MCB Bank : | Bank Limited - Transmission of Quarterly Report for the Period Ended 31-03-2024

MCB House,

Directors' Review - March 2024

On behalf of the Board of Directors, we are pleased to present the financial statements of MCB Bank Limited (MCB) for the three months period ended March31, 2024.

Performance Review

On a standalone basis, the profit before and after taxation for the period ended March 31, 2024 together with appropriations is as under:

	Rs. in Million
Profit Before Taxation	32,542
Taxation	15,987
Profit After Taxation	16,555
Un-appropriated Profit Brought Forward	96,040
Impact of adoption of IFRS 9	554
Surplus realized on disposal of investments in equity instruments
through FVOCI - net of tax	38
Transfer in respect of incremental depreciation from surplus on
revaluation of fixed assets to un-appropriated profit - net of tax	38
	96,670
Profit Available for Appropriation	113,225
Appropriations:
Statutory Reserve	(1,656)
Final Cash Dividend at Rs. 9.0 per share - December 2023	(10,666)
Total Appropriations	(12,322)
Un-appropriated Profit Carried Forward	100,903

Through focused efforts of the Bank's management in maintaining no-cost deposits base and optimizing its earning assets mix, MCB's Profit Before Tax (PBT) for the first quarter of 2024 increased to Rs 32.5 billion with an impressive growth of 41%. Profit After Tax (PAT) posted a growth of 27% to reach Rs. 16.6 billion; translating into Earning Per Share (EPS) of Rs. 13.97 compared to an EPS of Rs. 11.02 reported in the corresponding period last year.

On the back of strong volumetric growth in average current deposits (+13% on a YoY basis) and timely repositioning within the asset book, net interest income for 1Q'24 increased by 27% over corresponding period last year.

Non-markup income increased to Rs. 9.1 billion (+54%) against Rs. 5.9 billion in the corresponding period last year with major contributions coming in from fee commission income of Rs. 6.1 billion (+46%), income from dealing in foreign currency of Rs. 1.9 billion (+97%) and dividend income of Rs. 1.0 billion (+55%).

Improving customer and interbank flows, diversification of revenue streams through continuous enrichment of service suite, investments towards digital transformation and an unrelenting focus on upholding high standards of service delivery supplemented a broad-based growth in income from fee commission; with trade and guarantee related business income growing by 100%, cards related income by 48%, branch banking customer fees by 17% and income from home remittance by 55%.

The Bank continues to manage an efficient operating expense base and monitor costs prudently. Amidst a persistently high inflationary environment, rapidly escalating commodity prices and continued investments in human resources and technological upgradation, the operating expenses of the Bank were reported at Rs. 13.9

billion (+18%). The cost to income ratio of the Bank improved to 29.50% from 32.77% reported in the corresponding period last year.

Navigating a challenging operating and macroeconomic environment, the Bank has been addressing asset quality issues by maintaining discipline in management of its risk return decisions. Diversification of the loan book across customer segments and a robust credit underwriting framework that encompasses structured assessment models, effective pre-disbursement evaluation tools and an array of post disbursement monitoring systems has enabled MCB to effectively manage its credit risk; the Non-performing loan (NPLs) base of the Bank was reported at Rs. 55.4 billion as at March 31, 2024. The coverage and infection ratios of the Bank were reported at 92.67% and 8.56% respectively.

On the financial position side, the total asset base of the Bank was reported at Rs. 2.41 trillion with nominal decrease of 1% over Dec 2023. Analysis of the assets mix highlights that net investments and gross advances have increased by Rs. 39 billion (+3%) and Rs. 25 billion (+4%) over December 31, 2023 respectively whereas Lending to Financial Institutions decreased by Rs. 46 billion (-48%).

The Bank's total deposits crossed Rs. 1.85 trillion while the domestic market share improved to 6.05% compared to 5.92% as at December 31, 2023. The domestic cost of deposits was contained at 10.70% as compared to 7.15% in the corresponding period of last year despite the significant increase in average policy rate during the period.

Return on Assets and Return on Equity improved to 2.74% and 31.54% respectively, whereas the book value per share was reported at Rs. 180.02.

During the period under review, MCB attracted home remittance inflows of USD 892 million (+13%) to consolidate its position as an active participant in SBP's cause for improving flow of remittances into the country through banking channels.

