of guarantee are summarised below:
UR
Applicant Beneficiary Purpose Outstanding - non- Limit -non- Brief description of Expiry date
funded funded security
Ozkartallar Insaat Sanayi Ve Lahore Waste Advance payment USD 2,175,062 USD 2,175,062 Counter guarantees of Albaraka December 1, 2014 [Issued on December 1, 2011 with
CO
Ticaret Limited Management Company guarantee Turk Katilim Bankasi expiry term of 3 years]
Limited
Limited
R
Limited
DE
Limited
Sardar Muhammad Ashraf D Sardar Muhammad Ashraf Letter of guarantee Rs 849,924,000 Rs 1,000,000,000 - 15% cash collateral; December 2, 2014 [Issued on December 2, 2011 with
Baloch (Pvt) Limited (“SMADB”) D Baloch (Pvt) Limited
UN
(Mobilization / Bid /
Performance)
opened in favour of
various government
-ranking charge of Rs 600 million expiry term of 3 years]
over machinery and equipment of
SMADB covering running finance
and letter of guarantee facilities;
projects undertaken -mortgage over properties.
by the company. - ranking charge of Rs 900 million
ED
over various machinery of
SMADB covering letter of
guarantee facility;
- counter guarantee of the
company.
Y

LA
SP
DI
355
R
DE
5 List of key outstanding information Executive report KASB Bank KASB Securities My Solutions KASB Funds Appendices Glossary
List of key outstanding information
OR
T
KASB Bank Limited • Party-wise break-up of commission earned on guarantees and rate of
UR
commission charged on these guarantees for 11M 2014 and 2013;
• Revised legal opinion and revised valuation reports in respect of owned,
leased and non-banking assets acquired in satisfaction of claims; • Nature of income included in LC Import Issuance and LC Import Local;
CO
• Reason for the difference in market value of the Bank’s investment in the • Party-wise break-up of income earned and rate of commission charged on
Agritech Ltd of Rs 158 million and carrying value of Rs 142.1 million as at LC Import Issuance and LC Import Local for 11M 2014 and 2013;
November 30, 2014; • Party-wise break-up of income earned and rate of commission charged on
• Details of the shareholders who subscribed to the rights issue made by KIL Acceptances for 11M 2014 and 2013;
R
during the period of 11M 2014 and the basis for the price of Rs 5 per share • Bank statements as at November 30, 2014 of two bank accounts
at which this issue was made are outstanding;
DE
maintained with MCB Bank Ltd.
• Financial statements of Pakistan Export Finance Guarantee Agency • Account details and bank statement as at November 30, 2014 of an account
Limited; maintained with Allied Bank Limited with a balance as per general ledger
• Reason for the due diligences of PCML and RMSL; UN
• Consideration paid by KASB Capital Ltd. to Mr. Nasir Ali Shah Bukhari for
of Rs 4,725
• Bank statement in respect of the Iran-based bank accounts of the Bank.
the shares of ECL; • Reason for differences in balances as per general ledger and bank balances
ED
• Shareholders agreement between shareholders of ECL; on interest on export refinance facility paid by the Bank to SBP;
• Dividend policy of ECL; • Details of case regarding receipts from Habib Bank Limited;
• Details of the assets of ECL , financial models and other information used • Out-of-court settlement proposal for Chenab Limited;
Y
to determine the fair values of the assets of ECL; • Restructuring proposal for Colony Industries and Arif Ali Shah Bukhari;
LA
• Financial projection of KFL on a standalone basis; • Latest pledged report for Agri Farm Services;
• Working for assessment of impairment of the Bank’s investment in KCL; • Details of new sponsors/investors of Dandot Cement Company Limited;
SP
• Nature of the expenses paid by KCL to Darra Capital and Mr. Waqar • Reconciliation of related parties transaction for 11M 2014 and balances as
Ahmed Malik amounting to USD 100,000 and USD 89,380, respectively; at November 30, 2014 between the Bank, KSL KFL and MSC;
DI
• Financial statements of KDPL;