While complying with the regulatory capital requirements, the Bank's total Capital Adequacy Ratio (CAR) is 19.62% against the requirement of 11.5% (including capital conservation buffer of 1.50% as reduced under the BPRD Circular Letter No. 12 of 2020). Quality of the capital is evident from Bank's Common Equity Tier-1 (CET1) to total risk weighted assets ratio which comes to 16.50% against the requirement of 6%. Bank's capitalization also resulted in a Leverage Ratio of 6.5% which is well above the regulatory limit of 3.0%. The Bank reported Liquidity Coverage Ratio (LCR) of 263.47% and Net Stable Funding Ratio (NSFR) of 160.47% against requirement of 100%.

The Board of Directors has declared first interim cash dividend of Rs. 9.0 per share i.e. 90% for the quarter ended March 31, 2024.

Ratings

Pakistan Credit Rating Agency re-affirmed credit ratings of MCB at "AAA / A1+" for long term and short term respectively, through its notification dated June 23, 2023.

Economy Review

In Pakistan, the economy has shown signs of improvement, with the successful completion of the IMF's Stand-By Arrangement (SBA) program and the implementation of ongoing policy and reform efforts. However, sustaining this recovery will require continued fiscal consolidation, a prudent policy stance, timely and adequate financial inflows to meet gross financing needs, and stability in the external sector.

Headline inflation is on a downward trajectory, decreasing to 23.1% in February 2024 from 31.5% in February 2023. Despite this, the State Bank of Pakistan (SBP) opted to maintain the policy rate at 22% on March 18, 2024, citing risks to inflation outlook amidst elevated inflation expectations. The SBP had previously raised the average inflation forecast to 23%-25% in the fiscal year ending June 2024, up from the earlier estimate of 20%-22%.

On the fiscal front, the primary surplus increased to Rs 1,939 billion during Jul-Jan FY2024 from Rs 945 billion in the previous year. However, the fiscal deficit expanded to 2.6% of GDP during Jul-Jan FY2024, compared to 2.3% recorded last year.

The current account registered a deficit of USD 508 million for Jul-Mar FY 2024, reflecting an improvement in the trade balance compared to the previous year. In March 2024, the current account posted a surplus of USD619million, a positive increase from the surplus of USD 537 million in the same month last year.

Foreign Direct Investment (FDI) inflows amounted to USD 258 million in March 2024, improving from aninflowof USD 136 million the preceding month. Remittances also exhibited an upward trend, increasing by 16.44% in March 2024 (USD 2.954 billion) compared to March2023 (USD 2.537 billion).

Future Outlook

Two key external factors that could impact Pakistan's economic performance in 2024 are global energy prices influenced by geopolitical tensions and climate change. Concerns regarding Pakistan's foreign debt obligations persist, especially given challenges in increasing export earnings and a negative trade balance. Addressing these issues will require crucial support from the IMF's Extended Funding Facility (EFF) and external inflows from friendly nations. However, achieving these objectives will entail rigorous fiscal and monetary adjustments to meet IMF requirements, including reducing gas and power circular debts, adopting a flexible exchange rate, and enhancing tax revenue collection. These adjustments may exert further inflationary pressures and significantly dampen aggregate demand.

Appreciation and Acknowledgements

The Board of Directors of MCB Bank Limited would like to extend their sincere gratitude towards the Government of Pakistan, the State Bank of Pakistan, the Securities & Exchange Commission of Pakistan and other regulatory bodies for their continued support and guidance, all shareholders and customers of the Bank for their trust, and our employees for their continuous dedication and commitment.

For and on behalf of the Board of Directors,

Aprial 24, 2024

Unconsolidated Condensed Interim Statement of Financial Position

As At March 31, 2024

	Note	Unaudited	Audited
	March 31, 2024	December 31, 2023
ASSETS		---------Rupees in '000---------
Cash and balances with treasury banks	7	189,658,456	170,716,648

Unconsolidated Condensed Interim Profit & Loss Account (un-audited)

For The Three Months Period Ended March 31, 2024

	Three Months Ended
Note	January 01	January 01
to	to
	March 31, 2024	March 31, 2023
	---------Rupees in '000---------