356
R
DE
List of key outstanding information (cont’d)
OR
T
KASB Securities Limited • Names of shareholders along with percentage of shareholding in respect of
UR
AJP;
• Valuation report and legal opinion of PACE TFCs;
• Copy of shareholders’ arrangement between the shareholders of AJP, if
• Draft restructuring terms of PACE TFCs’ any;
CO
• Legal opinion on the land of Noor Town Project in Korangi Housing • Latest shareholding structure of KES Power Limited and a copy of
Scheme of NDPL and revised valuation report from Sadruddin Associates; shareholders’ arrangement, if any;
• Details of litigation with Prudential Stock Fund, including basis for not • Shareholders’ agreement between KES Power Ltd. and Government of
R
making provision against the remaining amount of Rs 17.7 million; Pakistan, if any;
DE
• Market share of KSL on KSE and PMEX for the month of February 2015; • Break-up of ‘partnership investment’ appearing in the financial statements
• Employee loans greater than PF balance, if any; of AJP of 2013;
• Copy of the resolution passed for approval of performance bonus of Rs 60 • Latest management accounts and financial statements of AJP;
million;
UN • Details of different classes of shares of AJP and the different rights
attaching to each class;
• Copy of letter of performance bonus to employees;
• Details of any additional employees leaving or branch closed in addition to • Break-up and working of ‘net change of unrealized (amortized)/
ED
those already communicated; appreciation of investments’ as appearing in the financial statement sof
AJP;
• Impact on profit and loss of suspension of trading activities as a result of
Y
SECP order; • Latest financial statements of KES Power Ltd.;

LA
• Basis for valuation of PMEL membership card; • Shareholding of AJP in KES Power Ltd. as at November 30, 2014;
• Details of litigation with Mr. Javed Iqbal;
SP
DI
357
R
DE
OR
T
KASB Funds Limited • Period to which acquisition prepayment of Rs 1.5 million relates as at
UR
• Copies of agreements between KFL and Distributors for sale and November 30, 2014;
distribution of FuMs; • Confirmation letter form Faysal Bank Ltd., confirming holding 350,950
shares of Agritech limited as trustee, as at November 30, 2014;
CO
• Copies of agreements between KFL and Direct Sales team for sale and
distribution of FuMs; • Details regarding any senior management position which fell vacant at any
• Break-up of balance as per bank as at November 30, 2014, reconciled to time during 2014 (if any). Time period in which such position was vacant,
financial statements; monthly package of such staff prior to vacation of office and monthly
R
package of new staff hired in their place.
• Bank statements, bank reconciliations and details regarding subsequent
DE
clearance of reconciling items; • Basis for medical and fuel allowance for 11M 2014;
• Break-up and ageing of sales load and management fee receivable as at • Reasons for variation in salaries, allowance and other benefits from
November 30, 2014; December 31, 2013 to November 30, 2014;
•
UN
Break-up and ageing of trade payables as at November 30, 2014; • Break-up of salaries, allowances and other benefits for year ended
December 31, 2013
• Break-up and ageing of payable to employees as at November 30, 2014;
ED
• Month-wise Specially Managed Portfolio from December 31, 2013 to date.
• Agreements for Specially Managed Portfolios effective as at November 30,
2014.
Y
• Details of collaterals held against TFCs, and working of FSV benefit taken;
LA
• Details of SBP circular used to determine market value of TFCs of Agritech

Limited and Azgard Nine Limited as at November 30, 2014.
SP
• Employment contract of, purpose of loan to and reason for approval of

loan above provident fund balance of Mr. Hussain Khoja.
DI
358
R
DE
OR
T
My Solutions • Working and basis for eUBS expense for 11M 2014;
UR
• Financial statements for the period from January 1, 2013 to December 31, • Details of administrative expenses, other than salaries and connectivity
2013; charges for the period;
CO
• Renewal of contract with IBM WTC post October 2014; • Increment in salaries of employees for the year ended 2013;
• Details relating to status of Hino Pak and DIB projects having values of • Details in respect of difference in bank reconciliation statement against
15,000 USD and 18,000 USD, respectively; saving accounts balances with the Bank;
R
• Supporting documents/agreements in respect of the deferred projects • Amount of accrual required for expenses as at November 30, 2014;
with an aggregate value of USD 683,000; • Break-up of others and unearned revenue in creditors, accrued and other
DE
• Supporting documents in respect of lost projects totalling USD 1.339 liabilities; and
million for CDC, NBP and KICTL and an aggregate amount of USD 2.5 • Related party balances and their basis.
million for SNGPL contracts.
•
UN
Date of agreement and addendum of NBP, relating to IBM business;
• Financial terms of NBP agreement, relating to IBM business;
ED
• Details of the credit terms for the equipment bought from ‘Infotech’;
• Complete project-wise and month-wise breakup of revenue and charges
relating to interconnectivity;
Y
• Addendums for contracts with KSL, Bank, NEHPL in relation to the

LA
Connectivity segment;
• Supports for interconnectivity revenue of Rs 4.3 million (sales of computer
SP
equipment) and Rs 0.6 million (Software & CDs revenue ) for 11 months
2014;
DI
359
R
DE
OR
T
Shakarganj Food Products Private Limited
UR
• Historical information on:
i. monthly adda cost of raw milk;
CO
ii. volume of raw milk procured;
iii. whey powder cost;
iv. vegetable fat cost ; and
R
v. cost of stabilizer, chemical additives, colours and flavours for all the
DE
products.
• Historical packaging cost per litre for different sizes of all the products for
last three years;
•
UN
Basis used in projecting the balance of advance income tax;
• Basis used in projecting the balance of sales tax recoverable;
ED
• Reason for repayment period of 60 months assumed for “existing trade
creditors”, “advances from customers”, “accrued liabilities” and “others” in
“Creditors, accruals and other liabilities”. Basis of assumption that these
Y
balances will be constant from December 2016 onwards.

Copy of purchase agreement and lease agreement in relation to following
LA
•
capital expenditure to be carried out in 2015:
i. procurement of packaging machinery of value Rs 137 million from
SP
Packages Limited ; and

ii. lease of Rs 294.7 million worth of UHT machinery.
DI
360
R
DE
OR
T
KASB Bank MSC
UR
Income Tax Income Tax
The following reconciliations of expenditure in accounts with monthly • Income Tax Computation for the period ended November 30, 2014.
CO
statement under sections 149 / 165 of the Income Tax Ordinance, 2001
• Updated tax position as at November 30, 2014
were not provided:
• Expense-wise withholding reconciliation of income tax for tax years 2010
• in respect of profit on debt for tax years 2009 to 2012 and 2014
to 2015.
R
• in respect of salaries for tax years 2009 to 2012
• Break-up of business and depreciation losses prior to tax year 2008,
• in respect of other expenses for tax years 2009 to 2014 supported by returns /assessment orders.
DE
Year wise break up of provision less payment (payable of PKR 99.126 Sales Tax
million) shown in balance sheet as at November 30, 2014
• Explanation for not withholding Sindh Sales Tax from July 1, 2011.
• Indirect Tax UN
Expenditure-wise sales tax withholding reconciliation including expenses
KSL
on which withholding not made Income Tax
ED
KFL • Working of capital gains for tax years 2013 to 2015.
Income Tax • Details of Federal Sales Tax withholding on payments made for
advertisement on TV/radio from July 1, 2007.
Y
• Income Tax Computation for the period ended November 30, 2014.
• Amended assessment order for tax year 2007.
LA
• Capital gains working for tax years 2009 to 2015.

• Explanation as to commodity brokerage was not considered as FTR in tax
• Amended assessment order passed for tax year 2005 years 2014 and 2015.
Expense-wise withholding reconciliation of income tax for tax years 2010
SP
• • Detail of finance costs, if any, relating to dividend income and capital gain
to 2015 for tax years 2010 to 2015.
• Break-up of Deferred Tax as at November 30, 2014
DI
361
R
DE
OR
T
• Explanation of reconciling items in the reconciliation provided for ‘other
UR
than salary’ for tax years 2013 and 2014.
• Reconciliation of ‘other than salary’ and ‘salary’ for tax years 2010, 2011
and 2015.
CO
KSL
Sales Tax
R
• Details of Sales Tax withholding on payments from July 1, 2011.
• Details of sales tax paid, if any, on disposal of fixed assets from tax years
DE
2010 to 2015.
UN
Y ED
LA
SP
DI
362
R
DE
Glossary
OR
T
UR
Term Definition/Meaning
11M 2014 Period of eleven months ended November 30, 2014
CO
ACT Alternative Corporate Tax
AFF A. F. Ferguson & Co.
R
Bank / KASB Bank KASB Bank Limited
DE
BVI British Virgin Islands
CDC UN
Central Depository Company
DGPC Directorate General of Petroleum Concessions

ED
Discussions with Management Information obtained from respective managements during meetings or through telephone.
eCIB Electronic Credit Information Bureau

Y
LA
ECL Evolvence Capital Limited
EM Equitable Mortgage
SP
FAPC Finance Against Packing Credit

DI
363
R
DE
Glossary
OR
T
UR
FATR Finance Against Trust Receipt
CO
FBR Federal Board of Revenue
FED Federal Excise Duty levied under Federal Excise Act, 2005
R
FIM Finance against Import Merchandise
DE
FSV Forced Sales Value
FTR UN
Final Tax Regime
IBG Investment Banking Group of KASB Bank Ltd.

ED
Iranian Deposits Deposit of Rs 19,552.2 million of Energy Global International FZE which is placed in a SCR account
KCL KASB Capital Limited

Y
LA
KEC Kuwait Energy Company
KE K-Electric Limited
SP
KFL / KASB Funds KASB Funds Limited

DI
364
R
DE
Glossary
OR
T
UR
KIBOR Karachi Inter Bank Offer Rate
CO
KIL KASB Invest (Pvt.) Limited
KM KASB Modaraba
R
KSL / KASB Securities KASB Securities Limited
DE
LC Letter of Credit
LG UN
Letter of Guarantee
LTU Large Taxpayer Unit – Office of Federal Board of Revenue

ED
Management Management of the respective bank/companies
Management Information Information provided via e-mail/hardcopy/usb by respective managements