Balances with other banks	8	38,350,567	35,073,136
Lendings to financial institutions	9	50,042,175	96,213,400
Investments	10	1,288,592,435	1,249,439,347
Advances	11	596,041,680	577,863,329
Property and equipment	12	78,220,015	76,943,546
Right-of-use assets	13	5,643,123	5,877,865

Mark-up / return / interest earned Mark-up / return / interest expensed Net mark-up / interest income

NON MARK-UP / INTEREST INCOME

27	89,009,290	63,854,845
28	50,937,794	33,785,112
	38,071,496	30,069,733

Intangible assets	14	1,426,376	1,035,483
Deferred tax assets	15	9,645,417	-
Other assets	16	151,338,140	214,016,002
		2,408,958,384	2,427,178,756
LIABILITIES
Bills payable	18	11,415,713	25,095,911
Borrowings	19	153,091,210	216,611,046
Deposits and other accounts	20	1,851,330,160	1,805,387,294
Lease liabilities	21	8,475,361	8,686,003
Subordinated debt		-	-
Deferred tax liabilities	15	-	100,718
Other liabilities	22	152,708,888	140,590,915
		2,177,021,332	2,196,471,887
NET ASSETS		231,937,052	230,706,869
REPRESENTED BY
Share capital		11,850,600	11,850,600
Reserves	23	100,583,200	98,723,536
Surplus on revaluation of assets	24	18,600,132	24,093,197
Unappropriated profit		100,903,120	96,039,536
		231,937,052	230,706,869
CONTINGENCIES AND COMMITMENTS	25

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

Fee and commission income		29	6,086,353	4,172,386
Dividend income			1,003,781	648,654
Foreign exchange income			1,934,095	982,687
Income from derivatives			397	12,056
Gain / (loss) on securities		30	(522)	51,885
Net gains / (loss) on derecognition of financial assets measured at amortised cost		-	-
Other Income		31	99,669	54,030
Total non-markup / interest Income			9,123,773	5,921,698
Total Income			47,195,269	35,991,431
NON MARK-UP / INTEREST EXPENSES
Operating expenses		32	13,920,740	11,792,822
Workers Welfare Fund			650,833	460,318
Other charges		33	150,894	98,162
Total non-markup / interest expenses		14,722,467	12,351,302
Profit before credit loss allowance		32,472,802	23,640,129
Credit loss allowance and write	- net	34	(68,831)	624,254
PROFIT BEFORE TAXATION			32,541,633	23,015,875
Taxation		35	15,986,315	9,960,162
PROFIT AFTER TAXATION			16,555,318	13,055,713
			---------Rupees---------
Basic and diluted earnings per share	36	13.97	11.02

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

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

Total comprehensive income16,274,7399,775,114

95,532-

Movement in surplus / (deficit) on revaluation of equity investments through FVOCI - net of tax95,532-

Items that will not be reclassified to profit and loss account in subsequent periods:

(376,111)(3,280,599)

Movement in surplus / (deficit) on revaluation of debt investments through FVOCI / AFS - net of tax(580,243)(8,101,169)

of translation of net investment in foreign branches204,1324,820,570

Items that may be reclassified to profit and loss account in subsequent periods:

Other comprehensive income / (loss)

Profit after taxation for the period16,555,31813,055,713

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

March 31, 2024 March 31, 2023

toto

January 01January 01

Three Months Ended

For The Three Months Period Ended March 31, 2024

Unconsolidated Condensed Interim Statement of Comprehensive Income (un-audited)

			Capital reserve		Revenue reserve	Surplus/(deficit) on revaluation of
					Statutory	Unappropriated
	Share capital	Share	Non-distributable	Exchange			Property and		Total
	reserve	General reserve	Investments	profit
		premium	capital reserve	translation reserve	equipment / non-
								banking assets
		-----------------------------------------------------------------------------------------------		Rupees in '000-----------------------------------------------------------------------------------------------
Balance as at December 31, 2022 (Audited)	11,850,600	23,751,114	908,317	4,402,973	40,915,620	18,600,000	(19,082,376)	37,723,027	70,425,375		189,494,650
Profit after taxation for the period ended March 31, 2023	-	-	-	-	-	-	-	-	13,055,713		13,055,713
Other comprehensive loss - net of tax	-				-	-
Effect of translation of net investment in foreign branches	-	-	4,820,570	-	-	-		4,820,570
Movement in surplus on revaluation of AFS investments - net of tax	-	-	-	-	-	-	(8,101,169)	-	-		(8,101,169)
	-	-	-	4,820,570	-	-	(8,101,169)	-	-		(3,280,599)
Transfer to statutory reserve	-	-	-	-	1,305,571	-	-	-	(1,305,571)		-
Transfer in respect of incremental depreciation from surplus on revaluation of
fixed assets to unappropriated profit - net of tax	-	-	-	-	-	-	-	(42,246)	42,246		-
Transactions with owners, recorded directly in equity
Final cash dividend at Rs. 6.0 per share - December 31, 2022	-	-	-	-	-	-	-	-	(7,110,360)		(7,110,360)
	-	-	-	-	-	-	-	-	(7,110,360)		(7,110,360)
Balance as at March 31, 2023 (Un-audited)	11,850,600	23,751,114	908,317	9,223,543	42,221,191	18,600,000	(27,183,545)	37,680,781	75,107,403		192,159,404
Profit after taxation for the nine months period ended December 31, 2023	-	-	-	-	-	-	-	-	46,575,384		46,575,384
Other comprehensive income - net of tax	-				-	-
of translation of net investment in foreign branches	-	-	(638,168)	-	-	-		(638,168)
Movement in surplus on revaluation of property and equipment - net of tax	-	-	-	-	-	-	-	(254,301)	-		(254,301)
Movement in surplus on revaluation of non-banking assets - net of tax	-	-	-	-	-	-	-	(163,876)	-		(163,876)
Remeasurement gain / (loss) on defined benefit obligations - net of tax	-	-	-	-	-	-	-	-	2,669,856		2,669,856
Movement in surplus on revaluation of AFS investments - net of tax	-	-	-	-	-	-	15,244,830	-	-		15,244,830
	-	-	-	(638,168)	-	-	15,244,830	(418,177)	2,669,856		16,858,341
Transfer to statutory reserve	-	-	-	-	4,657,539	-	-	-	(4,657,539)		-
Transfer in respect of incremental depreciation from surplus on revaluation of
fixed assets to unappropriated profit - net of tax	-	-	-	-	-	-	-	(108,948)	108,948		-
Surplus realized on disposal of revalued fixed assets - net of tax	-	-	-	-	-	-	-	(1,097,114)	1,097,114		-
Surplus realized on disposal of non-banking assets - net of tax	-	-	-	-	-	-	-	(24,630)	24,630		-
Transactions with owners, recorded directly in equity
Interim cash dividend at Rs. 6.0 per share - March 31, 2023	-	-	-	-	-	-	-	-	(7,110,360)		(7,110,360)
Interim cash dividend at Rs. 7.0 per share - June 30, 2023	-	-	-	-	-	-	-	-	(8,295,420)		(8,295,420)
Interim cash dividend at Rs. 8.0 per share - September 30, 2023	-	-	-	-	-	-	-	-	(9,480,480)		(9,480,480)
	-	-	-	-	-	-	-	-	(24,886,260)		(24,886,260)
Balance as at December 31, 2023 (Audited)	11,850,600	23,751,114	908,317	8,585,375	46,878,730	18,600,000	(11,938,715)	36,031,912	96,039,536		230,706,869
Impact of adoption of IFRS 9 (note 4.2)
of reclassification of impairment charged against equity instruments through FVOCI - net of tax	-	-	-	-	-	-	(5,113,661)	-	5,113,661		-
of reclassification of unrealized gain on units of open end mutual funds - FVTPL	-	-	-	-	-	-	(7,327)	-	7,327		-
of recognition of expected credit losses on adoption of IFRS 9 - net of tax	-	-	-	-	-	-	187,793	-	(4,566,809)		(4,379,016)
	-	-	-	-	-	-	(4,933,195)	-	554,179		(4,379,016)
Opening balance as at January 01, 2024	11,850,600	23,751,114	908,317	8,585,375	46,878,730	18,600,000	(16,871,910)	36,031,912	96,593,715		226,327,853
Profit after taxation for the period ended March 31, 2024	-	-	-	-	-	-	-	-	16,555,318		16,555,318
Other comprehensive loss - net of tax
of translation of net investment in foreign branches	-	-	-	204,132	-	-	-	-	-		204,132
Movement in surplus / (deficit) on revaluation of equity investments through FVOCI - net of tax	-	-	-	-	-	-	95,532	-	-		95,532
Movement in surplus / (deficit) on revaluation of debt investments through FVOCI - net of tax	-	-	-	-	-	-	(580,243)	-	-		(580,243)
	-	-	-	204,132	-	-	(484,711)	-	-		(280,579)
Transfer to statutory reserve	-	-	-	-	1,655,532	-	-	-	(1,655,532)		-
Transfer in respect of incremental depreciation from surplus on revaluation of
fixed assets to unappropriated profit - net of tax	-	-	-	-	-	-	-	(37,732)	37,732		-
Surplus realized on disposal of investments in equity instruments through FVOCI - net of tax	-	-	-	-	-	-	(37,427)	-	37,427		-
Transactions with owners, recorded directly in equity
Final cash dividend at Rs. 9.0 per share - December 31, 2023	-	-	-	-	-	-	-	-	(10,665,540)		(10,665,540)
	-	-	-	-	-	-	-	-	(10,665,540)		(10,665,540)
Balance as at March 31, 2024 (Un-audited)	11,850,600	23,751,114	908,317	8,789,507	48,534,262	18,600,000	(17,394,048)	35,994,180	100,903,120	to	231,937,052

For The Three Months Period	Unconsolidated Condensed
Ended March 31, 2024	Interim Statement of
	Changes In Equity (un-audited)

The annexed notes 1 43 form an integral part of these unconsolidated condensed interim financial statements.

Unconsolidated Condensed Interim Cash Flow Statement (un-audited)

For The Three Months Period Ended March 31, 2024

Note

CASH FLOW FROM OPERATING ACTIVITIES

Profit before taxation

Less: Dividend income

Adjustments:
Depreciation on property and equipment	32
Depreciation on right-of-use assets		32
Depreciation on non-banking assets acquired in satisfaction of claims	32
Amortization		32
Credit loss allowance and write	- net	34
Gain on sale of property and equipment - net	31
Finance charges on lease liability against right-of-use assets	28
Workers Welfare Fund
Charge for defined benefit plans - net
Gain on termination of lease liability against right-of-use assets	31
Unrealized (gain) / loss on revaluation of investments classified as FVTPL	30

Decrease / (increase) in operating assets

Lendings to financial institutions

Securities classified as FVTPL

Advances

Others assets (excluding advance taxation)

Increase / (decrease) in operating liabilities

Bills Payable

Borrowings from financial institutions

Deposits

Other liabilities (excluding current taxation)

Defined benefits paid

Income tax paid

Net cash flow from operating activities

CASH FLOW FROM INVESTING ACTIVITIES

Net investment in securities classified as FVOCI

Net investment in securities classified as amortized cost

Dividends received

Investments in property and equipment

Proceeds from sale of property and equipment

Investments in Intangible assets

Investment in subsidiary

Effect of translation of net investment in foreign branches

Net cash flow (used in) / from investing activities

CASH FLOW FROM FINANCING ACTIVITIES

Payment of lease liability against right-of-use-assets

Dividend paid

Net cash flow used in financing activities

of credit loss allowance changes on cash and cash equivalents of exchange rate changes on cash and cash equivalents

Increase in cash and cash equivalents

Cash and cash equivalents at beginning of the period

Cash and cash equivalents at end of the period

Three Months Ended

January 01	January 01
to	to
March 31, 2024	March 31, 2023
----------Rupees in '000--------
32,541,633	23,015,875
(1,003,781)	(648,654)
31,537,852	22,367,221
824,593	654,433
316,344	339,047
4,669	5,970
129,046	83,873
(68,831)	624,254
(48,398)	(5,053)
281,269	271,941
650,833	460,318
(103,383)	74,065
(15,999)	(9,733)
(6,139)	(59)
1,964,004	2,499,056
33,501,856	24,866,277
46,155,843	(70,685,772)
14,778	-
(24,917,926)	96,478,153
61,659,890	(2,917,529)
82,912,585	22,874,852
(13,680,198)	(27,614,208)
(63,480,391)	(110,212,903)
45,942,866	161,040,720
11,878,238	(14,188,543)
(19,339,485)	9,025,066
(67,436)	(55,789)
(22,797,625)	(10,158,040)
74,209,895	46,552,366
(38,388,650)	18,290,695
(766,193)	(698,939)
863,987	488,034
(2,103,431)	(1,092,446)
63,103	6,934
(646,128)	(71,170)
(1,000,000)	-
204,132	4,820,570
(41,773,180)	21,743,678
(557,514)	(517,224)
(9,177,277)	(7,047,487)
(9,734,791)	(7,564,711)
75,655	-
(487,304)	10,636,374
22,290,275	71,367,707
204,663,387	109,790,967
226,953,662	181,158,674

Notes to the Unconsolidated Condensed Interim Financial Statements (un-audited)

For The Three Months Period Ended March 31, 2024

1. STATUS AND NATURE OF BUSINESS
   MCB Bank Limited (the 'Bank') is a banking company incorporated in Pakistan and is engaged in commercial banking and related services. The Bank's ordinary shares are listed on the Pakistan stock exchange. The Bank's Registered Of fice and Principal Of fice are situated at MCB -15 Main Gulberg, Lahore. The Bank operates 1,429 branches (2023: 1,430 branches) within Pakistan and 08 branches (2023: 08 branches) outside Pakistan (including the Karachi Export Processing Zone branch).
2. BASIS OF PREPARATION

1. These unconsolidated condensed interim financial statements represent separate financial statements of MCB Bank Limited. The consolidated condensed interim financial statements of the Group are being issued separately.
2. In accordance with the directives of the Federal Government regarding the shifting of the banking system to Islamic modes, the State Bank of Pakistan has issued various circulars from time to time. Permissible forms of trade-related modes of financing include purchase of goods by banks from their customers and immediate resale to them at appropriate profit in price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in these unconsolidated condensed interim financial statements as such but are restricted to the amount of facility actually utilized and the appropriate portion of profit thereon.
3. The unconsolidated condensed interim financial statements are presented in Pak Rupees, which is the Bank's functional and presentation currency of its primary economic environment. The amounts are rounded off to the nearest thousand.
4. These unconsolidated condensed interim financial statements have been prepared under the historical cost convention except that certain classes of fixed assets and non-banking assets acquired in satisfaction of claims are stated at revalued amounts and certain investments and derivative financial instruments have been marked to market and are carried at fair value. In addition, obligations in respect of staff retirement benefits are carried at present value.

3. STATEMENT OF COMPLIANCE

3.1 These unconsolidated condensed interim financial statements have been prepared in accordance with the accounting and reporting standards as applicable in Pakistan for interim financial reporting. The accounting and reporting standards as applicable in Pakistan for interim financial reporting comprise of:

• International Accounting Standard (IAS) 34, Interim Financial Reporting, issued by the International Accounting Standards Board (IASB) as notified under the Companies Act, 2017;
• Islamic Financial Accounting Standards (IFAS) issued by the Institute of Chartered Accountants of Pakistan as are notified under the Companies Act, 2017;
• Provisions of and directives issued under the Banking Companies Ordinance, 1962 and the Companies Act, 2017; and
• Directives issued by the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP).

Whenever the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 or the directives issued by the SBP and the SECP differ with the requirements of IAS 34 or IFAS, the requirements of the Banking Companies Ordinance, 1962, the Companies Act, 2017 and the said directives, shall prevail.

3.2	The State Bank of Pakistan has deferred the applicability of International Accounting Standards 40, 'Investment Property' for
	Banking Companies through BSD Circular No. 10 dated August 26, 2002. The Securities and Exchange Commission of
	Pakistan (SECP) has deferred applicability of IFRS 7 "Financial Instruments: Disclosures" on banks through S.R.O 411(1)
	/2008 dated April 28, 2008. Accordingly, the requirements of these standards have not been considered in the preparation of
	these unconsolidated condensed interim financial statements. However, investments have been classified and valued in
	accordance with the requirements prescribed by the State Bank of Pakistan through various circulars.
3.3	The SECP vide its notification SRO 633 (I)/2014 dated 10 July 2014, adopted IFRS 10 effective from the periods starting from
	June 30, 2014. However, vide its notification SRO 56 (I)/2016 dated January 28, 2016, it has been notified that the requirements
	of IFRS 10 and section 228 of the Companies Act, 2017 will not be applicable with respect to the investment in mutual funds
	established under trust structure.

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

14

3.4 The disclosures made in these unconsolidated condensed interim financial statements have been limited based on a format

prescribed by the SBP vide BPRD Circular No. 02 of 2023 dated February 09, 2023 and IAS 34, Interim Financial Reporting.

These unconsolidated condensed interim financial statements do not include all the information and disclosures required in the

audited annual financial statements, and should be read in conjunction with the audited annual unconsolidated financial

statements for the financial year ended December 31, 2023.

Notes to the Unconsolidated Condensed Interim Financial Statements (un-audited)

For The Three Months Period Ended March 31, 2024

1. Standards, Interpretations of and Amendments to Approved Accounting Standards That are Effective in the Current Period
   There are certain new and amended standards, issued by International Accounting Standards Board (IASB), interpretations and amendments that are mandatory for the Bank's accounting periods beginning on or after January 1, 2024 but are considered not to be relevant or do not have any material ef fect on the Bank's operations and therefore not detailed in these unconsolidated condensed interim financial statements except for IFRS 9 'Financial Instruments', the impact of which is disclosed under note 4.2.
2. Standards, Interpretations of and Amendments to Approved Accounting Standards That are not yet Effective
   There are certain new and amended standards, issued by International Accounting Standards Board (IASB), interpretations and amendments that are mandatory for the Bank's accounting periods beginning on or after January 1, 2025 but are considered not to be relevant or do not have any material ef fect on the Bank's operations and therefore not detailed in these unconsolidated condensed interim financial statements.

• MATERIAL ACCOUNTING POLICIES
  The material accounting policies and methods of computation adopted in the preparation of these unconsolidated condensed interim financial statements are consistent with those applied in the preparation of the audited annual unconsolidated financial statements of the Bank for the year ended December 31, 2023 except for changes mentioned in notes 4.1 and 4.2.

1. Adoption of New Forms for the Preparation of Unconsolidated Condensed Interim Financial Statements
   The SBP, vide its BPRD Circular No. 02 dated February 09, 2023, issued the revised forms for the preparation of the unconsolidated condensed interim financial statements of the Banks. The implementation of the revised forms has resulted in certain changes to the presentation and disclosures of various elements of the condensed interim financial statements. Right of use assets and corresponding lease liability are now presented separately on the face of the Statement of financial position. Previously, these were presented under property and equipment (earlier titled as fixed assets) and other liabilities respectively. There is no impact of this change on the unconsolidated condensed interim financial statements.
2. Impact of IFRS 9 Financial Instruments
   IFRS 9 'Financial Instruments' addresses recognition, classification, measurement and derecognition of financial assets and financial liabilities. The standard introduces a new impairment model for financial assets which requires recognition of impairment charge based on an 'Expected Credit Losses' (ECL) approach rather than the 'incurred credit losses' approach as currently followed. The ECL approach has an impact on all assets of the Bank which are exposed to credit risk.
   In preparation of these financial statements, the Bank has applied requirements of IFRS 9 and application instructions issued by SBP with the date of initial application of January 01, 2024 with modified retrospective approach for restatement. As permitted by the transitional provisions of IFRS 9, the Bank has not restated comparative figures. Any adjustments to the carrying amounts of financial assets and liabilities at the date of transition were recognized in the opening retained earnings and other reserves at the beginning of the current year without restating the comparative figures.
   CLASSIFICATION AND MEASUREMENT
   The classification and measurement of financial assets is based on the business model within which they are held and their contractual cash flow characteristics. Financial assets that do not meet the solely payments of principal and interest (SPPI) criteria are measured at fair value through profit or loss ('FVTPL') regardless of the business model in which they are held. The Bank's business model in which financial assets are held determines whether the financial assets are measured at amortized cost, fair value through other comprehensive income ('FVOCI') or fair value through profit or loss ('FVTPL').
   The business model reflects how groups of financial assets are managed to achieve a particular business objective. Financial assets can only be held at amortized cost if the instruments are held in order to collect the contractual cash flows ('hold to collect'), and where those contractual cash flows are solely payments of principal and interest (SPPI). Assets may be sold out of 'hold to collect' portfolios where there is an increase in credit risk. Disposals for other reasons are permitted but such sales should be insignificant in value or infrequent in nature.
   Debt instruments where the business model objectives are achieved by collecting the contractual cash flows and by selling the assets ('hold to collect and sell') and that have SPPI cash flows are held at FVOCI, with unrealized gains or losses deferred in reserves until the asset is derecognized.
   The classification of equity instruments is generally measured at FVTPL unless the Bank, at initial recognition, irrevocably designates as FVOCI but both unrealized and realized gains or losses are recognized in reserves and no amounts other than dividends received are recognized in the income statement.
   All other financial assets will mandatorily be held at FVTPL. Financial assets may be designated at FVTPL only if doing so eliminates or reduces an accounting mismatch.

Notes to the Unconsolidated Condensed Interim Financial Statements (un-audited)

For The Three Months Period Ended March 31, 2024

The Requirements of IFRS 9 Led to Changes In Classification of Certain Financial Assets Held by the Bank Which are Explained as Follows:

Equity instruments previously classified as available for sale (AFS)

The Bank has elected to irrevocably designate all quoted and unquoted equity securities previously classified as available for sale (AFS) as FVOCI except units of open end mutual funds amounting to Rs. 115.98 million classified as FVTPL. The fair value gain or losses recognized in OCI will not be recycled to profit and loss account on derecognition of these securities.

Debt instruments previously classified as available for sale (AFS)

Debt instruments previously classified as AFS upon passing the SPPI test have been designated as fair value through OCI under IFRS 9 as the Bank's business model is to hold the assets to collect contractual cash flows, but also to sell those investment. There is no change to their measurement basis and realized and unrealized gain/loss under IFRS 9.

Debt instruments previously classified as held to maturity (HTM)

Debt instruments currently classified as HTM upon passing the SPPI test have been designated as amortized cost under IFRS 9 as the Bank's business model is to hold the assets to collect contractual cash flows. There is no change to their measurement basis.

4.2.1 TRANSITION TO IFRS 9 FINANCIAL INSTRUMENTS - STATEMENT OF FINANCIAL POSITION

	Audited	Classification &	Expected Credit	IFRS 9
	December 31, 2023	Measurement	Losses	January 01, 2024
		---------Rupees in '000---------
Cash and balances with treasury banks	170,716,648	-	-	170,716,648
Balances with other banks	35,073,136	-	(518,896)	34,554,240
Lendings to financial institutions	96,213,400	-	(136,363)	96,077,037
Investments	1,249,439,347	368,223	(400,736)	1,249,406,834
Advances	577,863,329	-	(6,087,425)	571,775,904
Property and equipment	76,943,546	-	-	76,943,546
Right-of-use assets	5,877,865	-	-	5,877,865
Intangible assets	1,035,483	-	-	1,035,483
Deferred tax assets	-	4,639,017	4,387,718	9,026,735
Other assets	214,016,002	-	(267,587)	213,748,415
Total Assets	2,427,178,756	5,007,240	(3,023,289)	2,429,162,707
Bills payable	25,095,911	-	-	25,095,911
Borrowings	216,611,046	-	-	216,611,046
Deposits and other accounts	1,805,387,294	-	-	1,805,387,294
Lease liabilities	8,686,003	-	-	8,686,003
Subordinated debt	-	-	-	-
Deferred tax liabilities	100,718	(100,718)	-	-
Other liabilities	140,590,915	4,920,165	1,543,520	147,054,600
Total Liabilities	2,196,471,887	4,819,447	1,543,520	2,202,834,854
Share capital	11,850,600	-	-	11,850,600
Reserves	98,723,536	-	-	98,723,536
Surplus on revaluation of assets	24,093,197	(4,933,195)	-	19,160,002
Unappropriated profit	96,039,536	5,120,988	(4,566,809)	96,593,715
Total Equity	230,706,869	187,793	(4,566,809)	226,327,853
Total Equity and Liabilities	2,427,178,756	5,007,240	(3,023,289)	2,429,162,707

• CRITICAL ACCOUNTING ESTIMATES AND JUDGMENTS
  The basis for accounting estimates adopted in the preparation of these unconsolidated condensed interim financial statements are the same as that applied in the preparation of the unconsolidated financial statements for the year ended December 31, 2023.

• FINANCIAL RISK MANAGEMENT
  The financial risk management objectives and policies adopted by the Bank are consistent with those disclosed in the unconsolidated financial statements for the year ended December 31, 2023.