Y
LA
MODTD Memorandum Of Deposit Of Title Deed
MSC / My Solutions My Solutions Corporation Limited

SP
MTL Minimum Tax Liability

DI
365
R
DE
Glossary
OR
T
UR
NEC Non-Encumbrance Certificate
CO
NHEPL New Horizon Exploration and Production Limited
NTR Normal Tax Regime
R
Ordinance Income Tax Ordinance, 2001
DE
ORR Obligor Risk Rating
PIB UN
Pakistan Investment Bonds
PP Pari Passu
ED
PPL Pakistan Petroleum Limited
PRA Punjab Revenue Authority

Y
LA
Prudential Regulations Prudential Regulations issued by the State Bank of Pakistan
PST laws Sindh Sales Tax Act, 2011,Punjab Sales Tax Act, 2012 and KPK Sales Tax Act, 2013
SP
PTM Permission to Mortgage

DI
366
R
DE
Glossary
OR
T
UR
RF Running Finance
CO
SBP State Bank of Pakistan
SCR Special Convertible Rupee
R
SECP Securities and Exchange Commission of Pakistan
DE
SME Small and Medium Enterprise
SRB UN
Sindh Revenue Board
SST Sindh Sales Tax

ED
SSToSA Sindh Sales Tax on Services Act, 2011
STA Sales Tax Act, 1990

Y
LA
T-Bill Market Treasury Bill
TRM Token Registered Mortgage

SP
WHT Withholding of income or sales tax

DI
367
R
DE
Glossary
OR
T
UR
Worldcall Worldcall Telecom Ltd.
CO
R
DE
UN
Y ED
LA
SP
DI
368
R
DE
OR
T
UR
CO
R
DE
UN
Y ED
LA
A. F. FERGUSON & CO.

SP
a member firm of the PwC network

DI
A. F. FERGUSON & CO. Chartered Accountants, a member firm of the PwC network. All rights reserved. PwC refers to the network of member firms of PricewaterhouseCoopers
International Limited, each of which is a separate and independent legal entity. Please see www.pwc.com/structure for further details.

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R

March 16, 2015

A. F. FERGUSON & CO.

Our scope and process

Our scope and process

Executive Executive report 5

40.3% 21.78% 23.37% 21.73% 43.89%

Source: Management Information

Evolution of the Bank – key dates

established as a arrangement with commencement of investments in KSL

Source: Management Information

Moratorium and suspension – key dates

Source: Management Information, Public Information

Equity of Rs 643 million accounts for an advance of Rs 981 million received

Adva nc e s to De posits ra tio 36.7% 38.5%

(8 . 7 ) (3 . 6 ) (5 . 1) (10 7 . 9 ) positions remained vacant till December 31, 2014.

Normalised profit and loss was not prepared due to

For presentation purposes only

Source: Management Information insufficient information in respect of “non-recurring”

Adjustments to net assets of the Bank as at November 30, 2014

Loans and Advances

19 New Asia Woolen Mills 31.7 - 31.7 59.7 - 3.0 -

Source: Management Information, AFF Analysis

Loans and Advances

Additional provision recommended against non-performing loans in the Consumer portfolio

are more than 3 years old as at November 30, 2014.

Source: Management Information, AFF Analysis

KASB & Co.

Source: Management Information

ended March 31, 2013.

exploration licenses in Pakistan.

the Modaraba as at November 30, 2014 was Rs 4 per certificate.

39.5 million against the Bank’s investment in the Modaraba.

International’ license and assigned frequency spectrums.

Bank in Agritech Ltd. amounting to Rs 142.1 million.

Lendings to financial institutions

Operating fixed assets

Operating fixed assets

Operating fixed assets

Ownership and saleability of freehold and leasehold land and

respect of non-banking assets acquired in satisfaction of claims:

Ownership and saleability of freehold and leasehold land and

Karachi street Saddar, Karachi

Source: Management Information

Ownership and saleability of freehold and leasehold land and

Source: Management Information

Ownership and saleability of freehold and leasehold land and

Syeda Syeda Chambers, Gulshan- e- Iqbal, Karachi

Lahore - up- to- date paid- up challan.

Kasur - upto date property tax.

Other expenses – reconciliations not provided (adjustment

Sindh Sales Punjab Sales KPK Sales

Services of utility bill collection Exempt Exempt Taxable Taxable

Umrah & Hajj Services Exempt Exempt Taxable Taxable

Modarba Financing Exempt Exempt Taxable Taxable

Adjustments to net assets of KASB Securities as at November 30, 2014

As at November 30, 2014: KSL's investm ent in SVL

Rupe e s in million Low High

Remaining net assets 2.3 2.3

not been executed.

However, the revised valuation has not been provided to us.

investment may be fully impaired.

AJP. This is summarised on the following page: