0800-011-22 I www.jsbl.

com

185 Branches in 100 Cities

Annual Report 2012

Annual Report 2012

Contents
02 04 07 08 10 14 22 24 25 26 28 29 30 31 32 33 105 107 109 110 111 112 113 114 115 197 199 Vision and Mission Corporate Social Responsibility Company Information Board of Directors Notice of AGM Directors Report Statement of Compliance Auditors Review Report on Statement of Compliance Unconsolidated Financial Statements Independent Auditors report to the members Unconsolidated Statement of Financial Position Unconsolidated Profit and Loss Account Unconsolidated Statement of Comprehensive Income Unconsolidated Statement of Changes in Equity Unconsolidated Cash Flow Statement Notes to the Unconsolidated Financial Statements Consolidated Financial Statements Directors Report on Consolidated Financial Statements Independent Auditors report to the members Consolidated Statement of Financial Position Consolidated Profit and Loss Account Consolidated Statement of Comprehensive Income Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Consolidated Financial Statements Pattern of Shareholding Branch Network Form of Proxy

Vision
To provide quality and innovative range of banking services and products to our customers by a highly motivated team of professionals whilst maintaining high ethical and regulatory standards thereby, generating sustainable returns to the shareholders.

Mission
To be a preferred partner of our customers by providing complete financial solutions exceeding service expectations through a single relationship via conventional and non-conventional, conveniently accessible distribution channels.

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Corporate Social Responsibility (CSR)

At JS Bank, we believe in playing our part in building this nation which has given so much to us. We strongly believe that being one of the fastest growing banks in the Pakistan, it is our moral and ethical responsibility to step up and offer a helping hand to the members of the community in need. JS Bank conducts its Corporate Social Responsibility through the Mahvash & Jahangir Siddiqui Foundation (MJSF). This collaboration has led them to collectively become a strong advocate of various philanthropic activities including extensive relief efforts in the 2005 earthquake 2008 IDP Crisis and the recent floods.
As a socially responsible entity, we desire to take initiatives which make us add value to peoples lives and the environment around them. In line with our Corporate Social Responsibility philosophy, we have clearly defined CSR objectives which revolve around behaving ethically, following best practices and contributing to the economic development of the country. Today, we are amongst the very few organizations that have an active CSR policy in place. Mahvash & Jahangir Siddiqui Foundation: The Mahvash and Jahangir Siddiqui Foundation (MJSF) was established in 2003 under Section 42 of the Companies Ordinance, 1984 by the JS Group as a charitable, not-for-profit organization. MJSF aims to provide healthcare, education and social enterprise through sustainable development to underprivileged members of society with a special focus on women. Apart from its own efforts, MJSF has partnered with key institutions including: United Nations High Commissioner for Refugees (UNHCR); United Nations Office for Coordination of Humanitarian Affairs (UNOCHA); United Nations Childrens Fund (UNICEF); World Food Program (WFP); United Nations Development Program (UNDP); and International Organization for Migrations (IOM). MJSF also works closely with Oxfam and MSB (the Swedish Civil Contingencies Agency) for disaster response and relief. MJSF is registered with the Pakistan Center of Philanthropy and Pakistan Red Crescent. Mahvash & Jahangir Siddiqui Foundation has long-term commitments in the following areas: Education: We think that for a nation to progress, investment in education is absolutely essential. MJSF educational initiatives encompass support for special education, higher education, vocational training, and development of schools in rural areas, particularly the two most populated provinces of Sindh and Punjab in Pakistan.

Students at the Karigar Training Institute

MJSF extends donations to prominent institutions like the Lahore University of Management Sciences (LUMS), Institute of Business Administration, Karachi (IBA) and the Karachi Education Initiative (KEI) for the Karachi School for Business and Leadership (KSBL).

Annual day at the JS Academy for the Deaf

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At present, it is also supporting IBA Sukkur in the creation of an Endowment Fund leading to the generation of sustainable financial support programs at the Institute. MJSF is supporting various schools in Punjab through the Progressive Education Network (PEN). MJSF has also established and is operating various schools in rural areas of Sindh through its partner Fakhr-e-Imdad Foundation and a vocational training institute, the Karigar Training Institute. MJSF also runs scholarship programs for individuals and annually sponsors a group summer program at the National University of Singapore with its partner Sajjad Foundation, and at Weill Cornell Medical College, Qatar. It also partners with unique organizations for children with disabilities such as the JS Academy for the Deaf. The Academy has applied with the concerned authorities for the graduation program and is currently in the process of researching, developing and patenting Islamic Sign Language.

Social Enterprises and Sustainable Development:

Realizing the importance of promoting social enterprises, MJSF has ventured into many projects and has partnered with organizations which have the same desire for social and sustainable development. The goal is to promote economic development and to enhance the dignity and quality of life of individuals, families and communities by eliminating barriers to opportunity and helping people in need reach their fullest potential.
In collaboration with Acumen Fund and Rothschild Foundation, MJSF has launched the Pakistan Fellows Program to support the development of the next generation of social change leaders who are building innovative businesses and strong institutions across the country. MJSF is also creating livelihood generation opportunities through the provision and monitoring of poultry birds to vulnerable families in the Matiari district of Sindh. Further, in partnership with Agrow Lahore, MJSF is also in the process of initiating an income support and capacity building scheme by providing qingqi vehicles, technical selling expertise, training and avenues for trade to local farmers in the nearby districts of Lahore.

NUS Students with the Pakistani Consul General in Singapore

Setting precedence for unique social practices within the Group, MJSF has launched an initiative facilitating the economic burden of its employees. Embedded with a sustainable mechanism, the JS-Group Education Support Scheme (JS-GESS) subsidizes the educational cost burden of the employees children. Essentially, JS-GESS emphasizes on imparting the significance of education as a need. Furthermore, MJSF is also currently in the process of setting up model Leadership Schools nationwide along with another summer program with the Virginia Institute of Marine Science.

Drip irrigation introduced to farmers in Tharparkar

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Healthcare:

MJSF is a strong advocate of promoting healthcare and has been involved in providing health related services since many years. From organizing eye/skin camps in the remote areas of Sindh to providing sophisticated equipment to various health facilities, MJSF actively donates to a number of hospitals as an annual commitment. Zakat funds are also utilized for the most underprivileged patients at these hospitals who cannot afford basic healthcare.
MJSF is linked with numerous projects and organizations in health care including; Sindh Institute of Urology and Transplantation (SIUT), Karachi National Hospital, The National Institute of Cardiovascular Diseases (Emergency Ward) and other notable social enterprises.

Displaced Persons Crisis and the floods in recent years, with close collaboration with almost all United Nations clusters operating in Pakistan, along with organizations such as IOM, Oxfam, WFP and the Provincial Disaster Management Authority.

Medical relief being provided to the flood affectees

MJSF is also setting up a rehabilitation program for the flood affectees. In partnership with IOM, It is supporting a shelter project called 'One Room Shelters' in three affected districts in Sindh. The project envisages the provision of homes to hundreds of families with strong key cash for work benefits, and the incorporation of social mobilization and technical integration.

Cataract operations being conducted at the MJSF eye camp

MJSF, in partnership with the Allianz Direct Help Foundation has also initiated a project to construct a major healthcare facility in the city of Sehwan Sharif in the province of Sindh. MJSF aims to establish a full service hospital facility with emergency care, laboratories, radiology services and in-patient facilities. Emergency Relief:

For more details, please visit Mahvash & Jahangir Siddiqui Foundations website: www.mjsf.net

MJSF also mobilizes major relief efforts in Pakistan in times of national emergencies. MJSF contributed immensely at the time of the 2005 earthquake, the 2008 Internally

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Company Information
Board of Directors Chairman Independent Director Director Director Independent Director Independent Director Director Mr. Jahangir Siddiqui Mr. Ashraf Nawabi Mr. Mazharul Haq Siddiqui Mr. Rafique R. Bhimjee Mr. Shahab Anwar Khawaja Mr. Maqbool A. Soomro Mr. Adil Matcheswala* Mr. Kalim-ur-Rahman Chairman Member Member Chairman Member Member Member Chairman Member Member Member Mr. Maqbool A. Soomro Mr. Jahangir Siddiqui Mr. Rafique R. Bhimjee Mr. Jahangir Siddiqui Mr. Mazharul Haq Siddiqui Mr. Rafique R. Bhimjee Mr. Kalim-ur-Rahman Mr. Jahangir Siddiqui Mr. Maqbool A. Soomro Mr. Ashraf Nawabi Mr. Kalim-ur-Rahman Mr. Muhammad Yousuf Amanullah M. Yousuf Adil Saleem & Co. Chartered Accountants (Member firm of Deloitte Touche Tohmatsu) Bawaney & Partners Liaquat Merchant Associates Technology Trade (Pvt.) Limited 241-C, Block - 2, P.E.C.H.S, Karachi JS Bank Limited Shaheen Commercial Complex Dr. Ziauddin Ahmed Road P.O. Box 4847 Karachi 74200, Pakistan. www.jsbl.com

President & Chief Executive Officer Audit Committee

Human Resource Committee

Risk Management Committee

Company Secretary Auditors

Legal Advisors

Share Registrar

Registered Office

* Appointed in place of Mr. Basir Shamsie effective January 17, 2012.

Board of Directors
1

Mr. Mazharul Haq Siddiqui Director Mr. Jahangir Siddiqui Chairman Mr. Ashraf Nawabi Director Mr. Adil Matcheswala Director Mr. Shahab Anwar Khawaja Director Mr. Rafique R. Bhimjee Director Mr. Kalim ur Rahman President & CEO Mr. Ali Jehangir Siddiqui Advisor to the Chairman & Board

Not in picture: 9 Mr. Maqbool A. Soomro Director

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Notice of Seventh Annual General Meeting

Notice is hereby given that the Seventh Annual General Meeting of the shareholders of JS Bank Limited (the Bank) will be held on March 29, 2013 at 10:45 am at Carlton Hotel, Karachi to transact the following business: ORDINARY BUSINESS: 1. 2. To receive, consider and adopt the Audited Annual Separate and Consolidated Financial Statements of the Bank for the year ended December 31, 2012 together with the Directors and Auditors Reports thereon. To appoint the Auditors of the Bank for the year ending 31 December 2013 and to fix their remuneration. Present auditors M. Yousuf Adil Saleem & Co. Chartered Accountants a member firm of Deloitte Touche Tohmatsu retire and being eligible have offered themselves for re-appointment. To elect seven (7) directors as fixed by the Board of the Bank under Section 178(1) of the Companies Ordinance, 1984 for three years commencing from March 30, 2013. The names of retiring Directors, who are eligible to offer themselves for re-election, are as follows: Mr. Jahangir Siddiqui Mr. Maqbool Ahmed Soomro Mr. Ashraf Nawabi Mr. Adil Matcheswala 4. Mr. Mazharul Haq Siddiqui Mr. Rafique R. Bhimjee Mr. Shahab Anwar Khawaja

3.

Any other business with the permission of the Chairman. By Order of the Board Muhammad Yousuf Amanullah Company Secretary

Karachi: March 06, 2013

Notes: 1. Share transfer books of the Bank will remain closed from March 21, 2013 to March 27, 2013 (both days inclusive) to determine the names of members entitled to attend the meeting and vote. Transfers received in order at Dagia House, 241-C, Block 2, PECHS, Karachi at the close of business on March 20, 2013 will be treated in time for the purpose of attending the meeting. A member of the Bank entitled to attend and vote may appoint another member as his/her proxy to attend and vote instead of him/her. Proxies must be received at the Registered Office of the Bank not less than 48 hours before the time of the meeting. Beneficial owners of the shares registered in the name of Central Depository Company of Pakistan (CDC) and/or their proxies will have to follow the following guidelines as laid down by the Securities and Exchange Commission of Pakistan.

2. 3. 4.

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A. For Attending the Meeting a. In case of Individuals, the account holder and/or sub-account holder whose registration details are uploaded as per the CDC Regulations, shall authenticate his/her identity by showing his/her original CNIC or original Passport along with Participant ID number and the account number at the time of attending the Meeting. In case of corporate entity, the Boards resolution / power of attorney with specimen signature of the nominee shall be produced (unless it has been provided earlier) at the time of the Meeting.

b.

B. For Appointing Proxies a. b. c. d. e. 5. In case of individuals, the account holder and/or sub-account holder whose registration details are uploaded as per the CDC Regulations, shall submit the proxy form as per above requirements. The proxy form shall be witnessed by two persons, whose names, addresses and CNIC numbers shall be mentioned on the form. Attested copies of the CNIC or the passport of beneficial owners and the proxy shall be furnished with the proxy form. The proxy shall produce his original CNIC or original passport at the time of the meeting. In case of corporate entity, the Boards resolution / power of attorney with specimen signature shall be furnished (unless it has been provided earlier) along with proxy form to the Company.

Any person seeking to contest the election, whether retiring Director or otherwise, must file with the Company at its Registered Office the following documents not later than 14 days before the date of the meeting as required under Section 178 of the Companies Ordinance, 1984 and to obtain clearance / of the State Bank of Pakistan (State Bank). i) ii) The intention to offer himself/herself for the election along with (a) Form 28 (Consent to act as a Director) duly signed; A declaration that they are aware of their duties and powers under the relevant law(s) and the Banks Memorandum & Articles of Association and listing Regulations of Stock Exchanges, that he / she is not ineligible to become a director under any circular / directive of the State Bank of Pakistan or any other regulations, he / she is not serving more than seven (7) listed companies including JS Bank Limited by excluding the listed subsidiaries of listed holding companies wherever applicable, he/she is a registered as tax payer and has not defaulted in payment of any loan to a banking company, a DFI or an NBFI or being a member of a stock exchange, has been declared as a defaulter by that stock exchange. Performa for fit and proper test along with questionnaire duly completed, an affidavit, recent photographs and copy of attested CNIC/passport to meet the requirement of appointment of directors as contained under State Banks Prudential Regulation G-1;

iii)

6.

Shareholders are requested to notify immediately for any change in their address.

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Annual Report / JS Bank

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JS BANK IS SPREAD ALL OVER PAKIS TAN

185 branches in 100 cities

growing
Bank in Pakistan
GOJRA

JS Bank the fastest

Dadyal Narr Chaksawari Mirpur

Sehnsa

Muzaffarabad Kotli Jatlan

Rawalakot

Abbottabad Topi

PESHAWAR

Mardan Mingora

Q U E T TA
Chamman

Haroonabad Muzaffargarh Toba Tek Singh

Maatli MORO Sultanabad

Sehwan Shareef

KunriSUKKUR Shahdadpur Tando Adam Dadu PANOO AQIL Nawabshah

Tando Allahyar

LARKANAMeharMithi

Jacobabad
Khairpur
Mirpurkhas

Yar Khan Sadiqabad Rahim Pak Pattan

Depalpur

Multan D.I.KhanVEHARI DG Khan

Bhakkar Mian ChunnooJhang

Wazirabad Narowal

ArifwallaKunri

Sheikhupura Jehlum Okara BurewalaBhawalpur

Khanewal

Lala Mussa Sahiwal Gujrat

KasurDina

ISLAMABAD Chakwal FAISALABAD Gujranwala

Sialkot RAWALPINDITaxila

Lahore

HYDERABAD

JAMSHORO Sanghar

KARACHI

JS Bank is the fastest growing bank in Pakistan. With a vast and growing online network of 185 branches in 100 cities, we are present wherever our customers need us to be. From the biggest cities to the smallest towns, we consistently offer outstanding services along with a host of innovative and growth-oriented products.

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An nnu nual al Re Repo po ort r / JS B Ba ank k

Directors Report We are pleased to present the Seventh Annual Report of JS Bank Limited (JSBL) along with the audited accounts and Auditors report thereon for the year ended December 31, 2012.
Economic Review

The calendar year 2012 proved to be a year of monetary easing on the back of reducing inflation which hit a new low of 6.9% in November 2012 the lowest in 63 months. Average Consumer Price Index (CPI) for FY13 so far stands at 8.3% against 10.8% during the same period last year. Declining prices of perishable food items and reduction in gas and CNG prices were amongst the major reasons for the low CPI number. Highlighting this factor and continued muted private sector credit offtake, the State Bank of Pakistan (SBP) opted to ease the Discount Rate (DR) by 2.5% to 9.5% during the current fiscal year.

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Pakistans economy witnessed a modest growth during FY12 -- the real GDP growing by 3.7 percent during the year, as compared to 3.0 percent in FY11. The economy underperformed as compared to the growth target of 4.2 percent, and this outcome was expected given the energy shortages, poor law and order situation, and the after effects of floods in two previous consecutive years. Nevertheless, growth was more broad-based as compared to FY11, as it was more or less evenly distributed across agriculture, industry and the services sector. The home remittances reached a record level of US$ 13.2 billion in FY12 (up 18%YoY) and have continued to remain robust during 7MFY13 amounting to US$ 8.21 billion (up 10%YoY). At the same time, the trade deficit came in at US$ 11.6 billion, down 12%YoY, with total exports jumping by 7%YoY to US$ 14.1 billion and imports declining by 2%YoY to US$ 25.7 billion. As a result, the current account recorded a surplus of US$ 62 million during the period as compared to a deficit of US$ 2.8 billion during the same period last year. Banking Industry Review The aggregate deposits grew by 14% to Rs. 6.7 trillion during CY2012 while the advances grew by 10% to Rs. 3.9 trillion, leading to a slight decline in the banking sectors Advances to Deposits Ratio (ADR) to 58%, from 59% in December 2011. The aggregate Investments, mainly in Government Treasury Bills and Pakistan Investment Bonds, increased by a massive 31% during CY2012, to also reach Rs. 3.9 trillion. On the spreads front, the number for December dipped by 13 bps MoM (104 bps YoY) to 6.54% (lowest number since 2005) because of the substantial reduction in the KIBOR during the calendar year on the back of reduction in the DR, without a corresponding reduction to the same extent in the average cost of deposits. Average spreads for the year came in at 7.02%, down 62 bps YoY. On the asset quality front, aggregate Non Performing Loans (NPL) accretions came in at Rs. 7.4 billion till end September 2012, with aggregate NPLs rising to Rs. 617 billion as at that date. Going forward, we anticipate the trend of weaker Net Interest Income on account of lower spreads to continue during 1HCY13, provided there is no increase in the DR or any downward revision in the minimum profit rate for Saving Accounts as prescribed by the SBP. Financial Performance Your bank posted a Pre-tax Profit of Rs. 1,010.99 million during 2012 as compared to a pre-tax profit of Rs. 535.75 million in the previous year, registering a healthy YoY growth of 89%. The Profit after tax came in at Rs. 708.18 million as compared to a profit of Rs. 359.69 million in 2011, an increase of 97%. Resultantly, the Earnings Per Share (EPS) of your bank was Rs. 0.70 for 2012 as compared to an EPS of Rs. 0.42 per share during 2011. The profitability ratios measured in terms of Return on Assets and Return on Equity also improved from 0.77% and 5.40% to 1.05% and 8.70%respectively, during 2012. The Balance Sheet size of your bank registered a YoY growth of 51% to reach Rs. 81,570 million as at December 31, 2012. Deposits increased to Rs. 62,544 million compared to Rs. 41,487 million in the previous year, a YoY growth of 51%. Gross advances grew to Rs. 21,026 million as at December 31, 2012, a YoY rise of 13%, while investment in T-Bills and PIBs grew by 134% to touch Rs. 39,747 million at year end 2012. Net Mark-up/Interest Income of your bank increased by 31% to reach Rs. 2,265 million -- led by a growth both in the earning assets as well as the low cost deposits. Meanwhile, the contribution of Non-Markup/Interest Income touched Rs. 1,806 million as compared to Rs. 762 million in the previous year - an increase of 137%, boosted mainly by a substantial increase in earnings from Foreign Trade business, Bancassurance, Home Remittance and Capital Gains on the sale of Government Securities. Operating Expenses increased by 22% to Rs. 2,553 million mainly due to the effect of inflation and 38 new branches opened during the year. Summarized financial data for the last six years is appended below: 2012 Deposits Total assets Investments-net Advances-net Profit/ (loss) before tax Profit/ (loss) after tax No of branches 62,543,793 81,569,995 46,259,398 20,054,921 1,010,994 708,176 185 2011 41,487,031 53,920,569 22,649,824 18,018,778 535,752 359,691 147 2010 26,276,328 39,383,647 13,701,699 13,978,113 (622,550) (407,479) 126 2009 21,313,791 32,894,920 9,535,555 11,689,653 (1,448,793) (594,936) 101 2008 15,294,273 21,627,802 5,138,709 9,680,449 111,225 54,770 39 Rupees in 000 2007 13,679,898 20,327,752 6,309,536 6,475,963 (62,221) 35,431 9

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Annual Report / JS Bank

Business Overview JS Bank continued to maintain its steady growth despite a challenging operating environment. With all divisions expanding their operations and delivering robust performances, JS Bank has moved one step ahead in developing a market niche for itself. All the products and services being offered by JS Bank have been tailored to suit the clients preferences, ensuring their complete satisfaction The Bank moved ahead with its branch expansion and has established 38 new branches during the year bringing the aggregate total to 185 branches in 100 cities. This extensive network has been established within a short span of 6 years. Retail Banking Group (RBG)

Retail Banking is responsible for 77% of the Banks deposits. During the course of 2012, the Retail Banking Group stayed true to the stated vision of the bank of becoming a mid-sized, performance driven and market competitive bank with extensive outreach, product base and network to achieve a sizeable customer base across Pakistan. Retail Banking Group continued with its impressive performance during 2012 and its notable achievements during the year were: An increase of 42% in the customer accounts to nearly 170,000. An increase of 50% in its overall deposit base to Rs. 48.2 billion. The addition of 38 new online branch locations, increasing the total number of branches to 185 in 100 cities across Pakistan. The installation of 64 new ATMs, increasing the countrywide network to 179 an overall ratio of almost one ATM per branch. An increase of 30% in the Bancassurance business. An increase of 27% in the number of Home Remittance transactions. An increase of 99% in the trade business generated through the Retail Banking customers. A series of new value additions to the existing services through Internet Banking, Inter Bank Funds Transfer and Utility Bills Payment Services. Corporate Banking Group (CBG)

In view of weak economic conditions of the country and our stringent risk parameters, CBG followed a prudent strategy on asset growth -- hence advances portfolio grew by only 2% to PKR 17.24 billion during the year 2012. CBG compensated for the low advances growth through an enhanced focus on trade transactions and maximizing fee based revenue for the bank. The substantial increase in the trade business resulted in a significant growth of 67% in the Non Funds Income (NFI) during the year 2012. The bank remained committed to maintaining a well-diversified portfolio across various economic sectors which ensured that exposure to any one sector remained well within the maximum concentration levels defined by the Risk Management Policy of the Bank. For the year 2013, primary focus would continue to be on trade and non-fund based activities and launching new products including structured trade transactions and cash management solutions for customers. Treasury Group

During 2012, JS Banks Treasury was rated by the State Bank of Pakistan (DMMD Circular No. 10 of 2012) as the No. 1 Primary Dealer of Pakistan. The Bank was also rated the No. 1 Primary Dealer of Pakistan in 2011. JS Bank is one of the 11 Primary Dealers in the country which act as underwriters and market makers for the secondary trading in Treasury Bills and Pakistan Investment Bonds. The Treasury also recorded a strong performance in its core Asset & Liability Management and Foreign Exchange activities, and efficiently capitalized on the interest rate volatility to earn handsome capital gains.

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Investment Banking Group (IBG)

JS Banks IBG continues to maintain its leading position in the debt capital markets advisory business in the country. Focusing on the vision of the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan to develop our debt capital market, IBG placed numerous transactions in the market including OTC listed TFCs, privately placed Sukuks and Syndicated long term facilities. IBG successfully closed advisory and arrangement mandates of over Rs. 7 billion in 2012, catering to a wide array of sectors including Telecommunications, Fertilizer, Steel, Microfinance and Non Banking Financial Institutions (NBFIs). JS Banks market share for tradable debt capital was over 30% by volume. Risk Management

Risk management plays a pivotal role in the governance of the Bank as we recognize the diversity and complexity of all operations and the exposure to various kinds of risks mainly on credit, market, liquidity and operational risk. Your Bank recognizes the importance of effective risk management and control measures to ensure the Banks corporate value, sustained profitability and continued enhancement of shareholder value. Risk management activities in the bank take place at different hierarchy levels, guided through a framework of policies duly approved by the Board of Directors. A sound structure of Risk Management Committees including Board Risk Management Committee and Audit Committee is in place which keeps an eye on the overall risk profile of the Bank. The Integrated Risk Management Committee and Assets & Liabilities Committee operate within the established framework in order to monitor the Banks activities and maintain the risk level within predefined limits, meeting on regular basis to review market development and the level of financial risk exposure of the Bank. A dedicated and independent Risk Management Group, staffed with professionals having diversified experience, is in place to manage all the aspects of Risk Management at the Bank. It is the prime objective of the Bank's capital management, to ensure that the Bank complies with all regulatory capital requirements and at the same time maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholders' value. We plan to continue strengthening our Risk Management Policies and practices to best suit the ever evolving economic and business environment, based on the local as well as the international best practices and regulations. Operations

The Group continued to embark on operational efficiency initiatives and strengthening Banks processes and controls through process centralization, compliance with the COSO (Committee of Sponsoring Organizations) based internal control framework, and improvements in policies and procedures including the updating of the Branch Operations Manual. Strong operational support was provided to the businesses through provision of seamless service and smooth transaction processing. Businesses were also supported through detailed reviews of new product programs and accounting manuals & processes. Awareness and implementation of our Business Continuity Plan has been notably enhanced. Information Technology

In 2012 your Bank continued to innovate and develop new alternate service delivery channels and further strengthened its resolve to keep high quality customer service as its prime objective. The core banking system hardware has been upgraded to meet the performance requirements in line with growth in branch network, services and customers. We also introduced virtualization at the systems level to optimize the use of computing resources, build redundancy around the information technology services, and flexibility in providing of computing resources on demand. The internet banking system now offers various branch level services both in online and off-line modes to provide customers service at their doorstep for their greater convenience. Operational controls of core IT systems and business continuity procedures have been enhanced to provide uninterrupted customer services under all circumstances. To ensure customer data security and integrity of systems, a comprehensive IT infrastructure penetration testing and vulnerability assessment exercise was conducted by certified third party professionals, with satisfactory results. Prospective Acquisition of HSBC Pakistan Operations The Bank has signed a Sale and Purchase Agreement with HSBC Middle East Limited for the acquisition of HSBC - Pakistan operations. A scheme of amalgamation has been submitted to the State Bank of Pakistan for approval, which is awaited.

Equity Core equity of the Bank expanded to Rs. 8,774 million as at December 31, 2012, a healthy growth of 17% over the previous year, due to improved profitability and a share swap with Jahangir Siddiqui & Co. Ltd. (JSCL), and certain other shareholders, for 52.24% shares of JS Investments Limited (JSIL) which has now become a subsidiary of your Bank and should lead to synergies of business for both entities. Earnings Per Share (EPS) After taking into account the additional shares issued during 2012, the EPS for the year ended December 31, 2012 worked out to Re. 0.70 per share against last years EPS of Re. 0.42 per share, i.e. an improvement of 66.67%. Capital Adequacy As of December 31, 2012, your banks Capital Adequacy Ratio (CAR) stood at 16.46% as compared to last years 16.13%, against minimum CAR of 10% prescribed by SBP. The Bank has managed to maintain its Capital Adequacy Ratio (CAR), through carefully monitoring and managing the risk profile of its increasing Assets portfolio and at the same time increasing its Paid-up Capital and overall equity. This is evident from the fact that during the year under review, your banks risk weighted assets have increased by only 17% as compared to the Balance Sheet size which grew by 51%. Statement on Internal Controls The critical importance of an effective internal control environment so as to ensure that the envisioned goals and objectives of the organization are adequately achieved, continues to be a focal point both for the Board of Directors and the management of the Bank. Cognizant of the need for creating such an environment, the Board has laid down broad policies in the context of business strategies and regulatory requirements whereby the management is able to timely identify possible major risks and put in place mitigating procedures. These policies are periodically reviewed and suitably updated by the Board in the light of economic and other related developments. In line with the policy guidelines provided by the Board, the management has in place systems, procedures and internal control evaluation charts across all areas of the Bank. Clear definition of responsibilities through effective delegation and separation of duties is abundantly ensured in the organizational structure that has been established. Operational procedures are continually monitored and updated and any gaps identified in controls are appropriately and expeditiously plugged to ensure a competitive edge in customer service while adhering to impeccable ethical and integrity standards. The Banks Internal Audit function continues to monitor compliance with these policies and procedures and regularly keeps the Board updated on its findings, through the Audit Committee. During the year, the management vigorously pursued the process of conducting an overall review and updating / consolidation of systems and procedures with the objective of further improving internal controls so as to be fully compliant with relevant guidelines of the State Bank of Pakistan. Special emphasis was laid on the expeditious completion of the roadmap pertaining to Internal Controls on Financial Reporting. A Steering Committee comprising of senior management actively functioned to oversee this process. The management is pleased to place on record that the process has since been successfully completed within schedule. In the light of the above, the management is confident that the present internal control environment is fully geared to achieving both short-term and long-term organizational goals in a seamless fashion. Corporate and Financial Reporting Framework The Directors confirm compliance with the Corporate and Financial Reporting Framework of the Securities & Exchange Commission of Pakistan Code of Corporate Governance for the following: 1. The Financial statements prepared by the Management present fairly the state of affairs of the Bank, the results of its operations, Cash Flow Statement and Statement of Changes in Equity.

2. 3. 4. 5. 6. 7. 8.

Proper books of accounts of the Bank have been maintained. Accounting policies as stated in the notes to the accounts have been consistently applied in the preparation of financial statements and accounting estimates are based on reasonable and prudent judgment. International Accounting Standards as applicable in Pakistan have been followed in preparation of the financial statements. The system of internal controls is sound in design and has been effectively implemented and monitored. There are no doubts about the Banks ability as a going concern. There has been no material departure from the best practices of corporate governance, as detailed in the listing regulations. The details of outstanding statutory payments, if any, have been adequately disclosed in the financial statements.

Holding Company Jahangir Siddiqui & Company Limited, listed at the Karachi Stock Exchange Limited, is the holding company of JS Bank Limited, with 70.42% shareholding. Subsidiary Companies JS Global Capital Limited and JS Investments Limited are subsidiaries of JS Bank with the shareholding of 51.05% and 52.24% respectively. Performance of these companies has been covered under consolidated Directors Report. Attendance of Directors in the Board meetings Eight meetings of the Board of Directors were held during the Year 2012. The attendance of directors at Board Meetings was as follows: Name of Director Mr. Jahangir Siddiqui, Chairman Mr. Mazharul Haq Siddiqui Mr. Maqbool A. Soomro Mr. Ashraf Nawabi Mr. Rafique R. Bhimjee Mr. Shahab A. Khawaja Mr. Adil Matcheswala Mr. Basir Shamsie Mr. Kalim-ur-Rahman, President & CEO Eligible to attend 8 8 8 8 8 8 7 1 8 Meetings attended 8 7 5 4 7 7 6 1 7

The attendance of directors at Board Sub-Committees meetings was as follows: Audit Committee Eligible Meetings to attend attended 5 5 5 4 5 4 Risk Committee Eligible Meetings to attend attended 3 3 3 3 3 2 1 3 HR Committee Eligible Meetings to attend attended 2 2 2 2 2 2 1 2

Name of Director Mr. Jahangir Siddiqui Mr. Mazharul Haq Siddiqui Mr. Maqbool A. Soomro Mr. Ashraf Nawabi Mr. Rafique R. Bhimjee Mr. Kalim-ur-Rahman President & CEO

20

Annual Report / JS Bank

Pattern of Shareholding The pattern of shareholding at the close of December 31, 2012 as required u/s 236 of the Companies Ordinance, 1984 is given on page number 197. Credit Rating The Pakistan Credit Rating Agency (PACRA) has upgraded the long-term entity rating of JS Bank from A to A+ (Single A Plus), while maintaining the short term rating at A1 (A One). The ratings reflect the Banks sound financial profile emanating from improving profitability, strong liquidity and sound capital adequacy. The Banks strengthening franchise owing to its expanding branch network, supported by a sound technological platform, were key considerations for the upgrade. Employee Benefits Scheme The Bank operates staff Provident Fund (the Fund) and funded Gratuity Scheme (the Scheme) covering all its permanent employees. The contribution made toward the Fund was Rs. 42 million (2011: 34 million). The un-audited balance as at December 31, 2012 of the Fund was Rs. 250 million (2011: Rs. 180 million). The Scheme got funded in 2012. The contribution made to the Scheme was Rs. 23 million for 2012 (2007 to 2011: Rs. 75 million). The un-audited balance of the plan assets of the Scheme as at December 31, 2012 was Rs. 80 million (2011 : NIL).

Auditors The present auditors of the Bank are M. Yousuf Adil Saleem & Co., Chartered Accountants, a member firm of Deloitte Touche Tohmatsu. Directors Training Program The Bank on August 28, 2012 arranged an orientation course for its directors to acquaint them with the Code of Corporate Governance, applicable laws, their duties and responsibilities to enable them to effectively manage the affairs of the Bank. Events after the Date of Statement of Financial Position There have not been any material events that occurred subsequent to the date of the Statement of Financial Position that require adjustments to the enclosed financial statements. Acknowledgements We wish to place on record our gratitude to the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan for their support and guidance. The Directors also wish to convey their appreciation to all the staff members of the Bank for their dedicated services, professionalism and commitment towards the Banks vision for sustainable growth and profitability. The Directors also sincerely thank all our customers, shareholders and other stakeholders for their valuable support and confidence in the Bank. For and on behalf of the Board, Jahangir Siddiqui Chairman March 04, 2013

A nu An n al a Re R po ort r / JS Ba B nk

21 2 1

28

Annual Report / JS Bank

UNCONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT DECEMBER 31, 2012 2012 Note
ASSETS Cash and balances with treasury banks 7 Balances with other banks 8 Lendings to financial institutions 9 Investments - net 10 Advances - net 11 Operating fixed assets 12 Deferred tax assets - net 13 Other assets 14 LIABILITIES Bills payable 15 Borrowings 16 Deposits and other accounts 17 Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities 18 NET ASSETS REPRESENTED BY Share capital 19 Reserves Discount on issue of shares Accumulated losses Surplus / (deficit) on revaluation of assets - net of tax 20 CONTINGENCIES AND COMMITMENTS 21 10,724,643 231,613 (2,105,401) (76,377) 8,774,478 181,331 8,955,809 10,002,930 89,978 (1,944,880) (642,918) 7,505,110 (28,080) 7,477,030 5,027,797 1,178,265 3,940,958 46,259,398 20,054,921 3,165,117 699,272 1,244,267 81,569,995 713,747 8,222,273 62,543,793 - - - 1,134,373 72,614,186 8,955,809 3,880,688 136,880 4,073,103 22,649,824 18,018,778 3,021,439 1,082,466 1,057,391 53,920,569 1,246,994 2,944,495 41,487,031 765,019 46,443,539 7,477,030

2011

Rupees in 000

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

Jahangir Siddiqui Chairman

Kalim-ur-Rahman President/Chief Executive Officer

Rafique R. Bhimjee Director

Adil Matcheswala Director

Annual Report / JS Bank

29

UNCONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED DECEMBER 31, 2012 2012 Note
Mark-up / return / interest earned 23 Mark-up / return / interest expensed 24 Net Mark-up / Interest income (Provision) / reversal against non-performing loans and advances 11.4 (Provision) / reversal of diminution in value of investments 10.3 Bad debts written off directly Net mark-up / interest income after provisions NON MARK-UP / INTEREST INCOME Fee, commission and brokerage income 25 565,956 351,183 Dividend income 163,374 20,433 Income from dealing in foreign currencies 205,326 98,519 Gain on sale of securities - net 26 825,413 245,775 Unrealised gain / (loss) on revaluation of Investments classified as held-for-trading 10.4 926 (3,010) Share of profit from associate - 34,118 Other income 27 45,502 15,050 Total non mark-up / interest income 1,806,497 762,068 3,561,209 2,641,949 NON MARK-UP / INTEREST EXPENSES Administrative expenses 28 2,552,845 2,098,357 Other provisions / write offs - Fixed assets written off - Other charges 29 (2,630) 7,840 Total non-mark-up / interest expenses 2,550,215 2,106,197 1,010,994 535,752 Extra ordinary / unusual items - PROFIT BEFORE TAXATION Taxation - Current 30.1 - Prior years 30.2 - Deferred 13.1 30.3 PROFIT AFTER TAXATION Earnings per share - basic and diluted 31 1,010,994 (83,045) 50,661 (270,434) (302,818) 708,176 0.70 535,752 (49,813) (126,248) (176,061) 359,691 0.42 6,022,859 3,758,219 2,264,640 (457,504) (52,424) - (509,928) 1,754,712

2011
4,312,207 2,583,525 1,728,682 13,675 137,524 151,199 1,879,881

Rupees in 000

------------- Rupee -------------

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

Jahangir Siddiqui Chairman

Kalim-ur-Rahman President/Chief Executive Officer

Rafique R. Bhimjee Director

Adil Matcheswala Director

30

Annual Report / JS Bank

UNCONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2012 2012
Profit after tax for the year Other comprehensive income Total comprehensive income for the year 708,176 - 708,176

2011
359,691 - 359,691

Rupees in 000

Surplus / (deficit) arising on revaluation of assets has been reported in accordance with the requirements of the Companies Ordinance, 1984 and the directives of the State Bank of Pakistan in a separate account below equity. The annexed notes from 1 to 43 form an integral part of these unconsolidated financial statements.

Jahangir Siddiqui Chairman

Kalim-ur-Rahman President/Chief Executive Officer

Rafique R. Bhimjee Director

Adil Matcheswala Director

Annual Report / JS Bank

31

UNCONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2012
Issued, subscribed and Discount paid-up share Statutory on issue of Accumulated capital reserve shares losses Total ------------------------------------------ Rupees in 000 --------------------------------------------

Balance as at January 01, 2011 Total comprehensive income for the year Profit after taxation for the year ended December 31, 2011 Other comprehensive income

8,149,715

18,040

(1,415,477)

(930,671)

5,821,607

- -

- -

- -

359,691 -

359,691 -

Total comprehensive income for the year ended December 31, 2011 - - - 359,691 359,691 Transaction with owners recorded directly in equity Issue of shares during the year Discount on issue of shares Transfers Transfer to statutory reserve 1,853,215 - 1,853,215 - 10,002,930 - - - 71,938 - (529,403) (529,403) - - - - (71,938) (642,918) 1,853,215 (529,403) 1,323,812 - 7,505,110

Balance as at December 31, 2011

89,978 (1,944,880)

Total comprehensive income for the year Profit after taxation for the year ended December 31, 2012 - - - 708,176 708,176 Other comprehensive income - - - - Total comprehensive income for the year ended December 31, 2012 - - - 708,176 708,176 Transaction with owners recorded directly in equity Issue of shares during the year 721,713 - - - 721,713 Discount on issue of shares - - (160,521) - (160,521) 721,713 - (160,521) - 561,192 Transfers Transfer to statutory reserve - 141,635 - (141,635) - Balance as at December 31, 2012 10,724,643 231,613 (2,105,401) (76,377) 8,774,478 The annexed notes from 1 to 43 form an integral part of these unconsolidated financial statements. Jahangir Siddiqui Chairman Kalim-ur-Rahman President/Chief Executive Officer Rafique R. Bhimjee Director Adil Matcheswala Director

32

Annual Report / JS Bank

UNCONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2012 2012 Note 2011

Rupees in 000

CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 1,010,994 535,752 Less: Dividend income (163,374) (20,433) 847,620 515,319 Adjustments: Depreciation 12.2 223,030 226,386 Amortisation of intangible assets 12.3 18,910 17,436 Charge for defined benefit plan 34.6 22,622 17,336 Unrealised (gain) / loss on revaluation of investments classified as held-for-trading 10.4 (926) 3,010 Provision / (reversal) against non-performing advances -net 11.4 457,504 (13,675) Provision / (reversal) of diminution in value of investments -net 10.3 52,424 (137,524) Share of profit from associate - net of tax - (34,118) Gain on sale of fixed assets (45,502) (15,050) 728,062 63,801 1,575,682 579,120 (Increase) / decrease in operating assets Lendings to financial institutions 132,145 (429,743) Held for trading securities 3,959,877 (4,693,469) Advances (2,493,647) (4,026,990) Other assets (excluding advance taxation) (175,918) (285,830) 1,422,457 (9,436,032) Increase / (decrease) in operating liabilities Bills payable 877,374 (533,247) Borrowings 5,230,629 (2,577,302) Deposits 21,056,762 15,210,703 Other liabilities 421,733 (627,320) 26,175,877 12,883,455 27,598,334 3,447,423 Gratuity paid (75,000) Income tax paid (43,343) (45,061) Net cash flows from operating activities 29,055,673 3,981,482 CASH FLOWS FROM INVESTING ACTIVITIES Net investment in available-for-sale securities (26,737,586) (2,831,072) Dividend received 163,374 20,433 Payments for operating fixed assets (409,271) (391,474) Proceeds on sale of property and equipment disposed-off 69,155 24,204 Net cash used in investing activities (26,914,328) (3,177,909) CASH FLOWS FROM FINANCING ACTIVITIES Issue of share capital Net cash flows from financing activities Increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 32 The annexed notes from 1 to 43 form an integral part of these unconsolidated financial statements. - - 2,141,345 4,016,008 6,157,353 803,573 3,212,435 4,016,008

Jahangir Siddiqui Chairman

Kalim-ur-Rahman President/Chief Executive Officer

Rafique R. Bhimjee Director

Adil Matcheswala Director

Annual Report / JS Bank

33

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

1.

STATUS AND NATURE OF BUSINESS 1.1 JS Bank Limited (the Bank), incorporated in Pakistan, is a scheduled bank, engaged in commercial banking and related services. The Banks ordinary shares are listed on Karachi Stock Exchange in Pakistan. The Bank is a subsidiary of Jahangir Siddiqui & Co. Ltd. The registered office of the Bank is situated at Shaheen Commercial Complex, Dr. Ziauddin Ahmed Road, Karachi. The Bank operates with 185 (December 31, 2011: 147) branches / sub-branches in Pakistan. The Pakistan Credit Rating Agency (Private) Limited (PACRA) has upgraded the longterm entity rating of JS Bank from A to A+ (Single A Plus), while maintaining the short term rating at A1 (A One). Jahangir Siddiqui Investment Bank Limited (JSIBL, formerly Citicorp Investment bank Limited which was acquired by Jahangir Siddiqui & Co. Ltd. (JSCL) on February 01, 1999) and its holding company, JSCL, entered into a Framework Agreement with American Express Bank Limited, New York (AMEX) on November 10, 2005 for acquisition of its American Express Bank Limited (AEBL) Pakistan Operations. Consequently, a new banking company, JS Bank Limited (JSBL) was incorporated on March 15, 2006 and a restricted Banking License was issued by the State Bank of Pakistan (SBP) on May 23, 2006. A Transfer Agreement was executed on June 24, 2006 between JSIBL and JSBL for the transfer of entire business and undertaking of JSIBL to JSBL and a separate Transfer Agreement was also executed on June 24, 2006 between AMEX and JSBL for the transfer of AEBLs commercial banking business in Pakistan with all assets and liabilities (other than certain excluded assets and liabilities) (AEBL business). The shareholders of JSIBL and JSBL in their respective extra ordinary general meetings held on July 31, 2006 approved a Scheme of Amalgamation (the Scheme) under Section 48 of the Banking Companies Ordinance, 1962. The Scheme was initially approved by the Securities and Exchange Commission of Pakistan (SECP) vide its letter No. SC/NBFC(J)-R/JSIBL/2006/517 dated September 28, 2006. Subsequently, the Scheme was sanctioned by the State Bank of Pakistan (SBP) vide its order dated December 02, 2006 and, in accordance therewith, the effective date of amalgamation was fixed at December 30, 2006. The Bank has signed a Sale and Purchase Agreement on September 10, 2012 with HSBC Middle East Limited for acquisition of HSBC - Pakistan operations. In this regard the Bank has applied to the SBP for an approval. Once the approval is received, the Bank will proceed towards completing other procedural formalties. The State Bank of Pakistan (SBP) through its BSD Circular No. 7 dated April 15, 2009 has prescribed that the minimum paid up capital (net of losses) for Banks / Development Finance Institutions (DFIs) be raised to Rs.10 billion by the year ending December 31, 2013. The raise is to be achieved in a phased manner requiring Rs.9 billion paid-up capital (free of losses) by the end of the financial year 2012. To meet the shortfall in the Minimum Capital Requirement (MCR) of the SBP, the Bank acquired in previous year 25,525,169 shares of JS Global Capital Limited (JSGCL) from Jahangir Siddiqui & Co. Ltd. (JSCL) and other shareholders of JSGCL in exchange of issuance of 185,321,537 new shares of the Bank. Further during the current year the Bank acquired 52,236,978 shares of JS Investments Limited (JSIL) from JSCL and other shareholders of JSIL in exchange for issue of 72,171,251 shares of the Bank. As a result of these transactions the paid up capital of the Bank increased by 1.885 billion. The paid-up capital (free of losses) of the Bank as at December 31, 2012 stood at Rs.8.543 billion. To meet the shorfall in the required MCR, the Bank has plans based on which the SBP has granted an extension upto June 30, 2013 for compliance, subject to certain conditions.

1.2

1.3

34

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2.

BASIS OF PRESENTATION In accordance with the directives of the Federal Government regarding the conversion of the banking system to Islamic modes, the SBP has issued various circulars from time to time. Permissible forms of trade-related modes of financing include purchase of goods by the Bank from their customers and immediate resale to them at appropriate mark-up in price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in these financial statements as such but are restricted to the amount of facility actually utilised and the appropriate portion of mark-up thereon. These financial statements are separate financial statements of the Bank in which the investments in subsidiary are stated at cost and have not been accounted for on the basis of reported results and net assets of the investees which is done in the consolidated financial statements.

3. 4.

BASIS OF MEASUREMENT These unconsolidated financial statements have been prepared under the historical cost convention except that certain assets are stated at revalued amounts / fair value as disclosed in their respective notes.

STATEMENT OF COMPLIANCE 4.1 These unconsolidated financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved Accounting Standards comprise of such International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Ordinance, 1984, provisions of the Companies Ordinance, 1984, Banking Companies Ordinance, 1962 and directives issued by the Securities and Exchange Commission of Pakistan (SECP) and the State Bank of Pakistan (SBP). In case where requirements differ, the provisions of the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962 and the said directives have been followed. The SBP vide BSD Circular No. 10, dated August 26, 2002 has deferred the applicability of International Accounting Standard 39, Financial Instruments: Recognition and Measurement (IAS 39) and International Accounting Standard 40, Investment Property (IAS 40) for Banking companies till further instructions. Further, according to the notification of the Securities and Exchange Commission of Pakistan (SECP) dated April 28, 2008, the IFRS - 7 Financial Instruments: Disclosures has not been made applicable for banks. Accordingly, the requirements of these standards have not been considered in the preparation of these unconsolidated financial statements. However, investments have been classified and valued in accordance with the requirements of various circulars issued by the SBP. Adoption of New Standards, and Amendments and Interpretations to the published approved accounting standards: The following standards, amendments and interpretations are effective for the year ended December 31, 2012. These standards, interpretations and the amendments are either not relevant to the Companys operations or are not expected to have significant impact on the Companys financial statements other than certain additional disclosures.

4.2

4.3 a.

Annual Report / JS Bank

35

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Standards/Amendments/Interpretations Ammendment to IAS 12 - Income Taxes Deferred Tax: Recovery of Underlying Assets

Effective from accounting period beginning on or after January 1, 2012

The amendment clarified the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 always be measured on a sale basis of the asset. Amendments to IFRS 7 - Financial Instruments: Disclosures - Transfer of financial assets July 1, 2011 The amendment provides enhanced disclosures for transferred financial assets that are derecognized in their entirety and transferred assets that are not derecognized in their entirety. 4.4 Standards, interpretations and amendments to the published approved accounting standards not yet effective: The following Standards, amendments and interpretations are only effective for accounting periods, beginning on or after the date mentioned against each of them. These standards, interpretations and the amendments are either not relevant to the Companys operations or are not expected to have significant impact on the Companys financial statements other than certain additional disclosures. Effective from accounting period beginning on or after July 1, 2012

Standards/Amendments/Interpretations Amendments to IAS 1 - Presentation of Financial Statements - Presentation of Items of Other Comprehensive Income

The amendments to IAS 1 change the grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or recycled) to profit or loss at a future point in time (for example, net gains on hedges of net investments, exchange differences on translation of foreign operations, net movements on cash flow hedges and net losses or gains on available-for-sale financial assets) would be presented separately from items that will never be reclassified (for example, actuarial gains and losses on defined benefit plans). Amendments to IAS 1 - Presentation of Financial Statements - Clarification of Requirements for Comparative information January 1, 2013

This improvement clarifies the difference between voluntary additional comparative information and the minimum required comparative information. Generally, the minimum required comparative information is the previous period.

36

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Amendments to IAS 16 - Property, Plant and Equipment - Classification of servicing equipment.

January 1, 2013

This improvement clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory. Amendments to IAS 32 Financial Instruments: Presentation - Tax effects of distributions to holders of an equity instrument, and transaction costs of an equity transaction.

January 1, 2013

This improvement clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes. Amendments to IAS 32 Financial Instruments: Presentation - Offsetting financial assets and financial liabilities. January 1, 2014

These amendments clarify the meaning of currently has a legally enforceable right to set-off. It will be necessary to assess the impact to the entity by reviewing settlement procedures and legal documentation to ensure that offsetting is still possible in cases where it has been achieved in the past. In certain cases, offsetting may no longer be achieved. In other cases, contracts may have to be renegotiated. The requirement that the right of set-off be available for all counterparties to the netting agreement may prove to be a challenge for contracts where only one party has the right to offset in the event of default. Amendments to IAS 34 - Interim Financial Reporting - Interim reporting of segment information for total assets and total liabilities.

January 1, 2013

The amendment aligns the disclosure requirements for total segment assets with total segment liabilities in interim financial statements. This clarification also ensures that interim disclosures are aligned with annual disclosures. Amendments to IFRS 7 Financial Instruments: Disclosures - Offsetting financial assets and financial liabilities. January 1, 2013

These amendments require an entity to disclose information about rights to set-off and related arrangements (e.g., collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entitys financial position. The new disclosures are required for all recognised financial instruments that are set off in accordance with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set off in accordance with IAS 32. IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine January 1, 2013

This interpretation applies to waste removal (stripping) costs incurred in surface mining activity, during the production phase of the mine. The interpretation addresses the accounting for the benefit from the stripping activity.

Annual Report / JS Bank

37

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

- IFRS 1 First Time Adoption of International Financial Reporting Standards - IFRS 9 Financial Instruments - IFRS 10 Consolidated Financial Statements - IFRS 11 Joint Arrangements - IFRS 12 Disclosure of Interests in Other Entities - IFRS 13 Fair Value Measurement - IAS 27 (Revised 2011) Separate Financial Statements due to not adoption of IFRS 10 and IFRS 11 - IAS 28 (Revised 2011) Investments in Associates and Joint Ventures due to not adoption of IFRS 10 and IFRS 11 b. The potential impact of standards, amendments and interpretations not yet effective on the financial statements on the Company is as follows: The amendments to IAS 19 Employee Benefits are effective for annual period beginning on or after January 1, 2013. The amendments eliminate the corridor approach and therefore require an entity to recognize changes in defined benefit plans obligations and plan assets when they occur. All actuarial gains or losses in other comprehensive income arising during the year are recognized immediately through other comprehensive income. The amendments also require additional disclosures and retrospective application with certain exceptions. Management anticipates that the amendments will be adopted in the Banks financial statements for annual period beginning on or after January 1, 2013, and the application of amendments may have impact on amounts reported in respect of defined benefit plans. 5. CRITICAL ACCOUNTING ESTIMATES AND KEY SOURCES OF ESTIMATION UNCERTAINITY The preparation of financial statements in conformity with approved accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Banks accounting policies. Estimates and judgments are continually evaluated and are based on historic experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions in accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The areas where various assumptions and estimates are significant to the Banks financial statements or where judgment was exercised in application of accounting policies are as follows:

Other than the aforesaid standards, interpretations and amendments, the International Accounting Standards Board (IASB) has also issued the following standards which have not been adopted locally by the Securities and Exchange Commission of Pakistan:

i) Classification of investments - In classifying investments as held-for-trading the Bank has determined securities which are acquired with the intention to trade by taking advantage of short term market / interest rate movements and are to be sold within 90 days. - - In classifying investments as held-to-maturity the Bank follows the guidance provided in SBP circulars on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity. In making this judgment, the Bank evaluates its intention and ability to hold such investments to maturity. The investments which are not classified as held-for-trading or held-to-maturity are classified as available for sale.

38

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

ii)

Provision against non performing loans and advances The Bank reviews its loan portfolio to assess amount of non-performing loans and advances and provision required there-against. While assessing this requirement various factors including the delinquency in the account, financial position of the borrower, the forced sale value of the securities and the requirement of the Prudential Regulations are considered. For portfolio impairment provision on consumer advances, the Bank follows, the general provision requirement set out in Prudential Regulations. Valuation and impairment of available for sale equity investments The Bank determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology and operational and financing cash flows. Income taxes In making the estimates for income taxes currently payable by the Bank, the management looks, at the current income tax laws and the decisions of appellate authorities on certain issues in the past. In making the provision for deferred taxes, estimates of the Banks future taxable profits are taken into account. Fair value of derivatives The fair value of derivatives which are not quoted in active markets are determined by using valuation techniques. The valuation techniques take into account the relevant interest rates in effect at the balance sheet date and the rates contracted. Fixed assets, depreciation and amortisation In making estimates of the depreciation / amortisation method, the management uses a method which reflects the pattern in which economic benefits are expected to be consumed by the Bank. The method applied is reviewed at each financial year end and if there is a change in the expected pattern of consumption of the future economic benefits embodied in the assets, the method would be changed to reflect the change in pattern. Such change is accounted for as change in accounting estimates in accordance with International Accounting Standard - 8, Accounting Policies, Changes in Accounting Estimates and Errors. Defined benefits plans and other benefits Liability is determined on the basis of actuarial advice using the Projected Unit Credit Method. Impairment of investments in associate and subsidiary The Bank determined that a significant or prolonged decline in the fair value of its investments in associate and subsidiary below their cost is an objective evidence of impairment. The impairment loss is recognized when the higher of fair value less cost to sell and value in use exceeds the carrying value.

iii)

iv)

v)

vi)

vii) viii)

Annual Report / JS Bank

39

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

ix)

Impairment of Goodwill Impairment testing involves a number of judgmental areas which are subject to inherent significant uncertainty, including the preparation of cash flow forecasts for periods that are beyond the normal requirements of management reporting and the assessment of the discount rate appropriate to the business. The carrying amount of goodwill at the balance sheet date was Rs. 1,463.624 million. The details assumptions underlying impairment testing of goodwill are given in note 12.3.3 to these unconsolidated financial statements.

6.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 6.1 6.2 Cash and cash equivalents Cash and cash equivalents represent cash and balances with treasury banks and balances with other banks net of any overdrawn nostro accounts. Lendings to / borrowings from financial institutions The Bank enters into transactions of lendings to / borrowings from financial institutions at contracted rates for a specified period of time. These are recorded as under: (a) Sale under repurchase obligation Securities sold subject to a re-purchase agreement (repo) are retained in the financial statements as investments and the counter party liability is included in borrowings. The difference in sale and re-purchase value is accrued over the period of the contract and recorded as an expense using effective interest rate method. (b) Other lendings Other lendings include term lendings and unsecured lendings to financial institutions. These are stated net of provision. Mark-up on such lendings is charged to profit and loss account on a time proportionate basis using effective interest rate method except mark-up on impaired/delinquent lendings, which are recognized on receipt basis. (c) Purchase under resale obligation Securities purchased under agreement to resell (reverse repo) are not included in statement of financial position as the Bank does not obtain control over the securities. Amount paid under these agreements is included in lendings to financial institutions or advances as appropriate. The difference between the contracted price and resale price is amortised over the period of the contract and recorded as income using effective interest method. (d) Other borrowings Other borrowings include borrowings from the SBP and unsecured call borrowings which are recorded at the proceeds received. Mark-up paid on such borrowings is charged to the profit and loss account over the period of borrowings on time proportionate basis using effective interest method.

40

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

6.3

Trade date accounting All regular way purchases and sales of financial assets are recognised on the trade date, i.e. the date on which commitment to purchase / sale is made by the Bank. Regular way purchases or sales of financial assets are those, the contract for which requires delivery of assets within the time frame generally established by regulation or convention in the market place. Investments The management determines the appropriate classification of its investments at the time of purchase and classifies these investments as held-for-trading, available-for-sale or held-to-maturity. These are initially recognised at cost, being the fair value of the consideration given plus, in the case of investments not held for trading, directly attributable acquisition costs. (a) Held-for-trading These are securities which are either acquired for generating profit from short-term fluctuations in market prices, interest rate movements, dealers margin or are securities in a portfolio in which a pattern of short-term profit taking exists. These securities are carried at fair value with any related gain or loss being recognized in profit and loss. (b) Held to maturity These are securities with fixed or determinable payments and fixed maturities that are held with the intention and ability to held-to-maturity. Investments classified as held-to-maturity are carried at amortised cost. (c) Available-for-sale These are investments that do not fall under the held-for-trading or held-to-maturity categories. These are initially recognised at cost, being the fair value of the consideration given including the acquisition cost.

6.4

Investments in subsidiaries and associates are stated at cost. Provision is made for any impairment in the value of investments. In accordance with the requirements of the SBP, quoted securities, other than those classified as held-to-maturity and investment in subsidiary, are carried at market value. Investments classified as held-to-maturity are carried at amortised cost using the effective interest method (less impairment, if any). Further, in accordance with the requirements of the SBP, gain or loss on revaluation of the Banks held-for-trading investments is taken to the profit and loss account. The surplus or deficit on investments classified as availablefor-sale is kept in a separate account shown in the statement of financial position below equity. The surplus or deficit arising on these securities is taken to the profit and loss account when actually realised upon disposal or when investment is considered to be impaired. The unrealised surplus or deficit arising on revaluation of quoted securities which are classified as held-for-trading is taken to the profit and loss account. Premium or discount on acquisition of investments is capitalised and amortised through the profit and loss account using effective yield over the remaining period till maturities.

Annual Report / JS Bank

41

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

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

6.5 Financial instruments 6.5.1 Financial assets and financial liabilities Financial assets and liabilities are recognized at the time when the Bank becomes party to the contractual provision of the instrument. Financial assets are de-recognized when the contractual right to future cash flows from the asset expires or is transferred along with the risk and reward of the asset. Financial liabilities are derecognized when obligation specific in the contract is discharged, cancelled or expired. Any gain or loss on derecognition of the financial asset and liability is recognized in the profit and loss account of the current period. The particular recognition and subsequent measurement method for significant financial assets and financial liabilities are disclosed in the individual policy statements associated with them. 6.5.2 Derivative financial instruments Derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently re-measured at fair value using appropriate valuation techniques. All derivative financial instruments are carried as assets when fair value is positive and liabilities when fair value is negative. Any change in the fair value of derivative financial instruments is taken to the profit and loss account. Off-setting of financial assets and financial liabilities Financial assets and liabilities are set off and the net amount is reported in the financial statements when there exists a legally enforceable right to set off and the Bank intends either to settle the assets and liabilities on a net basis or to realise the assets and to settle the liabilities simultaneously. Income and expenses arising from such assets and liabilities are accordingly offset. Advances (including net investment in finance lease) Loan and advances Advances are stated net of general and specific provision. General and specific provisions against funded loans are determined in accordance with the requirements of the Prudential Regulations issued by the SBP and charged to the profit and loss account. Advances are written off when there are no realistic prospects of recovery. Finance lease receivables Leases, where the bank transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee are classified as finance leases. A receivable is recognised at an amount equal to the present value of the lease payment including any guaranteed residual value, if any. Net investment in finance lease is included in loans and advances to customers.

6.6

6.7 6.7.1

6.7.2

42

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

6.8

Operating fixed assets and depreciation Tangible assets Owned assets are stated at cost less accumulated depreciation and impairment, if any, except land, which is stated at cost. Depreciation is calculated and charged to profit and loss account using the straight-line method so as to write down the cost of the assets to their residual values over their estimated useful lives at the rates given in note 12. A full months depreciation is charged from the month in which assets are brought into use and no depreciation is charged for the month in which the disposal is made. The residual values, useful lives and depreciation methods are reviewed and changes, if any, are treated as change in accounting estimates, at each balance sheet date. Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the profit and loss account during the period in which they are incurred. An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is recognised in the profit and loss account in the year the asset is derecognised. Intangible assets Intangible assets are stated at cost less accumulated amortisation and impairment, if any. Intangible assets are amortised from the month when the assets are available for use, using the straight line method, whereby the cost of the intangible asset is amortised over its estimated useful life over which economic benefits are expected to flow to the Bank. The useful life and amortisation method are reviewed and adjusted, if appropriate, at each balance sheet date. Intangible assets having an indefinite useful life are carried at cost less any impairment in value and are not amortised. Intangible assets having an indefinite useful life are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Capital work-in-process Capital work-in-process is stated at cost less impairment losses, if any. These are transferred to specified assets as and when assets are available for use. Impairment At each balance sheet date, the Bank reviews the carrying amounts of its assets other than deferred tax asset to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss, if any. Recoverable amount is the higher of net selling price (being fair value less cost to sell) and value in use. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the assets is reduced to its recoverable amount. Impairment losses are recognised as an expense in profit and loss account immediately.

6.9

Annual Report / JS Bank

43

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Where impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised recoverable amount but limited to the extent of the amount which would have been determined had there been no impairment. Reversal of impairment loss is recognized as income. Taxation Current The charge for current taxation is based on taxable income at the current rate of taxation after taking into account applicable tax credit, rebates and exemptions available, if any, or minimum tax on turnover, whichever is higher. The charge for current tax also includes adjustments, where considered necessary, relating to prior years arising from assessments made during the year. Deferred Deferred tax is recognised using the balance sheet liability method on all temporary differences arising between tax bases of assets and liabilities and their carrying amounts appearing in the financial statements. Deferred tax liability is recognized on taxable temporary differences. Deferred tax asset is recognised for all deductible temporary differences and carry forward of unused tax losses, if any only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefits will be realised. Deferred tax is calculated at the rates that are expected to apply to the period when the differences are expected to reverse, based on tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited to the profit and loss account. Deferred tax, if any, on revaluation of investments is recognised as an adjustment to surplus / (deficit) arising on revaluation in accordance with the requirements of IAS-12 Income Taxes. Provisions Provisions are recognised when the Bank has a legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each balance sheet date and are adjusted to reflect the current best estimate. Provision against identified non-funded losses is recognised when intimated and reasonable certainty exists for the Bank to settle the obligation. The loss is charged to profit and loss account net of expected recovery. Staff retirement benefits Defined contribution plan The Bank has established a provident fund scheme for all permanent employees effective from January 01, 2007. Equal monthly contributions are made, both by the Bank and the employees, to the fund at the rate of 10 percent of basic salary. Contribution by the Bank is charged to profit and loss account.

6.10

6.11

6.12

44

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Defined benefit plan The Bank operates a funded gratuity scheme covering all employees, which requires contribution to be made in accordance with the actuarial recommendations. The most recent valuation in this regard was carried out as at December 31, 2012, using the projected unit credit actuarial valuation method. Under this method cost of providing for gratuity is charged to profit and loss account so as to spread the cost over the service lives of the employees in accordance with the actuarial valuation. Actuarial gains and losses are recognised as income or expense when the net cumulative unrecognised actuarial gains and losses at the end of the previous reporting period exceed 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognised over the expected average remaining working lives of the employees participating in the plan. Revenue recognition Revenue is recognized to the extent that economic benefits will flow to the Bank and the revenue can be reliably measured. These are recognized as follows; - Mark-up / return / interest income on regular loans and advances and investments is recognised on accrual basis using effective interest method. Mark-up / return / interest income on classified advances is recognised on receipt basis. Financing method is used in accounting for income from lease financing. Under this method, the unearned lease income (excess of the sum of total lease rentals and estimated residual value over the cost of leased assets) is deferred and taken to income over the term of the lease period so as to produce a constant periodic rate of return on the outstanding net investment in lease. Gains / losses on termination of lease contracts, documentation charges, front-end fees and other lease income are recognized as income on receipt basis. Commission is recognised as income at the time of affecting the transaction to which it relates. Fees are recognised when earned. Dividend income is recognised when the right to receive the dividend is established.

6.13

6.14 6.15 - -

Dividend and appropriation to reserves Dividend and appropriation to reserves except for statutory reserves are recognised in the financial statements in the periods in which these are approved. Foreign currencies Functional and presentation currency Items included in the financial statements are measured using the currency of the primary economic environment in which the Bank operates. The financial statements are presented in Pakistani Rupees, which is the Banks functional and presentation currency.

Annual Report / JS Bank

45

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Foreign currency transactions Transactions in foreign currencies are translated into rupees at the foreign exchange rates ruling on the transaction date. Monetary assets and liabilities in foreign currencies are expressed in rupee terms at the rates of exchange ruling on the balance sheet date. Forward foreign exchange contracts are valued at forward rates applicable to their respective maturities. Translation gains and losses Translation gains and losses are included in the profit and loss account. Commitments Commitments for outstanding forward foreign exchange contracts disclosed in these financial statements are translated at contracted rates. Contingent liabilities/commitments for letters of credit and letters of guarantee denominated in foreign currencies are expressed in rupee terms at the rates of exchange ruling on the balance sheet date. Goodwill Goodwill acquired in a business combination before July 01, 2009 is initially measured at cost, being the excess of the cost of the business combination over the Banks interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Banks cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units or groups of units. Segment reporting A segment is a distinguishable component of the Bank that is subject to risks and rewards that are different from those of other segments. A business segment is one that is engaged either in providing certain products or services, whereas a geographical segment is one engaged in providing certain products or services within a particular economic environment. Segment information is presented as per the Banks functional structure and the guidance of State Bank of Pakistan. The Bank comprises of the following main business segments: 6.17.1 Business segments

6.16

6.17

Corporate finance This includes investment banking activities such as mergers and acquisitions, underwriting, privatization, securitization, Initial Public Offers (IPOs) and secondary private placements. Trading and sales This segment undertakes the Banks treasury, money market and capital market activities.

46

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Retail banking Retail banking provides services to small borrowers i.e. consumers, small and medium enterprises (SMEs) and borrowers and agricultural sector. It includes loans, deposits and other transactions with retail customers. Commercial banking This includes loans, deposits and other transactions with corporate customers. Payment and settlement This includes activities such as payment and collections, fund transfer, clearing and settlement etc. 6.17.2 Geographical segment The Bank has 185 (December 31, 2011: 147) branches / sub-branches and operates only in one geographic region which is Pakistan. 6.18 6.19 6.20 Assets acquired in satisfaction of claims The Bank occasionally acquires assets in settlement of certain advances. These are stated at lower of the net realizable value of the related advances and the current fair value of such assets. Fiduciary assets Assets held in a fiduciary capacity are not treated as assets of the Bank in statement of financial position. Earnings per share The Bank presents earning per share (EPS) data for its ordinary shares. EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period.

Annual Report / JS Bank

47

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Note 7. CASH AND BALANCES WITH TREASURY BANKS In hand

2012 2011 Rupees in 000

Local currency Foreign currencies With State Bank of Pakistan in Local currency current account

1,198,305 203,140 1,401,445 2,324,310

828,969 177,363 1,006,332 1,917,125

Foreign currency accounts - Cash reserve account - non remunerative 7.1 194,299 140,765 - Special cash reserve account - remunerative 7.2 573,183 419,147 - Local US Dollar instruments collection and settlement account - remunerative 7.3 29,162 7,098 3,120,954 2,484,135 With National Bank of Pakistan in - Local currency current accounts - Foreign currencies current account 7.4 National Prize Bonds 7.1 7.2 499,919 1,160 501,079 4,319 5,027,797 385,133 4,063 389,196 1,025 3,880,688

This represents current account maintained with the SBP under the requirements of BSD Circular No. 18 dated June 30, 2008. This represents deposit account maintained with SBP under the requirements of BSD Circular No. 18 dated June 30, 2008. Profit rates on this deposit account are fixed on a monthly basis by the SBP. It carries profit of 0% (2011: 0%) per annum. This represents mandatory reserve maintained to facilitate collection and settlement and to settle foreign currency accounts under FE-25, as prescribed by the SBP. Profit rates on this account are fixed on a monthly basis by the SBP. It carries profit at 0% (2011: 0%) per annum. This represents balance held in current account with a foreign branch of National Bank of Pakistan.

7.3

7.4

48

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 8. BALANCES WITH OTHER BANKS In Pakistan On current accounts 115,008 74,704 On deposit accounts 8.1 60 60 115,068 74,764 Outside Pakistan On current accounts 455,494 39,220 On deposit accounts 8.2 607,703 22,896 1,063,197 62,116 1,178,265 136,880 8.1 8.2 These carry mark-up at the rate of 0% (2011: 0%) per annum. This represents deposits accounts / term placements outside Pakistan, carrying mark-up rate at 0% (2011: 0%) per annum.

2012 2011 Note Rupees in 000 9. LENDINGS TO FINANCIAL INSTITUTIONS Call money lendings 9.1 600,000 1,000,000 Lendings to financial institutions 9.2 1,136,983 772,758 Repurchase agreement lendings 9.3 & 9.4 2,203,975 2,300,345 3,940,958 4,073,103 9.1 These represent unsecured call money lendings to financial institutions, carrying interest at the rates ranging between 7.50% to 9.75% (2011: 11.55% to 12.50%) per annum. These are due to mature between January 02, 2013 to January 4, 2013. These represents secured lendings to various financial institutions, carrying interest at the rates ranging between 1.50% and 14.03% (2011: 1.50% and 14.92%) per annum. These are due to mature between June 30, 2013 to June 07, 2017. These are secured short-term lendings to various financial institutions, carrying mark-up rates ranging from 8.00% to 11.25%. These are due to mature between January 02, 2013 to January 21, 2013. These are collaterlized by Market Treasury Bills and Pakistan Investment Bonds as shown in Note 9.6 below. Included herein the sum of Rs. 200 million (December 31, 2011: 270.080 million) having market value of Rs. 204.675 million (December 31, 2011: Rs 270.264 million) due from a related party carrying a mark-up rate of 8.30% (2011: 11.90%) is due to mature on January 04, 2013.

9.2

9.3

9.4

Annual Report / JS Bank

49

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Rupees in 000 9.5 Particulars of lendings In local currency In foreign currencies 9.6 3,940,958 - 3,940,958 4,073,103 4,073,103

Further Further Held by given as Held by given as bank collateral Total bank collateral Total --------------- Rupees in 000 --------------- --------------- Rupees in 000 ---------------

Securities held as collateral against reverse repurchase lendings to financial institutions Market values of securities held as collateral against reverse repurchase lendings to financial institutions are as under; 2012 2011

Market Treasury Bills Term Finance Certificates Pakistan Investment Bonds

1,169,912 - 1,071,812 2,241,724

1,169,912 - 1,071,812 2,241,724

1,982,291 67,574 253,690 2,303,555

- - - -

1,982,291 67,574 253,690 2,303,555

50

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

10.

INVESTMENTS - net
Held by bank 2012 2011 Given as Held by Given as collateral Total bank collateral Total --------------------------------------------- Rupees in 000 -----------------------------------------------

Note

10.1 Investments by type Held-for-trading securities Market Treasury Bills 10.2.1 1,444,063 - 1,444,063 4,755,721 - 4,755,721 Pakistan Investment Bonds 10.2.1 505,542 - 505,542 208,211 - 208,211 Ijara Sukuk 10.2.1 149,440 - 149,440 998,000 - 998,000 Open end mutual funds 10.2.10 - - - 100,000 - 100,000 2,099,045 - 2,099,045 6,061,932 - 6,061,932 Available-for-sale securities Market Treasury Bills 10.2.1 & 10.2.2 26,937,159 7,041,450 33,978,609 5,951,430 1,696,954 7,648,384 Pakistan Investment Bonds 10.2.1 3,746,352 - 3,746,352 4,421,546 - 4,421,546 Ordinary shares of listed companies 10.2.3 1,042,548 - 1,042,548 19,096 - 19,096 Preference shares of listed company 10.2.4 143,739 - 143,739 95,503 - 95,503 Term Finance Certificates-listed 10.2.5 1,589,004 - 1,589,004 1,375,972 - 1,375,972 Term Finance Certificates-unlisted 10.2.6 627,750 - 627,750 783,774 - 783,774 Sukuk Certificates-unlisted 10.2.7 105,294 - 105,294 193,966 - 193,966 Commercial Papers 10.2.8 - - - 51,256 - 51,256 Closed end mutual funds 10.2.9 109,331 - 109,331 118,601 - 118,601 Open end mutual funds 10.2.10 40,000 - 40,000 264,290 - 264,290 US dollar bonds 10.2.11 787,052 - 787,052 459,705 - 459,705 35,128,229 7,041,450 42,169,679 13,735,139 1,696,954 15,432,093 1,357,929 - 1,357,929 Investment in subsidiaries 10.2.12 1,919,121 - 1,919,121 Total investments at cost 39,146,395 7,041,450 46,187,845 21,155,000 1,696,954 22,851,954 Less: Provision for diminution in value of investments 10.3 (208,344) - (208,344) (155,920) - (155,920) Investments (net of provision) 38,938,051 7,041,450 45,979,501 20,999,080 1,696,954 22,696,034 Unrealised gain / (loss) on revaluation of investments classified as held-for-trading 10.4 926 - 926 (3,010) - (3,010) Surplus / (deficit) on revaluation of available-for-sale securities 20 Total investments at carrying value 262,883 39,201,860 16,088 7,057,538 278,971 46,259,398 (42,522) 20,953,548 (678) (43,200)

1,696,276 22,649,824

Annual Report / JS Bank

51

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 10.2 Investments by segments

Federal Government Securities Market Treasury Bills 10.2.1 & 10.2.2 35,422,672 12,404,105 Pakistan Investment Bonds 10.2.1 4,251,894 4,629,757 Ijara Sukuk 10.2.1 149,440 998,000 39,824,006 18,031,862 Fully Paid Ordinary Shares Listed companies 10.2.3 1,042,548 19,096 Fully Paid Preference Shares Listed companies 10.2.4 143,739 95,503 Term Finance Certificates Term Finance Certificates listed 10.2.5 1,589,004 1,375,972 Term Finance Certificates unlisted 10.2.6 627,750 783,774 Sukuk Certificates 10.2.7 105,294 193,966 2,322,048 2,353,712 Mutual Funds Closed end mutual funds 10.2.9 109,331 118,601 Open end mutual funds 10.2.10 40,000 364,290 149,331 482,891 Others Commercial Papers 10.2.8 US Dollar Bonds 10.2.11 Investment in subsidiaries 10.2.12 Total investments at cost Less: Provision for diminution in value of investments 10.3 Investments (net of provisions) Unrealized gain / (loss) on revaluation of held for trading securities 10.4 Surplus / (deficit) on revaluation of available-for-sale securities 20 - 787,052 787,052 1,919,121 46,187,845 (208,344) 45,979,501 926 278,971 46,259,398 51,256 459,705 510,961 1,357,929 22,851,954 (155,920) 22,696,034 (3,010) (43,200) 22,649,824

Total investments at carrying value

52

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

10.2.1 Principal terms of investment in Federal Government Securities Name of investment Maturity Market Treasury Bills January 10, 2013 to November 14, 2013 Redemption Period Coupon On maturity On maturity On maturity At maturity Half Yearly Half Yearly

Pakistan Investment Bonds October 6, 2013 to July 19, 2022 Ijara Sukuk March 02, 2015

10.2.2 Included herein are Market Treasury Bills having a book value of Rs. 7,041.450 million (December 31, 2011: Rs.1,696.954 million), given as collateral against repurchase agreement borrowings from financial institutions. 10.2.3 Details of investment in Ordinary shares - listed

Shares of Rs.10 each Rating Cost Market value 2012 2011 2012 2011 2012 2011 --------- Numbers --------- ---------------- Rupees in 000 ------------- Available-for-sale securities Adamjee Insurance Company Limited 2,795,353 - AA 213,123 - 190,475 D.G Khan Cement Limited 2,264,000 - Unrated 123,227 - 123,569 Fauji Fertilizer Company Limited 1,940,700 100,000 Unrated 231,061 15,381 227,334 14,953 Ghani Glass Limited 9,090,908 83,326 Unrated 347,587 3,715 558,636 3,419 Indus Motor Company Limited 9,200 - Unrated 2,575 - 2,484 Millat Tractors Limited 188,500 - Unrated 103,453 - 106,420 Samba Bank Limited 7,742,500 - Unrated 19,390 - 23,150 Shifa International Hospitals Limited 50,000 - Unrated 2,132 - 2,025 1,042,548 19,096 1,234,093 18,372 10.2.4 Details of investment in preference shares - listed

Shares of Rs.10 each Rating 2012 2011 --------- Numbers ---------

2012

Market value 2011 2012 2011 ---------------- Rupees in 000 --------------

Cost

Available-for-sale securities Agritech Limited 4,823,746 - D 48,236 - 48,719 -

Chenab Limited - 9.25% per annum cumulative preference shares (note 10.2.4.1) 13,357,000 13,357,000 Unrated 95,503 95,503 143,739 95,503

14,025 62,744 22,707 22,707

10.2.4.1

These are cumulative preference shares redeemable in part after four years from the date of issuance i.e. August 2008. The investee company also has option to redeem, in part, cumulative preference shares after August 2008. The Bank has recognized full impairment on these shares amounting to Rs. 95.503 million (December 31, 2011: 72.796 million) due to decline in fair market value of the shares.

Annual Report / JS Bank

53

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

10.2.5 Details of investment in Term Finance Certificates - listed *

Market Certificates Rating Cost value 2012 2011 2012 2011 2012 2011 -------- Numbers -------- ---------------- Rupees in 000 ---------------- 9,000 1,080 8,236 - 45,880 35,119 2,341 3,090 43,898 1,294 75,343 31,260 4,200 15,317 - 90,650 9,000 1,080 8,236 19,000 45,880 35,119 2,341 3,090 30,798 1,134 39,950 31,260 - 15,837 1,000 90,650 AA AA- AA- AA- A A AA- AA- A+ AA+ AA AA- AA- AA AA D 44,946 5,384 41,220 - 227,142 161,659 11,682 3,853 215,654 77,640 113,004 25,888 399,000 76,103 - 185,829 44,964 5,386 41,244 63,166 226,769 175,686 11,686 7,700 148,962 113,400 147,370 76,885 - 73,969 3,229 235,556 43,823 5,382 45,422 - 223,293 146,914 11,863 3,859 219,645 77,087 113,057 26,117 390,141 76,281 - 135,893 42,641 5,382 42,125 63,149 224,473 178,177 11,608 7,742 150,710 117,418 148,479 78,236 72,776 3,150 225,190

Available-for-sale securities Allied Bank Limited - 2nd Issue Askari Bank Limited - 1st Issue Askari Bank Limited - 3rd Issue Bank Alfalah Limited - 2nd Issue Engro Fertilizer Limited - 1st Issue Engro Fertilizer Limited - 3rd Issue Faysal Bank Limited Faysal Bank Limited - 3rd Issue NIB Bank Limited Orix Leasing Pakistan Limited - 2nd Issue (face value of Rs.100,000 each) Pak Arab Fertilizer Limited - 2nd Issue Pakistan Mobile Communication Limited Pakistan Mobile Communication Limited United Bank Limited - 2nd Issue unsecured United Bank Limited - 3rd Issue unsecured World Call Telecommunication Limited

* Secured and have a face value of Rs.5,000 each unless specified otherwise.

1,589,004 1,375,972 1,518,777 1,371,256

10.2.5.1 Other particulars of listed Term Finance Certificates are as follows:

Repayment frequency Semi-annually Semi-annually Semi-annually Semi-annually Semi-annually Semi-annually Semi-annually Semi-annually Quarterly Semi-annually Semi-annually Quarterly Semi-annually Semi-annually Profit Rate per annum 6 Months KIBOR ask rate plus 1.30% (for five years) 6 Months KIBOR ask rate plus 1.50% 6 Months KIBOR ask rate plus 2.95% (for first five years) 6 Months KIBOR ask rate plus 1.55% 6 Months KIBOR ask rate plus 2.40% 6 Months KIBOR ask rate plus 1.50% 6 Months KIBOR ask rate plus 1.40% 6 Months KIBOR ask rate plus 1.15% 3 Months KIBOR ask rate plus 2.15 %. 6 Months KIBOR ask rate plus 1.50% 6 Months KIBOR ask rate plus 2.85% 3 Months KIBOR ask rate plus 2.65% 6 Months KIBOR ask rate plus 1.60% Fixed 9.49% Maturity Date August 28, 2019 February 04, 2013 November 18, 2019 November 30, 2015 December 17, 2016 February 10, 2013 November 12, 2014 March 05, 2016 June 30, 2014 February 28, 2013 May 31, 2013 April 18, 2016 October 07, 2013 March 15, 2013

Name of the Investee Allied Bank Limited - 2nd issue Askari Bank Limited - 1st Issue Askari Bank Limited - 3rd Issue Engro Fertilizer Limited - 1st Issue Engro Fertilizer Limited - 3rd Issue Faysal Bank Limited Faysal Bank Limited- 3rd Issue NIB Bank Limited Orix Leasing Pakistan Limited - 2nd Issue Pak Arab Fertilizer Limited - 2nd Issue Pakistan Mobile Communication Limited Pakistan Mobile Communication Limited World Call Telecommunication Limited United Bank Limited - 2nd Issue

54

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

10.2.6 Details of Investment in Term Finance Certificates - unlisted, secured

Name of the Investee Face value per Certificates Rating certificate Cost 2012 2011 2012 2011 -------- Numbers -------- Rupees Rupees in 000 75 30,000 29,998 2,000 1,100 - 50,000 3,395 20,000 50 30,000 30,000 7,000 1,300 14,000 50,000 2,795 - AA- D D AA- A AA- A AA+ Unrated 1,000,000 5,000 5,000 5,000 5,000 5,000 5,000 100,000 5,000 75,256 149,860 65,022 10,067 5,027 - 171,875 56,525 94,118 627,750 50,000 149,860 149,880 35,286 5,879 22,901 234,375 135,593 783,774

Askari Bank Limited - 4th Issue Agritech Limited Azgard Nine Limited (related party) Bank Alfalah Limited - 4th Issue Engro Fertilizer Limited - 2nd Issue KASB Securities Limited Nishat Chunian Limited Orix Leasing Pakistan Limited Pakistan Mobile Communication Limited

10.2.6.1 Other particulars of unlisted Term Finance Certificates are as follows:

Repayment Name of the Investee frequency Askari Bank Limited - (Chief Executive: Mr. M.R. Mehkari) Semi-annually Azgard Nine Limited - a related party (Chief Executive: Mr. Ahmed H. Shaikh) Semi-annually Agritech Limited (Chief Executive: Mr. Jaudet Bilal) Semi-annually

Profit Rate per annum 6 Months KIBOR ask rate plus 1.75%. Maturity date December 23, 2021

6 Months KIBOR ask rate plus 1.25%. 6 Months KIBOR ask rate plus 1.75% 6 Months KIBOR ask rate plus 2.50 %. 6 Months KIBOR ask rate plus 1.70%.

December 04, 2017 November 29, 2019 December 02, 2017

Bank Alfalah Limited (Chief Executive: Mr. Atif Bajwa) Semi-annually Engro Fertilizer Ltd. (Chief Executive: Mr. Ruhail Mohammad) Semi-annually

March 18, 2018

Nishat Chunian Limited (Chief Executive: Mr. Shahzad Saleem) Quarterly 3 Months KIBOR ask rate plus 2.25%. September 30, 2015 Orix Leasing Pakistan Limited (Chief Executive: Mr. Teizoon Kisat) Pakistan Mobile Communication Limited (Chief Executive: Mr. Rashid Khan) Semi-annually 6 Months KIBOR ask rate plus 1.40%. January 15, 2013

Quarterly

3 Months KIBOR ask rate plus 2.65%

October 16, 2016

Annual Report / JS Bank

55

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Face value per Name of the Investee Certificates Rating certificate 2012 2011 -------- Numbers -------- Rupees Available-for-sale securities
Century Paper & Board Mills Limited 49,950 49,950 A+ 5,000 Orix Leasing Pakistan Limited - 12,160 AA+ 5,000 Sitara Chemical Industries Limited 19,000 19,000 A+ 5,000

10.2.7 Sukuk Certificates - unlisted

Cost 2012 2011 Rupees in 000 97,378 - 7,916 105,294 144,303 10,080 39,583 193,966

10.2.7.1 Other particulars of Sukuk Certificates are as follows:

Name of the Investee Repayment frequency

Profit Rate per annum

Maturity date

Century Paper & Board Mills Limited (Chief Executive: Mr. Aftab Ahmad) Semi-annually 6 months KIBOR ask rate plus 1.35% September 25, 2014 Sitara Chemical Industries Limited (Chief Executive: Mr. Muhammad Adrees) Quarterly 3 months KIBOR ask rate plus 1.0% January 02, 2013

10.2.8 Commercial papers are for a period of six months and carry a yield of 0% (2011: 14.16%) per annum.

Face value per Market Fund Certificates Rating certificate Cost value 2012 2011 2012 2011 2012 2011 -------- Numbers -------- Rupees ----------------- Rupees in 000 ---------------- Available-for-sale First Dawood Mutual Fund - 2,362,100 2-Star 10 - 18,900 - 4,017 JS Value Fund - a related party 8,745,668 8,745,668 5-Star 10 99,701 99,701 78,711 37,606 PICIC Growth Fund 563,500 - 1-Star 10 9,046 - 9,241 PICIC Investment Fund 82,500 - 2-Star 10 584 - 583 109,331 118,601 88,535 41,623 10.2.10 Open End Mutual Funds Net asset value / Market price Market Fund Units Rating per unit Cost value 2012 2011 2012 2011 2012 2011 -------- Numbers -------- Rupees ----------------- Rupees in 000 ---------------- Held For Trading JS Cash Fund - a related party - 987,556 AA+ 101.32 - 100,000 - 100,059 Available-for-sale JS Funds of Funds - a related party 114,877 - 4-Star 91.21 10,000 - 10,478 JS Islamic Fund - a related party 539,665 - 4-Star 56.73 30,000 - 30,615 JS Cash Fund - a related party - 411,856 AA+ 101.32 - 41,573 - 41,729 JS Principal Secure Fund - a related party - 204,564 AA 111.53 - 22,717 - 22,815 JS Income Fund - a related party - 2,325,311 A+ 86.04 - 200,000 - 200,070 41,093 364,673 40,000 364,290

10.2.9 Closed End Mutual Funds

56

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Redemption Period in years Cost 2012 2011 Rupees in 000 Available for sale Allianz SE A2 / A+ 5.50% 28-Nov-12 26-Sep-18 5.8 38,860 Barclays Bank Plc BBB- 7.63% 21-Nov-12 21-Nov-22 10.0 97,227 Finansbank AS Ba2 5.15% 01-Nov-12 01-Nov-17 5.0 96,231 FLR NTS Emirates NBD PJSC A3 / A+ 3.66% 29-Mar-12 29-Mar-17 5.0 97,150 Indian Overseas Bank Baa3 / BBB- 4.63% 21-Aug-12 21-Feb-18 5.5 99,079 Investec Bank Ltd Baa1 3.88% 24-Jul-12 24-Jul-17 5.0 96,631 Sberbank (Sb Cap Sa) Baa1 5.13% 29-Oct-12 29-Oct-22 10.0 145,724 Syndicate Bank Baa2 / BBB- 4.13% 12-Oct-12 12-Apr-18 5.5 48,374 Tupras-Turkiye Petrol Ra Ba1 4.13% 02-Nov-12 02-May-18 5.5 24,238 Turkiye Bankasi Ba2 6.00% 24-Oct-12 24-Oct-22 10.1 19,430 Turkiye Garanti Bank Baa2 4.00% 13-Sep-12 13-Sep-17 5.0 24,108 ABN Amro Bank BBB+ 6.25% 27-Apr-11 27-Apr-22 11.0 - 89,147 African Bank BAA2 6.00% 15-Jun-11 15-Jun-16 5.0 - 22,444 Doosan Infracore America Corporation A 4.50% 23-Nov-11 23-Nov-16 5.0 - 26,912 Gaz Capital SA BBB 4.95% 23-May-11 23-May-16 5.0 - 44,973 Indian Oil Corporation Limited BBB- 5.63% 02-Aug-11 02-Aug-21 10.0 - 26,780 NTPC Limited BBB- 5.63% 14-Jul-11 14-Jul-21 10.0 - 45,120 Royal Bank of Scotland Group BB+ 5.00% 12-Nov-03 12-Nov-13 10.0 - 44,761 Societe Generale Group A+ 2.20% 14-Sep-10 14-Sep-13 3.0 - 21,526 Standard Chartered Bank PLC BBB+ 8.13% 27-May-08 27-Nov-13 5.5 - 56,362 VEB Leasing BBB 5.13% 27-May-11 27-May-16 5.0 - 36,188 VTB Capital SA BBB 6.55% 13-Oct-10 13-Oct-20 10.0 - 45,492 787,052 459,705

Name of Bond Rating

10.2.11 Investment in US Dollar Bonds

Coupon Rate

Date of Issue

Date of Maturity

Percentage Cost holding 2012 2011 Rupees in 000 JS Global Capital Limited (JSGCL) 25,525,169 51.05% 1,357,929 1,357,929 JS Investments Limited (JSIL) 52,236,978 52.24% 561,192 1,919,121 1,357,929

10.2.12 Investment in subsidiaries

Number of shares

The Bank acquired 52,236,978 ordinary shares of JSIL in lieu of issuance of 72,171,251 ordinary shares of the Bank at an agreed share-exchange ratio of 1.387278608 shares of the Bank with one share in JSIL. The transaction consisted of issuance of 71,876,469 ordinary shares as consideration for 52,023,617 ordinary shares of JSIL under Share purchase agreement (SPA) with Jahangir Siddiqui & Co. Ltd. signed on September 24, 2012 and 294,782 ordinary shares as consideration for 213,361 ordinary shares from other shareholders of JSIL from open market through public offer. Further details of the subsidiary are given in consolidated financial statements.

The Bank also controls JS ABAMCO Commodities Limited (JSACL) indirectly through its subsidiary JS Investments Limited which has 100% holding in JSACL. 2012 2011 10.3 Particulars of provision for diminution in value of investments Rupees in 000
Opening balance

Charge for the year Reversal on disposal of investments Closing balance

155,920 67,332 (14,908) 52,424 208,344

293,444 10,686 (148,210) (137,524) 155,920

Annual Report / JS Bank

57

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 10.3.1 Particulars of provision for diminution in value of investments by type and segment Available-for-sale Preference shares of listed company 95,503 72,796 Closed end mutual funds 68,217 83,124 Ordinary shares of listed companies 14,652 Term Finance Certificates-unlisted 29,972 208,344 155,920 10.4 Unrealized gain / (loss) on revalution of investments classified as held for trading Market Treasury Bills 146 (2,695) Pakistan Investment Bonds - (374) Open end mutual funds - 59 Ijara Sukuk 780 926 (3,010) 11. ADVANCES - net Loans, cash credit, running finances, etc. In Pakistan 19,222,256 16,532,849 Outside Pakistan 245,323 1,116,517 19,467,579 17,649,366 Net investment in finance lease in Pakistan 11.2 388,725 413,039 Bills discounted and purchased (excluding treasury bills) payable in Pakistan 104,080 320,468 payable outside Pakistan 1,065,790 149,654 1,169,870 470,122 Advances - gross 21,026,174 18,532,527 11.4 (970,062) (512,666) Provision for non-performing advances - specific Provision for non-performing advances - general 11.4 (1,191) (1,083) (971,253) (513,749) Advances - net of provision 20,054,921 18,018,778 11.1 Particulars of advances (gross) 11.1.1 In local currency 19,715,061 17,266,356 In foreign currencies 1,311,113 1,266,171 21,026,174 18,532,527 11.1.2 Short term (for upto one year) 18,867,709 16,078,309 Long term (for over one year) 2,158,465 2,454,218 21,026,174 18,532,527

58

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

11.2 Particulars of net investment in finance lease

2012

2011

Not later Later than one Later than one than and less than Not later than and less one year five years Total one year than five years Total

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

11.3

Lease rentals receivable Guaranteed residual value Minimum lease payments Finance charges for future periods Present value of minimum lease payments

146,028 265,521 411,549 147,370 329,540 476,910 - 50,202 50,202 - 43,874 43,874 146,028 315,723 461,751 147,370 373,414 520,784 36,102 36,924 73,026 68,747 38,998 107,745 109,926 278,799 388,725 78,623 334,416 413,039

Advances include Rs.3,037.264 million (December 31, 2011: Rs.2,776.895 million) which have been placed under non-performing status as detailed below: 2012
Provision Provision

Category of classification Domestic Overseas Total required held Note ------------------------------------------------- Rupees in 000 ----------------------------------------- Other assets especially mentioned - - - - Substandard 406,944 - 406,944 70,855 70,855 Doubtful 603,800 - 603,800 97,899 97,899 Loss 2,026,520 - 2,026,520 801,308 801,308 11.3.1 3,037,264 - 3,037,264 970,062 970,062 2011
Provision required Provision held

Category of Classification Other assets especially mentioned Substandard Doubtful Loss

Domestic

Overseas

Total

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

11.3.1

- 973 1,671,373 1,104,549 2,776,895

- - - - -

- - 973 95 95 1,671,373 248 248 1,104,549 512,323 512,323 2,776,895 512,666 512,666

The State Bank of Pakistan (SBP) vide its letter number BPRD/BRD(Policy)/2013-1857 dated February 15, 2013 has allowed the relaxation to the Bank from provision required in respect of Banks exposure in Agritech Limited. The provision will now be made in phased manner at 10% of the required provision by December 31, 2012 and subsequently at 25%, 50%, 75% and 100% by end of each quarter till December 31, 2013. Currently, on prudent basis the Bank has made provision at the rate of 20% of the required provision on the aforesaid exposure. Had the relaxation not been granted by the SBP, the provision charge for the year would have increased by Rs. 584.783 million.

Annual Report / JS Bank

59

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

11.4

Particulars of provision against non-performing advances

2012 2011 Specific General Total Specific General Total ----------------------------------------------------------- Rupees in 000 ----------------------------------------------------

Opening balance 512,666 1,083 513,749 525,364 2,060 527,424 Charge for the year 488,202 108 488,310 78,683 - 78,683 Reversals (30,806) - (30,806) (91,381) (977) (92,358) 457,396 108 457,504 (12,698) (977) (13,675) Amount written off from the opening balance - - - - - Closing Balance 970,062 1,191 971,253 512,666 1,083 513,749 In local currency 970,062 1,191 971,253 512,666 1,083 513,749 In foreign currencies - - - - - 970,062 1,191 971,253 512,666 1,083 513,749 11.4.1 The general provision includes provision made against consumer portfolio in accordance with the Prudential Regulations issued by SBP at 1.5% of fully secured consumer portfolio. 11.5 The Bank has availed total benefit of collateral amounting to Rs. 544.734 million under the directives of the SBP. Had the benefit not been taken the provision charge for the year would have increased by Rs. 544.734 million and profit after tax would have been reduced by Rs. 354.0771 million. As required by the SBP directives, the increase in profit will not be available for distribution as dividend or other appropriations. Details of Loan write off Rs. 500,000 and above

11.6

In terms of sub-section (3) of section 33A of the Banking Companies Ordinance, 1962 the statement in respect of written-off loans or any other financial relief of five hundred thousand rupees or above allowed to a person during the year ended Deecember 31, 2012 is given in Annexure A to these financial statements. These loans are written-off as a book entry whithout prejudice to the Banks right of recovery against the customers. 11.7 Particulars of loans and advances to directors, associated companies, subsidiaries, etc.

Debts due by directors, executives or officers of the Bank or any of them either severally or jointly with any other persons: 2012 2011 Note Rupees in 000 Balance at the beginning of the year 322,094 250,345 Loans granted during the year 423,801 164,010 Repayments (106,112) (92,261) Balance at the end of the year 639,783 322,094 Debts due by subsidiaries and associates are disclosed in note 39

60

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 12. OPERATING FIXED ASSETS Capital work-in-progress 12.1 60,272 17,591 Property and equipment 12.2 1,508,088 1,398,849 Intangible assets 12.3 1,596,757 1,604,999 3,165,117 3,021,439 12.1 Capital work-in-progress Property and equipment Civil works 7,953 3,744 Advances for purchase of furniture & fixtures 1,870 2,744 Advance for purchase of vehicles 23,712 2,484 Advance for purchase of equipment and softwares 26,737 8,619 60,272 17,591 12.2 Property and equipment

COST

ACCUMULATED DEPRECIATION

Depreciation Book value As at As at As at On Charge for As at as at January 01, Additions / December 31, January 01, Deletions / the year December 31, December 31, Rate 2012 Adjustments* Deletions 2012 2012 Adjustments* 2012 2012 2012 % 117,026 55,478 342,300 474,790 - 159,875 - 768,150 - 243,706 2,161,325 - ------------------------------------------------------------------- Rupees in 000 --------------------------------------------------------------------- 2,341 - 119,367 - - - - 119,367 - - 41,350 (26,196) * 34,507 8,590 * 119,575 17,606 * - - - - (181) - (5,195) - 55,478 342,300 489,944 - 202,791 - 900,136 - 1,124 20,432 143,837 - 56,690 - 421,187 - 119,206 762,476 - - - - (9,978)* (181) 3,469* (3,040) 6,509* (46,986) (50,207) - * 883 7,212 47,902 - 22,397 - 93,907 - 50,729 223,030 - 2,007 27,644 181,761 - 82,375 - 518,563 - -

Land, Freehold Building on free hold land Building on lease hold land Lease hold improvements Furniture and fixture Electrical, office and computer equipment Vehicles

53,471 1.01 - 10.00 314,656 1.02 - 4.78 308,183 10 - 120,416 12.5 - 381,573 12.5 - 33.3 - - 20

158,149 (68,484) 333,371 355,922 (73,860) 2,443,387 - * - - COST

122,949 210,422 935,299 1,508,088 - -

Land, Freehold Building on free hold land Building on lease hold land Lease hold improvements Furniture and fixture Electrical, office and computer equipment Vehicles

ACCUMULATED DEPRECIATION

Book value As at As at As at Depreciation Charge for As at As at January 01, December 31, January 01, On the year December 31, December 31, Rate 2011 Additions Deletions 2011 2011 Deletions 2011 2011 2011 % - 55,478 342,300 441,599 132,693 670,380 183,387 1,825,837 -------------------------------------------------------------------- Rupees in 000 --------------------------------------------------------------------- 117,026 - 117,026 - - - - 117,026 - - 55,478 1,124 - - 1,124 54,354 1.01 - 10.00 - - 342,300 20,432 - - 20,432 321,868 1.02 - 4.78 33,693 (502) 474,790 90,013 (84) 53,908 143,837 330,953 10 28,343 (1,161) 159,875 38,957 (632) 18,365 56,690 103,185 12.5 99,461 (1,691) 768,150 310,309 (504) 111,382 421,187 346,963 12.5 - 33.3 81,934 (21,615) 243,706 91,070 (14,595) 42,731 119,206 124,500 20 360,457 (24,969) 2,161,325 551,905 (15,815) 226,386 762,476 1,398,849

Annual Report / JS Bank

61

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

12.2.1 12.2.2

Included in cost of property and equipment are fully depreciated items still in use having cost of Rs.325.158 million (December 31, 2011: Rs.238.986 million). Details of fixed assets deleted with original cost or book value in excess of Rs.1.00 million or Rs.0.25 million respectively (whichever is less).
Buyers particulars and relationship with Bank (if any)

Accumulated Written Sale Profit / Mode of Particulars Cost depreciation down value proceeds (loss) disposal ----------------------------------------------- Rupees in 000 -----------------------------------------------Vehicles
Honda Civic 1,376 1,307 69 1,260 1,191 Negotiation

Mr. Iqbal Ahmed Khilji Address: 5-C-11/9, Nazimabad, Karachi NIC No. 42101-8918941-3 Mr. Shafiq Pasha, Staff JS Bank Limited Mr. Ammad Ahmed Ursani Staff JS Bank Limited EFU General Insurance Limited - related party, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Mr. Fahad Shaikh Staff JS Bank Limited Mr. Kanwer Ali Khan, Address: House No. A-135/12, Gulberg, FB Area, Karachi MR. Syed Imtiaz Bukhari Staff JS Bank Limited Ms. Nabila Arif Staff JS Bank Limited EFU General Insurance Limited - related party, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi EFU General Insurance Limited - related party, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Mr. Mushtaq Ahmed Staff JS Bank Limited

Honda Civic 1,376 1,353 23 1,260 1,237 Negotiation Honda Civic 1,376 1,215 161 1,366 1,205 Negotiation Honda Civic 1,376 1,238 138 1,150 1,012 Insurance Claim Honda Civic 1,376 1,376 - 1,260 1,260 Negotiation Honda Civic 1,506 1,506 - 1,142 1,142 Negotiation

Honda Civic 1,506 1,506 - 1,286 1,286 Negotiation Honda Civic 1,376 1,376 - 1,270 1,270 Negotiation Honda Civic 1,830 153 1,678 1,650 (28) Insurance Claim Honda Civic 1,891 189 1,702 1,901 199 Insurance Claim Honda Civic 1,759 1,114 645 1,445 800 Negotiation Balance c/f 16,748 12,333 4,416 14,990 10,574

62

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Buyers particulars Accumulated Written Sale Profit/ Mode of and relationship with Particulars Cost depreciation down value proceeds (loss) disposal Bank (if any) ------------------------------------------------ Rupees in 000 ----------------------------------------------Balance b/f 16,748 12,333 4,416 14,990 10,574
Vehicles Suzuki Cultus 905 588 317 765 448 Negotiation Mr. Asad Shahzad MR. Pettocelli Fernandes Staff JS Bank Limited Mr. Ehsan Saeed Staff JS Bank Limited Mr. Rizwan Staff JS Bank Limited Mr. Mian Suhaib Staff JS Bank Limited MR. Anjum Gulzar Staff JS Bank Limited MR. Raja Zahid Staff JS Bank Limited MUKARAM ALI MOTORS Address: 32/3, Main Jail Road, Opp. Toyota Sahara Motors, Lahore Mr. Zeeshan Wajid- Staff JS Bank Limited EFU General Insurance Limited - related party, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi EFU General Insurance Limited - related party, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Mr. Taufeeq Ahmed Staff JS Bank Limited EFU General Insurance Limited - related party, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Mr. Tayyab Raza Staff JS Bank Limited Mr. Imtiaz Shah Staff JS Bank Limited EFU General Insurance Limited - related party Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi EFU General Insurance Limited - related party, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi

Suzuki Cultus 905 588 317 774 457 Negotiation Suzuki Cultus 830 415 415 738 323 Negotiation Suzuki Cultus 850 538 312 775 463 Negotiation Suzuki Cultus 855 542 313 802 489 Negotiation Suzuki Cultus 825 440 385 757 372 Negotiation Suzuki Cultus 815 503 312 765 453 Negotiation Toyota Corolla 1,015 880 135 1,106 971 Negotiation Toyota Corolla 1,564 1,173 391 1,405 1,014 Negotiation Toyota Corolla 1,462 268 1,194 1,462 268 Insurance Claim 204 Insurance Claim Toyota Corolla 1,529 204 1,325 1,529 Toyota Corolla 1,028 908 120 992 872 Negotiation Toyota Corolla 1,577 26 1,551 1,577 26 Insurance Claim Toyota Corolla 1,025 854 171 1,146 975 Negotiation Toyota Corolla 1,319 945 374 1,208 834 Negotiation Toyota Corolla 1,529 330 1,199 1,510 311 Insurance Claim 1,400 473 Insurance Claim Toyota Corolla 1,426 499 927 Balance c/f 36,207 22,034 14,174 33,701 19,527

Annual Report / JS Bank

63

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Accumulated Written Sale Profit/ Mode of Particulars Cost depreciation down value proceeds (loss) disposal ------------------------------------------------ Rupees in 000 -----------------------------------------------Balance b/f 36,207 22,034 14,174 33,701 19,527

Buyers particulars and relationship with Bank (if any)

Toyota Corolla 1,389 1,042 347 1,205 858 Negotiation Toyota Corolla 1,608 161 1,447 1,607 160 Insurance Claim Toyota Corolla 1,389 1,111 278 1,142 864 Negotiation

MR. Arafat Yaseen Staff JS Bank Limited EFU General Insurance Limited - related party, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Mr. Sultan Hasan, NIC # 42101-1926350-5 Mr. Shah Irfan Staff JS Bank Limited EFU General Insurance Limited - related party, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi

Toyota Corolla 1,319 1,055 264 1,201 937 Negotiation Toyota Corolla 1,529 459 1,070 1,550 480 Insurance Claim

Toyota Corolla 1,607 188 1,419 1,608 189 Insurance Claim EFU General Insurance Limited - related party, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi 45,048 26,050 18,999 42,014 23,015 Electrical, office and computer equipment Generator 1,200 737 463 530 67 Negotiation Generator 1,200 738 462 505 43 Negotiation UPS 615 333 282 - (282) Insurance Claim 3,015 1,808 1,207 1,035 (172) Others (Note 12.2.3) 2012 2011 25,797 73,860 24,969 22,349 50,207 15,815 3,447 23,653 9,154 26,106 69,155 24,204 22,659 Various ELEVATOR EXP. INTL. Abu Yousaf Traders, 188-Ferozepur Road, Lahore ELEVATOR EXP. INTL. Abu Yousaf Traders, 188-Ferozepur Road, Lahore EFU General Insurance Limited - related party, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Various

45,502 15,050

12.2.3

Other represent disposal whose original cost or book value is not in excess of Rs. 1.0 million or Rs. 0.25 million respectively.

64

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

12.3 Intangible assets

Note

COST

ACCUMULATED AMORTISATION/ IMPAIRMENT Charge for the year As at Book value as at December 31, December 31, 2012 2012 Rate % 10 -

As at As at As at January 01, December 31, January 01, 2012 Additions Deletions 2012 2012

-------------------------------------------------------------------- Rupees in 000 --------------------------------------------------------------------- Stock exchange card 12.3.1 11,000 - - 11,000 - - - 11,000 Computer software 182,883 10,668 - 193,551 52,508 18,910 71,418 122,133 Goodwill 12.3.2 1,463,624 - - 1,463,624 - - - 1,463,624 1,657,507 10,668 - 1,668,175 52,508 18,910 71,418 1,596,757 ACCUMULATED AMORTISATION/ COST IMPAIRMENT As at As at As at Charge As at Book value as at Note January 01, December 31, January 01, for the December 31, December 31, 2011 Additions Deletions 2011 2011 year 2011 2011 Stock exchange card Computer software Goodwill

Rate % - 10 -

12.3.1 12.3.2

11,000 160,594 1,463,624 1,635,218

-------------------------------------------------------------------- Rupees in 000 --------------------------------------------------------------------- - - 11,000 - - - 11,000 22,289 - 182,883 35,072 17,436 52,508 130,375 - - 1,463,624 - - - 1,463,624 22,289 - 1,657,507 35,072 17,436 52,508 1,604,999

12.3.1 During the year, in accordance with the requirements of the Stock Exchanges (Corporatisation, Demutualization and Integration) Act, 2012 ( The Act), the Bank was entitled to receive equity Shares of Islamabad Stock Exchange (ISE) and a Trading Right Entitlement in lieu of its Membership card of ISE. The said process of demutualization was finalized during the year and the Bank has been allotted 3,034,603 shares of ISE. Rs. 10/- each based on the revaluation of their assets and liabilities as approved by Securities and Exchange Commission of Pakistan (SECP). The Bank has received 40% equity shares i.e. 1,213,841 shares of ISE. The remaining 60% shares, i.e. 1,820,762 shares, are transferred to blocked CDC account maintained by ISE. The valuation of Trading Right Entitlement and the accounting treatment of shares received from Stock Exchange are under discussion with the Institute of Chartered Accountants of Pakistan (ICAP) and will be finalized in due course. 12.3.2 For impairment testing, goodwill has been allocated to Trading and Sales Segment as Cash Generating Unit (CGU), which is also a reportable segment. 12.3.3 Key assumptions used in value in use calculation

The recoverable amount of the CGU has been determined based on value in use calculation, using cash flow projections based on business projections approved by the Board of Directors of the Bank covering a five year period. The discount rates applied to cash flows beyond the five year period are extrapolated using a terminal growth rate. The following rates are used by the Bank. 2012 2011 Discount rate 21.29% 23.86% Terminal growth rate 10.00% 10.00% The calculation of value in use is most sensitive to the following assumptions: (a) Interest margins Interest margins are based on prevailing industry trends and anticipated market conditions.

Annual Report / JS Bank

65

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

(b) Discount rates Discount rates reflect management estimates of the rate of return required for each business and are calculated after taking into account the prevailing risk free rate, industry risk and business risk. Discount rates are calculated by using the cost of equity of the Bank. (c) Key business assumptions These assumptions are important as they represent management assessment of how the units position might change over the projected period. Based on expansion plans, management expects aggressive growth in advances, investments and deposits during the projected periods and thereafter stabilisation in line with industry trends. (d) Sensitivity to changes in assumptions The estimated recoverable amount of the Trading and Sales CGU exceeds its carrying amount by approximately Rs. 750.135 million. Management has identified two key assumptions for which there could be a reasonably possible change that could cause the carrying amount to exceed the recoverable amount. The following table shows the amount that these two assumptions are required to change individually in order for the estimated recoverable amount to be equal to the carrying amount: Change required for carrying amount to equal recoverable amount (%) 2012 1.79 (2.86) 2011 1.86 (3.17)

Cost of equity Terminal growth rate

2012 2011 Note Rupees in 000 13. DEFERRED TAX ASSETS - net Deferred tax debits arising from: Unused tax losses 13.1 & 13.2 984,193 1,248,585 Provision against investments and loans 179,789 106,415 Unrealized loss on revaluation of forward foreign exchange contracts 818 Deferred cost - 235 Provision for gratuity - 26,371 Unrealized loss on revaluation of investment classified as held for trading - 1,053 Minimum tax 81,968 86,140 Deficit on revaluation of assets - 15,120 1,246,768 1,483,919

66

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 Deferred tax credits arising due to: Fixed assets (142,171) (140,471) Goodwill (307,361) (256,134) Unrealized gain on revaluation of forward foreign exchange contracts - (1,436) Unrealized gain on revaluation of investment classified as held for trading (324) Share of profit from associate - (3,412) Surplus on revaluation of assets (97,640) (547,496) (401,453) 699,272 1,082,466 13.1 Movement in temporary differences during the year:
Balance as Recognised Balance as Recognised Balance as at January in profit and Recognised at December in profit and Recognised at December 01, 2011 loss account in equity 31, 2011 loss account in equity 31, 2012 ---------------------------------------------------------------- Rupees in 000 ------------------------------------------------------------------- Deferred tax debits arising from: Unused tax losses 1,310,758 (62,173) - 1,248,585 (264,392) - 984,193 Provision against investments and loans 231,692 (125,277) - 106,415 73,374 - 179,789 Unrealized loss on revaluation of forward foreign exchange contracts - - - - 818 - 818 Deferred cost 472 (237) - 235 (235) - Provision for gratuity - 26,371 - 26,371 (26,371) - Unrealized loss on revaluation of investment classified as held for trading - 1,053 - 1,053 (1,053) - Minimum tax - 86,140 - 86,140 (4,172) - 81,968 Deficit on revaluation of assets - - 15,120 15,120 - (15,120) 1,542,922 (74,123) 15,120 1,483,919 (222,031) (15,120) 1,246,768 Deferred tax credits arising due to: Fixed assets (144,280) 3,809 - (140,471) (1,700) - (142,171) Goodwill (205,048) (51,086) - (256,134) (51,227) - (307,361)

Unrealized gain on revaluation of forward foreign exchange contracts - (1,436) - (1,436) 1,436 - Unrealized gain of revaluation of investment classified as held for trading - - - - (324) - (324) Share of profit from associate Surplus on revaluation of assets - (8,980) (358,308) 1,184,614 (3,412) - (52,125) (126,248) - 8,980 8,980 24,100 (3,412) - (401,453) 1,082,466 3,412 - (97,640) (97,640) (112,760) (97,640) (547,496) 699,272 - (48,403) (270,434)

13.2

Included herein is a sum of Rs. 51.734 million (December 31, 2011: Rs.305.885 million) representing deferred tax asset relating to American Express Bank Limited - Pakistan Branch, respectively, in respect of tax losses, expected to be available for carry forward and set off against the income of the Bank in terms of Section 57A of the Income Tax Ordinance, 2001. In addition, it also includes deferred tax asset set up in respect of tax loss of the Bank. The management of the Bank believes that based on the projections of future taxable profit, it would be able to realise these tax losses in the future.

Annual Report / JS Bank

67

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

The management of the Bank has prepared a five year projections which has been approved by the Board of Directors of the Bank. The projections involves certain key assumptions underlying the estimation of future taxable profits projected in the projections. The determination of future taxable profits is most sensitive to certain key assumptions such as cost to income ratio of the Bank, deposit composition, growth of deposits and advances, investment returns, potential provision against assets, branch expansion plan, etc. Any significant change in the key assumptions may have an effect on the realisability of the deferred tax asset. The management believes that it is probable that the Bank will be able to achieve the profits projected in the projections and consequently the deferred tax asset will be fully realised in the future. 2012 2011 Note Rupees in 000 14. OTHER ASSETS Income / mark-up accrued in local currency 693,691 601,609 Income / mark-up accrued in foreign currencies 10,236 14,891 Advances, deposits, advance rent and other prepayments 180,689 156,900 Taxation (payments less provision) 65,182 54,224 Receivable against bancaassurance from a related party 15,541 14,388 Stationery and stamps on hand 3,148 3,196 Prepaid exchange risk fee 505 364 Unrealised gain on forward foreign exchange contracts - net - 4,103 Receivable from other banks in respect of remittance 14.1 257,675 178,159 Others 17,600 29,557 1,244,267 1,057,391 14.1 This includes an amount of Rs. 204.985 million (December 31, 2011: 150.085 million) receivable from State Bank of Pakistan in respect of home remittance services provided by the Bank. 2012 2011 Rupees in 000 15. BILLS PAYABLE In Pakistan 708,734 1,242,139 Outside Pakistan 5,013 4,855 713,747 1,246,994 16. BORROWINGS In Pakistan 8,173,564 2,942,935 Outside Pakistan 48,709 1,560 8,222,273 2,944,495 16.1 Particulars of borrowings with respect to currencies In local currency 8,173,564 2,942,935 In foreign currencies 48,709 1,560 8,222,273 2,944,495

13.3

68

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 16.2 Details of borrowings from financial institutions Secured Borrowing from SBP under export refinancing scheme 16.2.1 1,023,474 1,248,000 Repurchase agreement borrowings 16.2.2 7,050,090 1,694,935 8,073,564 2,942,935 Unsecured Call borrowings 16.2.3 100,000 Overdrawn nostro accounts 16.2.4 48,709 1,560 148,709 1,560 2,944,495 8,222,273 16.2.1 The Bank has entered into agreement with the State Bank of Pakistan (SBP) for extending export finance to customers. As per the terms of the agreement, the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of finances by directly debiting the current account maintained by the Bank with SBP. These borrowings are repayable on a quarterly basis and carry mark-up at the rate ranging between 8.50% to 10% (2011: 10.0% to 10.5%) per annum. 16.2.2 This represents collateralised borrowing from SBP against Market Treasury Bills carrying mark-up at the rate ranging between 8.80% to 8.86% (2011: 11.63% to 11.90%) per annum and would mature in January 2013 (December 31, 2011: January 2012). 16.2.3 These represent call money borrowings from financial institutions, carrying interest at the rate of 8.50% (2011: NIL) per annum.

16.2.4 This represents borrowings from financial institutions outside Pakistan. 2012 2011 Rupees in 000 17. DEPOSITS AND OTHER ACCOUNTS Customers Fixed deposits 20,771,890 14,252,810 Savings deposits 17,964,800 11,404,426 Current accounts - non-remunerative 16,845,870 11,293,377 Margin account 317,491 94,834 55,900,051 37,045,447 Financial Institutions Remunerative deposits 6,420,235 4,366,465 Non-remunerative deposits 223,507 75,119 6,643,742 4,441,584 62,543,793 41,487,031 17.1 Particulars of deposits In local currency 58,657,117 38,494,249 In foreign currencies 3,886,676 2,992,782 62,543,793 41,487,031

Annual Report / JS Bank

69

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 18. OTHER LIABILITIES Mark-up / return / interest payable in local currency 18.1 Mark-up / return / interest payable in foreign currencies Accrued expenses Payable in respect of defined benefit plan 33.4 Customer insurance payable Unrealised loss on forward foreign exchange contracts - net Unclaimed dividends Government duties Lease key money deposit Provision for Workers Welfare Fund - WWF Payable against remittance SSC / DSC Sale Payable Staff reimbursements payable ATM charges payable Payable against export bills Retention money payable Payable against maintenance of IT equipment Payable to VISA on transaction settlements Others 18.1 458,025 8,629 234,662 22,967 2,997 2,337 4,207 30,048 50,202 32,509 169,618 8,000 6,770 5,903 5,110 6,210 3,630 8,593 73,956 1,134,373 252,105 1,958 194,025 75,345 3,695 4,274 10,268 43,875 148,511 3,592 4,626 1,746 4,011 2,554 3,607 10,827 765,019

Included herein is a sum of Rs. 46.516 million (December 31, 2011: Rs.2.415 million) payable to related parties.

19. SHARE CAPITAL

19.1

Authorised capital 2012 2011 Note Rupees in 000 Ordinary shares of Rs.10 each 15,000,000 12,000,000

2012 2011 Number of shares 1,500,000,000 1,200,000,000

19.2

Issued, subscribed and paid-up capital Ordinary shares of Rs.10 each

2012 2011 2012 2011 Number of shares Rupees in 000 538,558,965 538,558,965 Issued for cash 5,385,590 5,385,590 Issued for consideration 533,905,297 461,734,046 other than cash 19.2.1 5,339,053 4,617,340 1,072,464,262 1,000,293,011 19.2.2 10,724,643 10,002,930

70

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

19.2.1 During the year, the Board of Directors of the Bank in their meeting held on May 25, 2012 and the shareholders of the Bank in the extraordinary general meeting held on June 27, 2012 approved acquisition of shares of JS Investment Limited (JSIL) from Jahangir Siddiqui & Co. Ltd. (JSCL) and other shareholders of JSIL in exchange of issuance of new shares of the Bank. After obtaining all regulatory approvals, 52,236,978 shares of JSIL (52,023,617 shares from JSCL and 213,361 shares from other shareholders of JSIL) were acquired in exchange for issuance of 72,171,251 shares ( 71,876,469 shares to JSCL and 294,782 shares to other shareholders of JSIL) of the Bank. 19.2.2 Jahangir Siddiqui & Co. Ltd held 755,245,007 ordinary shares (December 31, 2011: 683,368,538 ordinary shares) of Rs.10 each as at December 31, 2012 representing a holding of 70.42% (December 31, 2011: 68.32%).

2012 2011 Rupees in 000 20. SURPLUS / (DEFICIT) ON REVALUATION OF ASSETS - net of tax

Available-for-sale securities Term Finance Certificates - listed (70,227) (4,716) Ordinary shares - listed 206,198 (724) Preference shares - listed 14,507 Closed end mutual funds 47,422 6,146 Open end mutual funds 1,093 324 US dollar bonds 7,589 (15,373) Government securities 72,389 (28,857) 278,971 (43,200) Related deferred tax (liability) / asset (97,640) 15,120 181,331 (28,080) 21. CONTINGENCIES AND COMMITMENTS

21.1 Transaction-related contingent liabilities Includes performance bonds, bid bonds, warranties, advance payment guarantees, shipping guarantees and standby letters of credit related to particular transactions. i) Government 1,950,045 890,007 ii) Banking companies and other financial institutions 588,099 98,165 iii) Others 293,522 403,562 2,831,666 1,391,734 21.2 Trade-related contingent liabilities Documentary credits 4,992,746 2,921,223 21.3 Other contingencies

Claims not acknowledged as debts

66,718

66,481

21.4

Commitments in respect of forward exchange contracts Purchase Sale 2,292,630 2,450,968

1,948,987 1,446,561

Annual Report / JS Bank

71

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

The Bank utilises foreign exchange instruments to meet the need of its customers and as part of its asset and liability management activity to hedge its own exposure to currency risk. At year end, all foreign exchange contracts have a remaining maturity of less than one year. Commitments in respect of forward lending Forward commitments to extend credit Other commitments Commitment in respect of capital expenditure 33,149 8,438 604,511 214,800

21.5

21.6

22. DERIVATIVE INSTRUMENTS

The Bank, at present, does not offer structured derivative products such as Interest Rate Swaps, Forward Rate Agreements and FX Options. However, the Banks Treasury buys and sells financial instruments such as forward foreign exchange contracts. The management is committed to managing risk and controlling business and financial activities in a manner which enables it to maximise profitable business opportunities, avoid or reduce risks, which can cause loss or reputation damage, ensure compliance with applicable laws and regulations and resilience to external events. The Asset and Liability Committee (ALCO) regularly reviews the Banks risk profile in respect of derivatives. Operational procedures and controls have been established to facilitate complete, accurate and timely processing of transactions and derivative activities. These controls include appropriate segregation of duties, regular reconciliation of account and the valuation of assets and liabilities positions. The Bank has established trading limits, allocation process, operating controls and reporting requirements that are specifically designed to control risk of aggregate positions, assure compliance with accounting and regulatory standards and provide accurate management information regarding these activities. Accounting policies in respect of derivative financial instruments are described in note 6.5.2.

2012 2011 Note Rupees in 000 23. MARK-UP / RETURN / INTEREST EARNED

On loans and advances to: Customers Financial institutions

On investments in: Available-for-sale securities Held-for-trading securities On deposits with financial institutions On securities purchased under resale agreements

2,561,213 56,400 2,259,401 992,780 59 153,006 6,022,859

2,013,332 147,672 1,478,245 523,384 41 149,533 4,312,207

72

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 24. MARK-UP / RETURN / INTEREST EXPENSED
Deposits Securities sold under repurchase agreements Borrowings

3,282,861 344,641 130,717 3,758,219

2,103,612 305,137 174,776 2,583,525

25. FEE, COMMISSION AND BROKERAGE INCOME Advisory fee Trustee fee Other fees, commission and charges 25.1 25.1 40,638 9,487 515,831 565,956 9,669 3,896 337,618 351,183

This includes Rs. 84.650 million (December 31, 2011: 63.322 million) in respect of commission income from home remittance services provided by the Bank. The amount is received from State Bank of Pakistan at the rate of Saudi Riyal 25 per transaction over USD 100 and is shared between the Bank and various exchange companies as per terms of agreement with them. 2012 2011 Note Rupees in 000 26. GAIN / (LOSS) ON SALE OF SECURITIES - net 26.1

Federal Government Securities - Treasury Bills 250,728 112,917 - Pakistan Investment Bonds 400,649 141,218 Ordinary shares - listed 60,135 (16,332) Term Finance Certificates 23,292 25,717 US Dollar Bonds 56,658 3,218 Mutual Fund Units / Certificates 33,951 (20,963) 26.1 825,413 245,775 Included herein a sum of Rs. 33.95 million (December 31, 2011: Rs.15.72 million) representing gain arising on sale of shares / units of a related party.

27. This represents gain on sale of operating fixed assets.

Annual Report / JS Bank

73

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 28. ADMINISTRATIVE EXPENSES Salaries, wages, allowances, etc. Charge for defined benefit plan 34.6 Contribution to defined contribution plan Non-executive directors fee, allowances and other expenses Contractor wages Brokerage, fee and commission Rent, taxes, insurance, electricity, etc. Legal and professional charges Donations 28.1 Communication Repairs and maintenance Travel and other related expenses Stationery and printing Advertisement and publicity Postage and courier service Stamp duty CDC and other charges Bank charges and clearing house charges Consultancy fee Security services Fees and subscription Auditors remuneration 28.2 Depreciation 12.2 Amortisation of intangible assets 12.3 Staff training Others

965,021 22,622 41,810 913 116,733 17,020 423,178 28,685 14,000 63,038 298,442 16,965 52,834 49,850 14,936 4,704 1,884 28,270 32,237 52,169 22,139 5,574 223,030 18,910 4,507 33,374 2,552,845

313 92,305 13,561 375,656 12,038 69,183 207,447 11,478 44,497 48,881 14,000 1,581 3,053 25,258 24,797 44,194 16,451 3,135 226,386 17,436 1,976 20,041 2,098,357

772,968 17,336 34,386

28.1

Donation is for Mahvash & Jahangir Siddiqui Foundation where in Mrs. Mahvash Jahangir Siddiqui is chairperson who is spouse of Mr. Jahangir Siddiqui, Chairman of the Board of the Bank. Auditors Remuneration 1,450 400 3,448 276 5,574 1,737 (4,367) (2,630) 1,200 400 1,525 10 3,135 7,840 7,840

Audit fee Half-yearly review Special certification and Tax Fee Out of pocket expenses 29. OTHER CHARGES Penalties imposed by State Bank of Pakistan Refund of penalties by State Bank of Pakistan

28.2

74

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

30. TAXATION

30.1 30.2

In view of tax losses of the Bank tax provision has been made for minimum taxation @ 0.5% under section 113 of the Income Tax Ordinance, 2001 During the year, the Bank has revised the income tax returns for the tax years 2010 and 2011 claiming back the minimum tax charged for the said years on account of gross losses in those years. Relationship between income tax expense and accounting profit Accounting profit for the year Tax on income @ 35% (December 31, 2011: 35%) Tax effect of permanent differences Adjustments in respect of tax at reduced rates Reversal of minimum tax of prior year Others Tax charge for the year 2012 2011 Rupees in 000 1,010,994 (353,848) 921 40,844 10,157 (892) (302,818) 535,752 (187,513) (2,744) 5,108 9,088 (176,061)

30.3

30.4

Under Section 114 of the Income Tax Ordinance, 2001, the Bank has filed the tax returns for the tax years 2006 through 2012. The said returns are deemed to be assessed under the provisions of prevailing income tax laws as applicable in Pakistan. However, tax authorities have issued notices for the amendment of assessments for the tax year 2008 to 2010. Since such proceedings have not yet been concluded by the authorities, therefore any estimate of tax exposure cannot be determined at this stage.

Further, withholding tax monitoring has been initiated by LTU, Karachi for tax years 2010 and 2012 which was carried out through monitoring of expenses with respect to salaries and profit on debt. Moreover, the withholding tax monitoring pertaining to tax year 2011 was also initiated by the authorities under section 161/205 of the Income Tax Ordinance, 2001 which is currently in the process of furnishing information. As the said proceedings are currently under way, therefore tax exposure, if any, cannot be determined at this stage. Moreover, previously the monitoring for tax year 2008 and 2009 were also taken up by the Regional Tax Office, Karachi but due to the transferring the Banks jurisdiction to LTU by the FBR during such proceedings, the same has not been taken up again by LTU authorities as yet. 2011 359,691 858,615,404 0.42

2012 31. EARNINGS PER SHARE - BASIC AND DILUTED

Profit for the year after taxation Weighted average number of Ordinary shares outstanding during the year Earnings per share - basic and diluted

Rupees in 000 Numbers Rupee

708,176 1,012,293,818 0.70

Diluted earnings per share has not been presented as the Bank does not have any convertible instruments in issue at December 31, 2011 and 2012 which would have any effect on the earnings per share if the option to convert is exercised.

Annual Report / JS Bank

75

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

32. CASH AND CASH EQUIVALENTS

2012 2011 Note Rupees in 000 3,880,688 136,880 (1,560) 4,016,008

Cash and balances with treasury banks 7 5,027,797 Balances with other banks 8 1,178,265 Overdrawn nostro account 16.2 (48,709) 6,157,353 32.1 Non-Cash transactions

During the year, the Bank acquired 52.24% shareholding of JS Investment Limited amounting to Rs. 561.192 million in a share-exchange arrangement. The issuance and acquisition of shares, being a non-cash financing and investment activity, is not reflected in the unconsolidated cash flow statement. 2011 952 23 975 498 1,473

2012 33. STAFF STRENGTH Number

Permanent Temporary / on contractual basis Banks own staff strength at the end of the year Outsourced 34. DEFINED BENEFIT PLAN 34.1 General description

1,062 34 1,096 619 1,715

The Bank operates a recognized gratuity fund for all employees who opted for the new staff retirement benefit scheme introduced by the management with effect from January 01, 2007.

34.2 Number of employees under the schemes The number of employees covered under the following defined benefit scheme is 1,062 ( December 31, 2011: 952).

34.3 Principal actuarial assumptions

Principal actuarial assumptions at the end of the reporting period expressed as weighted averages. The actuarial valuations were carried out on December 31, 2012 based on the Projected Unit Credit Method, using the following significant assumptions: 2012 2011 Valuation discount rate Expected return on plan assets Future salary increase rate Normal retirement age per annum per annum per annum years 11.50% 10% 11.50% 60 12.50% 9% 12.50% 60

76

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 34.4 Reconciliation of payable to defined benefit plan Present value of defined benefit obligation 33.4.1 91,269 61,399 Fair value of any plan assets 33.4.2 (79,911) Deficit 11,358 61,399 Past service cost - non vested 754 1,132 Commulative unrecognised actuarial gains 33.4.3 10,855 12,814 22,967 75,345 34.4.1 Movement in present value of defined benefit obligation Opening balance 61,399 49,634 Current service cost 27,745 22,304 Interest cost 7,600 6,949 Benefits paid during the year (1,204) Negative past service cost - Vested - (2,997) Negative past service cost - Non Vested - (1,132) Curtailment gains (4,404) (7,488) Acturial losses / (gains) on obligation 133 (5,871) Closing balance 91,269 61,399 34.4.2 Movement in fair value of plan assets Opening balance - Contribution made 75,000 Expected return on plan assets 6,750 - Benefits paid by the fund (1,204) Acturial losses (635) Closing balance 33.4.2.1 79,911 34.4.2.1 Plan assets consist of the following: Pakistan Investment Bonds 70,753 Bank balances 9,158 79,911 34.4.2.2 Actual return on plan assets 6,115 34.4.3 Cummulative unrecognised actuarial gains / (losses) -net Opening balance 12,814 8,860 Acturial (loss) / gain on defined benefit obligation (133) 5,871 Acturial loss on plan assets (635) 12,046 14,731 Acturial gains recognised due to curtailment gain (524) (1,563) Acturial gains recognised due to corridor limits (667) (354) 10,855 12,814

Annual Report / JS Bank

77

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 34.5 Movement in payable to defined benefit plan Opening net liability 75,345 58,009 Expense for the year 34.6 22,622 17,336 Contributions (75,000) Closing net liability 22,967 75,345 34.6 Charge for the defined benefit plan Current service cost 27,745 22,304 Interest cost 7,600 6,949 Transitional liability recognised - 485 Expected return on contributions (6,750) Actuarial gain due to curtailment gain (524) Curtailment gains (4,405) (7,488) Acturial gain / (loss) recognised (667) (1,917) Past service cost - vested (377) (2,997) 22,622 17,336 2012 2011 2010 2009 2008 ----------------------------- Rupees in 000 ------------------------------ 34.7 Five years data on plans and experience adjustments Present value of defined benefit obligation 91,269 Fair value of plan assets (79,911) 11,358 Experience adjustment on obligation - gain / (loss) (133) Experience adjustment on plan assets - gain / (loss) (635) 35. DEFINED CONTRIBUTION PLAN The Bank operates a contributory provident fund scheme for all permanent employees. The employer and employee both contribute 10% of the basic salaries to the funded scheme every month. Number of employees covered under this plan are 1,062 (December 31, 2011: 952). During the year, employees made a contribution of Rs.41.8 (2011: Rs.34.386) million to the fund. The Bank has also made a contribution of equal amount to the fund. 61,399 - 61,399 5,871 - 49,634 - 49,634 7,848 - 36,247 - 36,247 1,732 - 19,242 19,242 (141)

36. COMPENSATION OF DIRECTORS AND EXECUTIVES The aggregate amount charged in the financial statements for the year in respect of the remuneration and benefits to the President / Chief Executive, Directors and Executives are as follows:

78

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Note Managerial remuneration Defined contribution plan Charge for defined benefit plan Rent and house maintenance Utilities Medical Conveyance and vehicle maintenance Performance bonus Non-executve directors fee, allowances and other expenses Number of persons

2012 President Director Executives ----------------- Rupees in 000 ----------------9,871 - - 4,442 987 48 - 4,000 - 19,348 347 - - 156 35 - - - 913 1,451 7 270,782 27,477 20,558 121,852 27,078 4,033 49,608 91,640 - 613,028 246

Total 281,000 27,477 20,558 126,450 28,100 4,081 49,608 95,640 913 633,827 254 Total 223,960 19,061 16,886 100,782 22,396 3,321 38,465 64,290 313 489,474 208

36.1

Managerial remuneration Defined contribution plan Charge for defined benefit plan Rent and house maintenance Utilities Medical Conveyance and vehicle maintenance Bonus Non-executve directors fee, allowances and other expenses Number of persons 36.1 36.1

2011 President Director Executives ----------------- Rupees in 000 ----------------8,806 - - 3,963 881 31 923 4,000 - 18,604 1 6,194 619 514 2,787 619 11 461 4,000 313 15,518 7 208,960 18,442 16,372 94,032 20,896 3,279 37,081 56,290 - 455,352 200

The President, Director and certain executives are also provided with other facilities, including free use of the Bank maintained cars.

37. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of traded investments is based on quoted market price. Fair value of fixed term loans, other assets, other liabilities and fixed term deposits cannot be calculated with sufficient reliability due to absence of current and active market for assets and liabilities and reliable data regarding market rates for similar instruments. The provision for impairment of loans and advances has been calculated in accordance with the Banks accounting policy as stated in note 6.7 to these financial statements.

Annual Report / JS Bank

79

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

The repricing profile, effective rates and maturity are stated in note 41.3.4 to these financial statements. In the opinion of the management, the fair value of the remaining financial assets and liabilities are not significantly different from their carrying values since assets and liabilities are either short term in nature or in the case of customer loans and deposits are frequently repriced.

38. SEGMENT DETAILS WITH RESPECT TO BUSINESS ACTIVITIES The segment analysis with respect to business activities is as follows:
Corporate finance 51,373 51,373 (4,776) - - 46,597 - - - - - Trading and sales 4,765,808 1,905,910 (596,996) - - 1,308,914 - - 7,543,174 10.73 9.28 Retail banking 506,036 3,646,299 4,152,335 (4,258,459) - - (106,124) 3,270,146 50,589 31,805 48,295,992 12.68 5.87 2012 Commercial Payment and banking settlement Others Total 2,326,424 (786,401) 1,540,023 (1,686,779) - - (146,756) 17,399,445 2,986,675 939,448 14,677,176 13.02 9.53 2011 Commercial banking 161,326 - 161,326 (34,858) - - 126,468 - - 713,747 - - 18,389 - 18,389 (236,494) - - (218,105) - - 1,384,097 - - 7,829,356 7,829,356 (6,818,362) (32,384) (270,434) 708,176 82,541,248 3,037,264 971,253 72,614,186 -

----------------------------------------------------- Rupees in 000 ----------------------------------------------------- - (2,859,898)

Total income - external Inter-segment revenues - net Total income Total expenses Tax expense Deferred tax Net income / (loss) Segment assets (gross) Segment non performing loans Segment provision required Segment liabilities Segment return on net assets (ROA) (%) Segment cost of funds (%)

- 46,626,095

- 15,245,562

Corporate finance

Trading and sales

Retail banking

Payment and settlement Others Total

----------------------------------------------------- Rupees in 000 ----------------------------------------------------- 14,215 14,215 (3,412) - - 10,803 - - - - - 2,831,426 1,118,857 (492,711) - - 626,146 - - 1,995,013 11.58 11.31 421,104 2,680,823 3,101,927 (3,298,590) - - (196,663) 2,715,566 42,945 27,825 32,544,252 10.98 6.58 1,868,784 (968,254) 900,530 (817,457) - - 83,073 16,235,610 2,733,950 485,924 9,890,701 13.60 9.05 40,774 - 40,774 (28,311) - - 12,463 - - - 1,246,994 - - 49,171 - 49,171 (49,241) - - (70) 9,786,909 - - 766,579 - - 5,225,474 - 5,225,474 (4,689,722) (49,813) (126,248) 359,691 54,434,318 2,776,895 513,749 46,443,539 - -

Total income - external Inter-segment revenues - net Total income Total expenses Tax expense Deferred tax Net income / (loss) Segment assets (gross) Segment non performing loans Segment provision required Segment liabilities Segment return on net assets (ROA) (%) Segment cost of funds (%)

- (1,712,569)

- 25,696,233

80

39. RELATED PARTY TRANSACTIONS

The Bank has related party relationship with its associates, parent, subsidiaries, companies having common directors, companies in which parent holds more than 20% shares, employee benefit plans, and its key management personnel (including their associates). The details of investments in subsidiaries and associates are stated in note 10.2.12 to these unconsolidated financial statements.

Annual Report / JS Bank

Contributions to the accounts in respect of staff retirement benefits are made in accordance with terms of the contribution plans. Remuneration of the key management personnel are in accordance with the terms of their employment. Other transactions are carried out as per agreed terms.

FOR THE YEAR ENDED DECEMBER 31, 2012

The details of transactions with related parties, other than those which have been specifically disclosed elsewhere in the financial statements are as follows:

Key management personnel Subsidiary companies Other related parties Total 2012 2011 2012 2011 2012 2011 2012 2011 ----------------------------------------------------------------- (Rupees in 000) ------------------------------------------------------------------------ Advances Opening balance 39,651 3,423 - - 2,975,684 2,994,330 3,015,335 2,997,753 Disbursements 67,600 42,692 391,434 - 7,356,245 7,387,316 7,815,279 7,430,008 Repayments (13,699) (6,464) (235,241) - (8,953,890) (7,405,962) (9,202,830) (7,412,426) Balance as at December 31 93,552 39,651 156,193 - 1,378,039 2,975,684 1,627,784 3,015,335 Mark-up /return / interest earned 3,050 3,480 1,519 - 440,115 401,684 444,684 405,164 Parent Key management personnel Subsidiary companies Other related parties Total 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 ---------------------------------------------------------------------------------------- (Rupees in 000) --------------------------------------------------------------------------------------------

Deposits

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

1,044,434 1,733,460 Opening balance 560,818 1,799 10,994 9,695 1,316,216 771,816 3,621,488 1,827,744 Deposits during the year 8,747,957 2,535,433 270,304 173,263 247,805,896 235,895,674 40,912,613 25,371,652 297,736,770 263,976,022 Withdrawals during the year (7,305,946) (1,976,414) (264,567) (171,964) (248,500,619) (235,623,892) (38,258,139) (24,410,008) (294,329,271) (262,182,278) Balance as at December 31 2,002,829 560,818 16,731 10,994 621,493 1,316,216 4,387,934 1,733,460 7,028,987 3,621,488 Mark-up / return / interest expensed 53,682 11,268 375 139 43,290 52,212 275,440 134,699 372,787 198,318

The related party status of outstanding receivables and payables as at December 31, 2012 is included in respective notes to the financial statements. Material transactions with related parties are given below: Subsidiary companies Companies having Companies in which parent common directorship company holds 20% or more Other related parties Total 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 ---------------------------------------------------------------------------------------- (Rupees in 000) -------------------------------------------------------------------------------------------- Nature of transactions

FOR THE YEAR ENDED DECEMBER 31, 2012

Sale of Term Finance Certificates 251,877 131,587 - - - - - 41,419 251,877 173,006 Purchase of Term Finance Certificates 331,201 403,592 - - - - 16,347 - 347,548 403,592 Sale of Government Securities 24,457,189 23,006,598 46,575,731 24,072,927 - 1,288,844 2,889,665 186,729 73,922,585 48,555,098 Purchase of Government Securities 24,044,578 23,987,177 9,332,872 1,225,435 - 1,938 69,291 - 33,446,741 25,214,550 Purchase of Sukuk 4,563,507 49,286 - - 4,252,287 - - - 8,815,794 49,286 Sale of Sukuk 3,573,996 18,637 143,788 104,448 1,543,690 - - - 5,261,474 123,085 Sale of shares / Units - - - - - 541,427 1,453,300 - 1,453,300 541,427 Purchase of shares / Units - - - - - 737,670 1,154,675 - 1,154,675 737,670 Subscription in shares - - - 22,560 - - - 127,374 - 149,934 Rent Receivable 332 881 - - - 966 - - 332 1,847 Call lending / Reverse Repo 5,867,623 2,023,823 - - - 1,705,000 - - 5,867,623 3,728,823 - 5,550,000 14,850,000 Call borrowing / Repo - - - - 5,550,000 14,850,000 - Purchase of forward foreign exchange contracts - - - - 8,306,908 4,946,891 - - 8,306,908 4,946,891 Sale of forward foreign exchange contracts - - - - 10,160,117 6,506,439 - - 10,160,117 6,506,439 Letter of credits - - - - - - - 47,798 - 47,798 Letter of guarantees 400,000 - - - - - 30,295 - 430,295

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

Subsidiary companies Companies having Companies in which parent common directorship company holds 20% or more Other related parties Total 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 ---------------------------------------------------------------------------------------- (Rupees in 000) --------------------------------------------------------------------------------------------

Annual Report / JS Bank 81

Nature of transactions Insurance claim received - - 20,323 10,937 - - - 8 20,323 10,945 Markup on TFCs - - - - - - 79,585 79,585 Rent received 793 - - - 869 - - - 1,662 Reimbursement of expenses 1,101 1,163 - 35 1,090 - - - 2,191 1,198 Payment of insurance premium - - 37,132 30,791 - - - - 37,132 30,791 Services rendered 125 758 - - - 822 - - 125 1,580 Rent expense paid / accrued - 1,031 - - - - - - - 1,031 Commission paid / accrued 9,025 2,101 - - - - - - 9,025 2,101 Commission income 3,200 2,849 92,087 70,441 2,262 1,773 267 3,533 97,816 78,596 Dividend income 89,338 - - - - 6,096 8,746 - 98,084 6,096 Consultancy fee - - - - - - 8,000 2,800 8,000 2,800 Parent company 2012 2011 (Rupees in 000) Nature of transactions Subscription in right shares - 1,127,233 Purchase of Government Securities - 597,478 Sale of Government Securities 728,550 - Rent expense paid / accrued 1,023 550 Reimbursement of expenses 903 45

82

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

40. CAPITAL ASSESSMENT AND ADEQUACY 40.1 40.2 Scope of Application Basel II Framework is applicable to the Bank both at consolidated level as well as on stand alone basis. Capital Structure Banks regulatory capital is analyzed into two tiers Tier I capital, which includes fully issued, subscribed and paid up capital, balance in share premium account, reserve for bonus issue, general reserves as per the financial statements and net un-appropriated profits etc. after deductions of investments in equity of subsidiary companies engaged in banking and financial activities, goodwill & other intangible assets and deficit on revaluation of available for sale investments. Tier II capital, which includes general provision for loan losses (upto maximum of 1.25% of risk weighted assets), reserve on the revaluation of fixed assets and equity investments (upto a maximum of 45% of the balance in the related revaluation reserve) and subordinated debt (upto a maximum of 50% of Tier I Capital). Tier III capital has also been prescribed by the SBP for managing market risk; however, the Bank does not have any Tier III capital.

Detail of the Banks eligible capital (on an unconsolidated basis) is as follows: 2012 2011 Note Rupees in 000 Tier I Capital Shareholders equity / assigned capital 10,724,643 10,002,930 Reserves 231,613 89,978 Discount on issue of shares (2,105,401) (1,944,880) Accumulated losses (76,377) (642,918) 8,774,478 7,505,110 Deductions Goodwill and other intangibles 1,609,837 1,606,795 - 43,200 Deficit on account of revaluation of investments held in AFS category Other deductions 40.2.1 959,561 678,965 2,569,398 2,328,960 Total Tier I Capital 6,205,080 5,176,150 Tier II Capital General Provisions subject to 1.25% of Total Risk Weighted Assets 1,191 1,083 Revaluation Reserve (upto 45%) 125,537 126,728 1,083 Deductions Other deductions 40.2.1 959,561 678,965 Total Tier II Capital (832,833) (677,882) Eligible Tier III Capital - Total Regulatory Capital Base 5,372,247 4,498,268

Annual Report / JS Bank

83

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

40.2.1 Other deductions comprise of investment in equity capital of financial subsidiaries not consolidated in the balance sheet and significant minority investments in securities entities. 40.3 Capital Adequacy Capital Management The primary objective of the Banks capital management is to ensure that the Bank complies with all regulatory capital requirements and at the same time maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholders value. Statutory minimum capital requirement and management of capital The State Bank of Pakistan through its BSD Circular No. 07 dated April 15, 2009 requires the minimum paid up capital (net of losses) for Banks / Development Finance Institutions (DFIs) to be raised to Rs.10 billion by the year ending December 31, 2013. This increase in capital is to be achieved in a phased manner requiring Rs.9 billion paid up capital (net of losses) by the end of the financial year 2012. The paid up capital (net of losses) of the Bank as at December 31, 2012 stood at Rs.8.543 billion. The Bank plans to meet the shortfall in equity capital through further issuance of shares as disclosed in note 1.3 In addition, the Bank is also required to maintain a minimum Capital Adequacy Ratio (CAR) of 10% of the risk weighted exposure of the Bank. The Banks CAR as at December 31, 2012 is 16.46% of its risk weighted exposures. The Bank in alignment with its corporate strategy has laid down its footprints across Pakistan with plans to further expand its outreach with more branches nationwide this year, providing a range of innovative financial products and services to a wide customer base. The capital adequacy is constantly being monitored and stress tested by using various adverse scenarios. The Bank has developed a formalised strategy for the Internal Capital Adequacy Assessment (ICAAP) as laid down by SBP under ICAAP Guidelines, which commensurate with the size, nature and complexity of its business operations. Capital requirements Risk weighted assets 2012 2011 2012 2011 ------------------- Rupees in 000 -------------------

40.4 Risk Weighted Exposures

CREDIT RISK Portfolios subject to standardized approach On balance sheet Corporate 1,592,054 1,441,636 15,920,537 14,416,359 Retail 85,878 32,069 858,781 320,693 Banks and DFIs 141,053 70,644 1,410,531 706,443 Public sector entity 9,998 - 99,984 Sovereign (include GoP and SBP) - - - Residential mortgage finance 17,937 7,815 179,371 78,148 Past due loans 264,123 325,095 2,641,229 3,250,950 Fixed assets 155,528 141,464 1,555,280 1,414,644 Other assets 91,130 133,163 911,297 1,331,634 2,357,701 2,151,886 23,577,010 21,518,871

84

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Capital requirements Risk weighted assets 2012 2011 2012 2011 ------------------- Rupees in 000 -------------------

Off balance sheet Non market related 239,729 163,433 2,398,247 1,634,325 Market related 1,288 1,326 12,884 13,263 241,017 164,759 2,411,131 1,647,588 Equity Exposure Risk in the Banking Book 193,350 86,702 1,933,498 867,017 Total Credit Risk 2,792,068 2,403,347 27,921,639 24,033,476 MARKET RISK Capital Requirement for portfolios subject to Standardized Approach Interest rate risk 18,511 55,321 231,388 691,513 Equity position risk - 16,010 - 200,125 Foreign exchange risk 2,946 2,789 36,825 34,866 OPERATIONAL RISK Capital Requirement for operational risks 356,505 234,052 4,456,317 2,925,648 TOTAL 3,170,030 2,711,519 32,646,169 27,885,628 Capital Adequacy Ratio Total eligible regulatory capital held Total risk weighted assets Capital adequacy ratio (a) / (b) (a) (b) 5,372,228 4,498,268 32,646,169 27,885,628 16.46% 16.13%

41. RISK MANAGEMENT Risk Management is a discipline at the core of every financial institution and encompasses all the activities that affects risk profile. At the Bank, it involves identification, measurement, monitoring and controlling risks to ensure that: a) b) c) d) e) f) g) The individuals who take or manage risks clearly understand it; The Banks Risk exposure is within the limits established by Board of Directors (BoD); Risk taking decisions are in line with the business strategy and objectives set by BoD; The expected payoffs compensate for the risks taken; Risk taking decisions are explicit and clear; Sufficient capital as a buffer is available to take risk; and Risk management function is independent of risk taking unit.

Keeping in view the dynamics of internal and external environment, we regularly review and update our Risk Management policies and procedures in accordance with regulatory environment and international standards.

Annual Report / JS Bank

85

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Risk Management of Bank includes: a) Clearly defined risk management policies and procedures covering risk identification, acceptance, measurement, monitoring, reporting and control; b) Well constituted organizational structure, defining clearly roles and responsibilities of individuals involved in risk taking as well as managing it. The bank, in addition to risk management functions for various risk categories, has instituted an Integrated Risk Management Committee (IRMC) that supervises overall risk management at the Bank. The IRMC establishes the Banks overall risk-taking capacity. This involves an effective portfolio management strategy, keeping in view the earnings growth target and capital constraints. The IRMC sets the strategic target and aggregate limits at the Business Group level and concentration limits (by industry, geography, size, tenor) so that one category of assets or dimension of risk cannot materially harm the performance of the Bank; An effective management information system that ensures flow of information from operational level to top management and a system to address any exceptions observed; and A mechanism to ensure an ongoing review of systems, policies and procedures for risk management and procedures to adopt changes. While the overall responsibility of risk management rests with the BoD, it is the duty of Senior Management to devise risk management strategy by setting up well defined policies and procedures for mitigating / controlling risks, duly approved by the Board. Giving due consideration to the above, the Bank has put in place the following hierarchy of Risk Management: Board of Directors (BoD), Risk Management Sub-Committee; Integrated Risk Management Committee (IRMC) which comprises of the President / Chief Executive Officer (CEO), Chief Operating Officer (COO), Group Head Risk Management, Business Heads, and Other Functional Heads. Asset - Liability Committee which comprises of the President / Chief Executive Officer (CEO), Chief Operating Officer (COO), Treasurer, Group Head Risk Management, Other Business Heads. Risk Management Group (RMG) which comprises of Risk Managers for Credit, Market and Operational Risks and Treasury Middle Office. RMG is managed by Group Head Risk Management to supervise the following Divisions: a) b) c) d) e) f) Credit Risk Management (CRM) covering Corporate / Commercial and Retail Banking Risks as well as consumer Risks; Operational Risk Management; Market Risk Management (MRM); Treasury Middle Office; Financial Institution Risk Management Unit (also responsible for Cross-border Risk Management); Basel II / III Implementation;

c) d)

- - - -

86

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

The Banks RMG generates the requisite risk reporting for the different tiers of management. These are also subjected to internal audit review. Risk Matrix / Categories Bank, in common with other banks, generates its revenues by accepting Country, Credit, Liquidity, Interest Rate Risk in the Banking Book, Market, Operational and other risks. Effective management of these risks is the decisive factor in the Banks profitability. Risk Appetite The Banks risk appetite is reflected in its endeavours to maintain a favourable credit rating and encompasses the following: - - - - - The business strategy The expectations of stakeholders at different time horizons The characteristics of the risk-bearing entities The nature and characteristics of the risks undertaken The possible spread of risk situations across organizational units,assets-at-risk, and future time horizons.

Risk appetite drives business activity. It combines anticipations in risk and profitability with management preferences to control capital and resource allocation, as well as the distribution of exposure across activities and portfolios. Banks hedging strategy is embedded in its risk management practices for addressing material categories of risk. 41.1 Credit Risk Credit risk is the risk which arises with the possibility that one party to a financial instrument will fail to discharge its obligation and cause the other party to incur a financial loss. Credit risk is managed in terms of credit policies, approved by the BoD and regulations issued by the SBP. The bank is exposed to credit risk on loans and advances, fund placements with financial institutions and certain investments. The Banks strategy is to minimise credit risk through product, geography, industry and customer diversification. Credit limits are established for all counter-parties after a careful assessment of their credit worthiness. An effective credit granting procedure, which requires pre-sanction evaluation of credit proposal, adequacy of security and pre-disbursement examination of charge documents has been established and managed by Risk Management Group (RMG) & Credit Administration Department (CAD). The Bank maintains a sound portfolio diversified in nature to counter the risk of credit concentration and further limits risk through diversification of its assets by geographical and industrial sector. For managing impaired assets in the portfolio, the Bank follows the Prudential Regulations and Risk Management guidelines issued by SBP and the Remedial Management Policy approved by the Board. Segmental Information Segmental information is presented in respect of the class of business and geographical distribution of advances, deposits, contingencies and commitments.

41.1.1

Annual Report / JS Bank

87

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

41.1.1.1

Segment by class of business

2012 Advances Contingencies and (gross) Deposits commitments Rupees in 000 Percent % Rupees in 000 Percent % Rupees in 000 Percent %

Mining and quarrying Textile Chemical and pharmaceuticals Fertilizer Automobile and transportation equipment Electronics and electrical appliances Construction Power, gas, water and sanitary Paper / board / furniture Petroleum / oil and gas Food / confectionery / beverages Trust and non-profit organisations Wholesale and retail trade Transport, storage and communication

24,016 5,011,079 880,364 1,455,725 99,458 323,704 47,497 - 93,559 17,901 1,599,971 103,964 123,891 773,256 1,357,909 50,000 2,027,202 - 1,355,476 2,653,669 3,027,533 21,026,174

0.11 23.83 4.19 6.92 0.47 1.54 0.23 - 0.44 0.09 7.61

54,103 227,554 984,644 - - 201,081 576,207 45,679 - 2,636 49,455

0.10 0.36 1.57 - - 0.32 0.92 0.07 - 0.00 0.08 12.14 1.57 1.07 10.62 0.42 1.20 0.00 0.10 56.68

191 856,368 94,635 612,000 12,440 108,697 541,957 300,024 161,702 333,823 3,697,411 17,609 - 71,346

0.00 6.45 0.72 4.61 0.09 0.82 4.08 2.26 1.22 2.52 27.86 0.13 0.54

0.49 7,591,978 0.59 3.68 979,127 668,918

Financial Insurance Services Cement Sugar Individuals Others

6.46 6,643,742 0.24 9.64 - 6.45 261,142 750,981 1,224 59,542

5,224,901 39.37 867 108,000 - 208,921 92,902 0.01 0.81 1.57 0.70 6.24 100

12.62 35,449,645 14.40 7,996,135 100 62,543,793

12.78 828,594 100 13,272,388

88

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2011 Advances Contingencies and (gross) Deposits commitments Rupees Percent Rupees Percent Rupees Percent in 000 % in 000 % in 000 %

Mining and quarrying 462,190 Textile 3,654,453 Chemical and pharmaceuticals 2,091,210 Fertilizer - Automobile and transportation equipment 100,326 Electronics and electrical appliances 286,129 Construction 68,602 Power, gas, water and sanitary 9,920 Paper / board / furniture 9,908 Petroleum / oil and gas - Food / confectionery / beverages 1,915,471 Trust and non-profit organisations 11,024 Wholesale and retail trade 114,804 Transport, storage and communication 664,974 Financial 851,907 Insurance 25,006 Services 134,760 Cement 19,863 Sugar 1,710,774 Individuals 2,600,338 Others 3,800,868 18,532,527

2.49 19.72 11.28 - 0.54 1.54 0.37 0.05 0.05 - 10.34

30,904 304,080 799,950 - 50,890 101,613 267,540 60,836 1,165 - 110,031

0.07 0.73 1.93 - 0.12 0.24 0.64 0.15 0.00 - 0.27 10.28 1.91 1.43 9.61 1.09 1.45 0.29 0.07 59.46 10.25 100

95

0.00

1,031,700 12.90 958,123 369,041 125,163 151,855 52,710 217,520 99,382 136,477 297,318 12,073 - 9,894 11.98 4.61 1.56 1.90 0.66 2.72 1.24 1.71 3.72 0.15 - 0.12

0.06 4,263,356 0.62 3.59 791,602 592,877

4.60 3,988,421 0.13 0.73 0.11 9.23 452,724 602,065 119,003 29,476

3,864,843 48.32 - 770 - 165,000 16,526 489,734 7,998,224 - 0.01 - 2.06 0.21 6.12 100

14.03 24,666,794 20.51 4,253,704 100 41,487,031

Annual Report / JS Bank

89

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

40.1.1.2 Segment by sector 2012 Advances Contingencies and (gross) Deposits commitments Rupees Percent Rupees Percent Rupees Percent in 000 % in 000 % in 000 % - 5,070,401 100 57,473,392 100 62,543,793 8.11 1,960,794 14.77 91.89 11,311,594 85.23 100 13,272,388 100

Public / Government Private

- 21,026,174 21,026,174

2011 Advances Contingencies and (gross) Deposits commitments Rupees Percent Rupees Percent Rupees Percent in 000 % in 000 % in 000 %

Public / Government Private

- - 5,700,281 18,532,527 100.00 35,786,750 18,532,527 100 41,487,031

13.74 86.26 100

890,007 11.13 7,108,217 88.87 7,998,224 100

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

2012 2011 Specific Specific Classified provisions Classified provisions advances held advances held ------------------------- Rupees in 000 ------------------------ Textile Automobile and transportation equipment Chemical and pharmaceutical Food / confectionery / beverages Financial Individuals Other 691,011 134,686 1,536,009 167,144 185,575 261,224 61,615 3,037,264 318,859 104,101 222,362 102,991 155,163 11,682 54,904 970,062 636,842 56,895 1,261,984 - 185,575 248,756 386,843 2,776,895 96,273 26,058 - 81,087 8,237 301,011 512,666

41.1.1.4 Details of non-performing advances and specific provisions by sector Public / Government - - - Private 3,037,264 970,062 2,776,895 512,666 3,037,264 970,062 2,776,895 512,666

90

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

41.1.1.5 Geographical segment analysis 2012 2011 Total assets Net assets Total assets Net assets employed employed employed employed ------------------------- Rupees in 000 ----------------------- Pakistan 81,569,995 8,955,809 53,920,569 7,477,030 2012 2011 Profit Contingencies Profit Contingencies before and before and taxation commitments taxation commitments ------------------------- Rupees in 000 ----------------------- Pakistan 1,010,994 13,272,388 535,752 7,998,224 41.1.2 Credit risk: Standardised approach The Bank has adopted the Standardised Approach of Basel II for risk weighing its Credit Risk Exposures. The following table illustrates the approved External Credit Assessment Institutions (ECAIs) whose ratings are being utilised by the Bank with respect to material categories of exposures:

Exposures JCR-VIS PACRA MOODYS FITCH S&P Corporate - - Banks SMEs (retail exposures) - - Sovereigns N/A N/A N/A N/A N/A Securitisations N/A N/A N/A N/A N/A Others (specify) N/A N/A N/A N/A N/A The Bank has used Issue Specific Ratings for rating / risk weighing Issue Specific Exposures and Entity Ratings for rating / risk weighing claims against specific counterparties. Both short and long term ratings have been used to rate corresponding short and long term exposures. For this purpose, Mapping Grid provided by SBP as given below:

Annual Report / JS Bank

91

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Long - Term Ratings Grades Mapping SBP Rating Grade PACRA JCR-VIS 1 AAA AAA AA+ AA+ AA AA AA- AA- 2 A+ A A- A+ A A-

Fitch AAA AA+ AA AA- A+ A A-

Moodys Aaa Aa1 Aa2 Aa3 A1 A2 A3

S&P AAA AA+ AA AA-

ECA Scores 1

A+ 2 A A- BBB+ 3 BBB BBB- BB+ BB BB- 4

3 BBB+ BBB+ BBB+ Baa1 BBB BBB BBB Baa2 BBB- BBB- BBB- Baa3 4 BB+ BB+ BB+ Ba1 BB BB BB Ba2 BB- BB- BB- Ba3 5 6 B+ B B- CCC+ and below B+ B B- CCC+ and below B+ B B- Caa1+and below B1 B2 B3 CCC1 and below

B+ 5,6 B BCCC+ and below 7

Short - Term Ratings Grades Mapping SBP Rating Grade S1 S2 S3 S4 PACRA A-1 A-2 A-3 Other JCR-VIS A-1 A-2 A-3 Other Fitch F1 F2 F3 Other Moodys P-1 P-2 P-3 Other S&P A-1+, A-1 A-2 A-3 Other

92

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Exposures

Credit exposures subject to Standardised approach 2012

Rating category Rating risk weight Amount outstanding

Deduction Risk weighted CRM* Net amount asset

Corporate 0 0% - 793,574 793,574 1 20% 1,724,437 (163,430) 1,561,007 312,201 2 50% 1,195,655 (241,970) 953,685 476,843 3,4 100% 424,276 - 424,276 424,276 5,6 150% 739,600 - 739,600 1,109,400 Unrated 100% 13,985,991 (388,174) 13,597,817 13,597,817 18,069,959 - 18,069,959 15,920,537 Retail 0% - 606,439 606,439 20% - 1,179 1,179 236 50% - - - 75% 1,752,344 (607,618) 1,144,726 858,545 1,752,344 - 1,752,344 858,781 Banks - Maturity over 3 Months 0% - 335,000 335,000 1 20% 455,844 - 455,844 91,169 2,3 50% 1,324,568 (335,000) 989,568 494,784 4,5 100% 213,673 - 213,673 213,673 6 150% 5,353 - 5,353 8,030 Unrated 50% 86,496 - 86,496 43,248 2,085,934 - 2,085,934 850,904 - Maturity upto and under 3 Months in FCY 0% - - - 1,2,3 20% 1,023,499 - 1,023,499 204,700 4,5 50% 126,295 - 126,295 63,148 6 150% 30,417 - 30,417 45,626 unrated 20% 230,408 - 230,408 46,082 1,410,619 - 1,410,619 359,556 - Maturity upto and under 3 Months in PKR 0% - 1,387,691 1,387,691 20% 2,388,044 (1,387,691) 1,000,353 200,071 2,388,044 - 2,388,044 200,071 Residential Mortgage Finance 35% 512,489 - 512,489 179,371 Public Sector Entity 0% - - - 1 20% 499,919 - 499,919 99,984 2,3 50% - - - 4,5 100% - - - 6 150% - - - Unrated 50% - - - 499,919 - 499,919 99,984 Sovereigns (SBP / GoP) 0% 41,398,075 - 41,398,075 Equity Investments - Listed 100% 1,805,054 - 1,805,054 1,805,054 128,444 Unlisted 150% 85,629 - 85,629 1,890,683 - 1,890,683 1,933,498

------------------ Rupees in 000 ----------------------- Cash and Cash Equivalents 0% 1,401,445 - 1,401,445

Annual Report / JS Bank

93

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Rating Rating Amount Exposures category risk weight outstanding

2012 Deduction Risk weighted CRM* Net amount asset

------------------ Rupees in 000 ----------------------- Past Due Loans (Not Secured by Residential Mortgages)S.P less than 20% 150% 1,441,514 - 1,441,514 2,162,271 S.P upto 20% 100% 332,219 - 332,219 332,219 S.P greater than 50% 50% 293,477 - 293,477 146,739 2,067,210 - 2,067,210 2,641,229 Investment in fixed assets 100% 1,555,280 - 1,555,280 1,555,280 Other assets 100% 911,297 - 911,297 911,297 Total 75,943,298 - 75,943,298 25,510,508 * Credit Risk Mitigation (CRM)
Exposures Rating Rating Amount category risk weight outstanding 2011 Deduction Risk weighted CRM* Net amount asset

------------------ Rupees in 000 ---------------------- Cash and Cash Equivalents 0% 1,007,358 - 1,007,358 - Corporate 0 0% - 728,903 728,903 - 1 20% 2,661,580 (141,982) 2,519,598 503,920 2 50% 1,134,837 (200,103) 934,734 467,367 3,4 100% 567,137 - 567,137 567,137 5,6 150% 299,740 - 299,740 449,610 Unrated 100% 12,815,143 (386,818) 12,428,325 12,428,325 17,478,437 - 17,478,437 14,416,359 Retail 0% - 721,446 721,446 - 20% - 20,718 20,718 4,144 50% - - - - 75% 1,164,229 (742,164) 422,065 316,549 1,164,229 - 1,164,229 320,693 Banks - Maturity over 3 Months 0% - - - - 1 20% 450,678 - 450,678 90,136 2,3 50% 287,204 - 287,204 143,602 4,5 100% 41,389 - 41,389 41,389 6 150% - - - - Unrated 50% 60,133 - 60,133 30,067 839,404 - 839,404 305,194 - Maturity Upto and under 3 Months in FCY 0% - - - - 1,2,3 20% 49,716 - 49,716 9,943 4,5 50% - - - - 6 150% - - - - unrated 20% 32,899 - 32,899 6,580 82,615 - 82,615 16,523 0% - 1,407,455 1,407,455 - - Maturity upto and under 3 months in PKR 20% 3,331,085 (1,407,455) 1,923,630 384,726 3,331,085 - 3,331,085 384,726

94

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Rating Rating Amount Exposures category risk weight outstanding

2011 Deduction Risk weighted CRM* Net amount asset

------------------ Rupees in 000 ---------------------- Residential Mortgage Finance 35% 223,280 - 223,280 78,148 Public Sector Entity 0% 1 20% - - - - 2,3 50% - - - - 4,5 100% - - - - 6 150% - - - - Unrated 50% - - - - - - - Sovereigns (SBP / GoP) 0% 14,937,007 - 14,937,007 - Equity Investments - Listed 100% 738,212 - 738,212 738,212 - Unlisted 150% 85,870 - 85,870 128,805 824,082 - 824,082 867,017 Past Due Loans (Not Secured by Residential Mortgages) S.P less than 20% 150% 2,057,347 - 2,057,347 3,086,021 S.P upto 20% 100% 122,974 - 122,974 122,974 S.P greater than 50% 50% 83,909 - 83,909 41,955 2,264,230 - 2,264,230 3,250,950 Investment in fixed assets 100% 1,414,644 - 1,414,644 1,414,644 Other assets 100% 1,331,634 - 1,331,634 1,331,634 Total 44,898,005 - 44,898,005 22,385,888 * Credit Risk Mitigation (CRM)

41.1.2.1 Policies and processes for collateral valuation and management as regards Basel II;

For Credit Risk Mitigation purposes the Bank uses only the eligible collaterals under Simple Approach of Credit Risk Mitigation under Standardised Approach as prescribed by SBP under Circular No. 8 of 2006, which includes Cash and Cash Equivalent Securities including Government Securities (like Cash Margins, Lien on Bank Accounts, Foreign Deposit Receipts, Term Deposit Receipts, Pledge of Defense Saving Certificates, Regular Income Certificates, Special Saving Certificates, T-Bills and Pakistan Investment Bonds etc.) and Shares Listed on the Main Index. Under Banks policy all collaterals are subject to periodic valuations to monitor the adequacy of margins held. Shares / Marketable securities are valued by the Bank on daily / weekly basis to calculate the Drawing Power (DP). In case of any shortfall in the requisite margins, the DP is adjusted to the appropriate level and the business units are informed to take appropriate action as per the agreement with the customer. Equity position risk in the banking book

41.2

Equity positions in the banking book include Investment in equities that are available-for-sale or held for strategic investment purposes. These investments are generally regarded as riskier relative to fixed income securities owing to the inherent volatility of stock market prices. The Bank mitigates these risks through diversification and capping maximum exposures in a single company, compliance with regulatory requirement, following the guidelines laid down in the Banks Investment Policy as set by the Board of Directors (BoD). The Bank follows a delivery versus payment settlement system thereby minimizing risk available in relation to settlement risk

Annual Report / JS Bank

95

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

41.3

Market risk

41.3.1 Market risk is the risk of loss due to adverse changes in interest rates, foreign exchange rates, equity prices and market conditions. From the perspective of a Bank, market risk comprises of interest rate risk, foreign exchange risk and equity position risk, which the Bank is exposed to in both its trading and banking books. The Bank has an approved market risk policy wherein the governance structure for managing market risk, measurement tools used and the market risk exposure limits have been addressed. The Banks strategy for managing market risk is to relate the level of risk exposures to their risk appetite and the capital at hand. The Board of Directors (BoD) and the Asset and Liability Committee (ALCO) are responsible for addressing market risk from a strategic perspective and are assisted by the market risk function in meeting these objectives. The Market Risk function is also supported by personnel in the Middle Office function and directly report to Group Head Risk Management. Its responsibility includes ensuring the implementation of the market risk policy above in line with the Banks strategy. Risk reporting undertaken by the market risk function includes: a) Portfolio Reports b) Limit monitoring reports c) Sensitivity analysis ; and d) Stress testing of the portfolio Hedging measures are undertaken to maintain limits set out in the risk management policy. Currently, the Bank is using the market risk standardised approach for the purpose of computing regulatory capital, the details of which are set out above.

41.3.2 Foreign exchange risk

Main objective of foreign exchange risk management is to ensure that the foreign exchange exposure of the Bank lies within the defined appetite of the Bank. Daily reports are generated to monitor the internal and regulatory limits with respect to the overall foreign currency exposures. The overall net open position, whether short or long has the potential to negatively impact the profit and loss depending upon the direction of movement in foreign exchange rates.

Foreign exchange open and mismatched positions are marked to market on a daily basis.

Currency risk arises where the value of financial instruments changes due to changes in foreign exchange rates. In order to manage currency risk exposure the bank enters into ready / spot, forward and swap transactions with SBP and in the interbank market. The Banks foreign exchange exposure comprises of forward contracts, foreign currencies cash in hand, balances with banks abroad, foreign placement with SBP and foreign currencies assets and liabilities. The net open position is managed within the statutory limits, as fixed by SBP. Counter parties limit are also fixed to limit risk concentration. Appropriate segregation of duties exists between the front and back office functions while compliance with the net open position limit is independently monitored on an ongoing basis.

96

Annual Report / JS Bank

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 Net foreign Off-balance currency Assets Liabilities sheet items exposure ------------------------- Rupees in 000 -----------------------

Pakistan Rupee United States Dollar Great Britain Pound Euro Other currencies

77,389,848 3,711,431 311,221 139,360 18,135 4,180,147 81,569,995

68,626,256 3,463,780 364,650 158,820 680 3,987,930 72,614,186

155,690 (228,852) 53,874 23,322 (4,034) (155,690) -

8,919,282 18,799 445 3,862 13,421 36,527 8,955,809

2011 Net foreign Off-balance currency Assets Liabilities sheet items exposure ------------------------- Rupees in 000 ------------------------

Pakistan Rupee United States Dollar Great Britain Pound Euro Other currencies

51,369,234 2,426,657 41,364 77,243 6,071 2,551,335 53,920,569

43,424,828 2,523,050 226,968 265,795 2,898 3,018,711 46,443,539

(502,242) 128,249 185,751 189,155 (913) 502,242 -

7,442,164 31,856 147 603 2,260 34,866 7,477,030

41.3.3 Equity position risk in trading book The Banks objective with regard to holding equity investments in its trading book is to earn income from favourable market movements. Positions in the equity market are substantiated by sound fundamental and technical research. Equity price risk is managed by applying trading limit and scrip-wise and portfolio wise nominal limits

41.3.4

Mismatch of interest rate sensitive assets and liabilities Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in the market interest rates. The Bank is exposed to interest / mark-up rate risk as a result of mismatches or gaps in the amount of interest / mark up based assets and liabilities that mature or re-price in a given period. The Bank manages this risk by matching/re-pricing of assets and liabilities. The Bank is not excessively exposed to interest / mark-up rate risk as its assets and liabilities are repriced frequently. The assets and liabilities committee (ALCO) of the Bank monitors and manages the interest rate risk with the objective of limiting the potential adverse effects on the profitability of the Bank.

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 Effective Non-interest yield Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 bearing interest Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above financial rate - % Total month months months 1 year years years years years 10 years instrument --------------------------------------------------------------------------------------------- Rupees in 000 ---------------------------------------------------------------------------------------------

On-balance sheet financial instruments Assets Cash and balances with treasury banks - 5,027,797 602,345 - - - - - - - - 4,425,452 Balances with other banks - 1,178,265 607,763 - - - - - - - - 570,502 Lendings to financial institutions 8.46 - 10.39 3,940,958 3,194,641 7,053 708,702 30,562 - - - - - Investments 3.16 - 12.23 44,340,277 1,725,847 1,771,373 6,835,573 28,124,175 1,035,285 801,511 1,937,030 745,760 - 1,363,723 Advances 8.46 - 10.39 20,054,921 5,792,246 4,471,188 2,638,392 6,313,070 167,634 41,151 123,530 7,956 499,754 Other assets - 994,743 - - - - - - - - - 994,743 75,536,961 11,922,842 6,249,614 10,182,667 34,467,807 1,202,919 842,662 2,060,560 753,716 499,754 7,354,420 Liabilities Bills payable - 713,747 - - - - - - - - - 713,747 Borrowings 8.46 - 11 8,222,273 7,298,799 306,374 617,100 - - - - - - Deposits and other accounts 6 - 10.39 62,543,793 13,901,192 12,450,952 3,302,673 5,503,740 10,250 13,121 9,974,997 - - 17,386,868 Other liabilities - 1,104,325 - - - - - - - - 1,104,325 72,584,138 21,199,991 12,757,326 3,919,773 5,503,740 10,250 13,121 9,974,997 - - 19,204,940 On-balance sheet financial instruments 2,952,823 (9,277,149) (6,507,712) 6,262,894 28,964,067 1,192,669 829,541 (7,914,437) 753,716 499,754 (11,850,520) Commitments in respect of forward exchange contracts - Purchase 2,292,630 2,016,307 145,123 131,200 - - - - - - -

Commitments in respect of forward exchange contracts - Sale Off-balance sheet gap (534,790) (389,667) (6,897,379) 6,195,894 28,964,067 (198,200) (67,000) - - - - 1,192,669

(2,450,969) (1,717,979) (158,339) 298,328

- -

- - 829,541 (7,914,437)

- - 753,716

- -

499,754 (11,850,520) 2,794,484

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

Total yield / interest risk sensitivity gap (8,978,821)

Annual Report / JS Bank

Cumulative yield / interest risk sensitivity gap (8,978,821) (15,876,200) (9,680,306)

19,283,761 20,476,430 21,305,971 13,391,534 14,145,250 14,645,004

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98

Annual Report / JS Bank

2011 Effective Non-interest yield Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 bearing interest Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above financial rate - % Total month months months 1 year years years years years 10 years instrument --------------------------------------------------------------------------------------------- Rupees in 000 --------------------------------------------------------------------------------------------- On-balance sheet financial instruments

- - 1.5-14.79 5.75-16.50 4.25-18.50 - - - - - 549,500 573,500 - - 4,395,876 1,392,336 1,337,911 1,808,212 - - - - 4,945,376 1,965,836 1,337,911 1,808,212 - - 1,150 - 1,150 2,355,525 5,348,204 1,656,361 2,240,079 7,477,802 329,686 3,554,362 - - 28,647 - 28,647 - - 8,200 - 8,200 - 1,246,994 - - - 11,463,382 - 754,751 - 13,465,127 - (8,629,927)

3,880,688 426,245 - - - - 136,880 22,957 - - - - 4,073,103 3,086,103 658,333 318,667 2,000 2,000 21,291,895 662,430 632,951 1,280,921 3,005,182 9,155,101 18,018,778 6,153,222 9,002,296 2,022,609 570,808 128,913 842,164 - - - - - 48,243,508 10,350,957 10,293,580 3,622,197 3,577,990 9,286,014

- - - - 6,000 - 309,837 3,497,192 42,496 65,370 - - 358,333 3,562,562

- - - 2,323,611 33,064 - 2,356,675

- 3,454,443 - 113,923 - - - 424,670 - - - 842,164 - 4,835,200

Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Other assets Liabilities Bills payable Borrowings Deposits and other accounts Other liabilities On-balance sheet financial instruments

- 10.0-11.9 5.0-14.70 -

1,246,994 - 2,944,495 1,821,495 41,487,031 21,051,317 754,751 - 46,433,271 22,872,812

1,810,237 (12,521,855)

FOR THE YEAR ENDED DECEMBER 31, 2012

Commitments in respect of forward exchange contracts - Purchase 1,628,997 243,161 76,829 - - - - -

1,948,987

Commitments in respect of forward exchange contracts - Sale (20,054) 223,107 5,571,311 (6,748,054) (5,014,864) (2,774,785) 4,703,017 1,733,190 2,240,079 7,477,802 329,686 5,032,703 76,829 - - - - - - - - - 3,554,362 202,490

(1,446,561) (1,426,507)

- - 2,355,525

- -

- - - (8,629,927)

Off-balance sheet gap (12,319,365) (12,319,365)

502,426

Total yield / interest risk sensitivity gap

Cumulative yield / interest risk sensitivity gap

8,587,065 10,942,590 10,942,590

2,312,663 2012 2011 --------- Rupees in 000 ---------

2012 2011 --------- Rupees in 000 --------- Reconciliation to total assets 53,920,569

Reconciliation to total liabilities Balance as per balance sheet 72,614,186 46,443,539

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

Balance as per balance sheet

81,569,995

Less: Non financial assets Less: Non financial liabilities Investments - net 1,919,121 1,357,929 Government duties 30,048 10,268 Operating fixed assets 3,165,117 3,021,439 Deferred tax asset 699,272 1,082,466 72,584,138 46,433,271 Other assets 249,524 215,227 6,033,034 5,677,061 75,536,961 48,243,508

41.4 Liquidity risk Liquidity risk is the risk that the Bank will not be able to raise funds to meet its commitments. The Banks Asset-Liability Committee (ALCO) manages the liquidity position on a continuous basis.

Banks policy to liquidity management is to maintain adequate liquidity at all times and in all currencies under both normal and stress conditions, to meet our contractual and potential payment obligations without incurring additional and unacceptable cost to the business.

Treasury is responsible for the managing liquidity risk under the guidance of Asset-Liability Committee of the Bank. The Banks liquidity risk management approach starts at the intraday level (operational liquidity) managing the daily payments queue and factoring in our access to the qualifying securities of State Bank of Pakistan. It then covers tactical liquidity risk management dealing with the access to unsecured funding sources and the liquidity characteristics of our asset inventory (asset liquidity). Finally, the strategic perspective comprises the maturity profile of all assets and liabilities on our statement of financial position.

For monitoring and controlling liquidity risk, the Bank generates a scenario sensitive maturity statement of financial position, and run controlled mismatches that are monitored daily and discussed by ALCO members atleast monthly. The Bank prepares various types of reports and analysis for assisting ALCO in taking necessary strategic actions for managing liquidity risk in the Bank.

Maturity of assets and liabilities - Based on contractual maturities of assets and liabilities of the Bank 2012 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above Total month months months 1 year years years years years 10 years -------------------------------------------------------------------------------------------------- Rupees in 000 --------------------------------------------------------------------------------------------------

FOR THE YEAR ENDED DECEMBER 31, 2012

5,027,797 1,178,265 3,940,958 46,259,398 20,054,921 1,244,267 3,165,117 699,272 81,569,995

Assets 5,027,797 - - - - - - - 1,178,265 - - - - - - - 2,810,688 7,065 408,721 180,601 233,421 150,100 150,362 - 4,378,002 1,398,306 6,191,778 28,399,004 1,450,358 1,341,609 2,185,307 915,034 12,885,924 2,955,251 1,678,917 376,364 739,740 492,510 418,505 7,956 499,754 1,108,002 41,165 46,213 35,284 12,793 810 - - 24,466 86,780 92,950 141,187 273,270 258,132 413,675 203,389 1,671,268 - - - - - - 699,272 - 27,413,144 4,488,567 8,418,579 29,132,440 2,709,582 2,243,161 3,867,121 1,126,379 2,171,022

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

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

Liabilities Bills payable 713,747 713,747 - - - - - - - Borrowings 8,222,273 7,298,799 306,374 617,100 - - - - - Deposits and other accounts 62,543,793 48,745,936 5,084,956 3,180,640 5,503,740 10,250 13,121 5,150 - - - - - - - Sub-ordinated loans - - - Liabilities against assets subject - - - - - - - - to finance lease - - - - - - - - - Other liabilities 1,134,373 1,061,204 22,967 - - - - 50,202 - Deferred tax liabilities - - - - - - - - - 72,614,186 57,819,686 5,414,297 3,797,740 5,503,740 10,250 13,121 55,352 - Net assets 8,955,809 (30,406,542) (925,730) 4,620,839 23,628,700 2,699,332 2,230,040 3,811,769 1,126,379 2,171,022 Share capital 10,724,643 Statutory reserve 231,613 Discount on issue of right shares (2,105,401) Accumulated losses (76,377) Surplus on revaluation of assets - net 181,331 8,955,809

Annual Report / JS Bank

The expected maturity dates does not differ significantly from the contract date except for the maturity of Rs. 25.02 (2011: Rs. 12.02) billion of deposits considered stable core source of funding by the bank.

99

100 Annual Report / JS Bank

2011 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above Total month months months 1 year years years years years 10 years -------------------------------------------------------------------------------------------------- Rupees in 000 -------------------------------------------------------------------------------------------------- 68,160 89,143 222,288 7,389 1,881,719 2,268,699

FOR THE YEAR ENDED DECEMBER 31, 2012

Liabilities Bills payable 1,246,994 1,246,994 - - - - - - - - Borrowings 2,944,495 1,821,495 549,500 573,500 - - - - - - Deposits and other accounts 41,487,031 32,554,370 4,356,650 1,473,936 3,072,750 19,975 8,000 1,350 - - Sub-ordinated loans - - - - - - - - - Liabilities against assets subject to finance lease - - - - - - - - - - Other liabilities 765,019 645,799 - - - 75,345 - 43,875 - Deferred tax liabilities - - - - - - - - 46,443,539 36,268,658 4,906,150 2,047,436 3,072,750 95,320 8,000 45,225 - - Net assets 7,477,030 (21,798,301) (4,196,494) (1,433,378) 18,205,459 2,102,475 4,639,667 4,594,883 3,094,020 2,268,699 Share capital 10,002,930 Statutory reserve 89,978 Discount on issue of right shares (1,944,880) Accumulated losses (642,918) (Deficit)/surplus on revaluation of assets - net (28,080) 7,477,030

Assets Cash and balances with treasury banks 3,880,688 3,880,688 - - - - - - - Balances with other banks 136,880 136,880 - - - - - - - Lendings to financial institutions 4,073,103 760,590 450,000 429,858 1,580,296 537,000 199,947 - 47,252 Investments 22,649,824 660,817 18,480 73,820 12,246,324 946,904 3,537,133 2,275,128 2,802,075 Advances 18,018,778 8,252,639 170,338 14,515 7,127,068 516,434 735,574 975,645 4,277 Other assets 1,057,391 742,012 33,351 42,073 222,406 8,531 819 810 - Operating fixed assets 3,021,439 36,731 37,487 53,792 102,115 188,926 174,194 306,060 240,417 Deferred tax assets 1,082,466 - - - - - 1,082,466 - 53,920,569 14,470,357 709,656 614,058 21,278,209 2,197,795 4,647,667 4,640,108 3,094,020

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

The expected maturity dates does not differ significantly from the contract date except for the maturity of Rs. 12.02 (2010: Rs. 7.59) billion of deposits considered stable core source of funding by the bank.

FOR THE YEAR ENDED DECEMBER 31, 2012

Maturity of assets and liabilities - Based on working prepared by the Asset and Liability Committee (ALCO) of the Bank 2012 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above Total month months months 1 year years years years years 10 years --------------------------------------------------------------------------------------------- Rupees in 000 ---------------------------------------------------------------------------------------------

Assets Cash and balances with treasury banks 5,027,797 5,027,797 - - - - - - - Balances with other banks 1,178,265 1,178,265 - - - - - - - Lendings to financial institutions 3,940,958 2,810,688 7,065 408,721 180,601 233,421 150,100 150,362 - Investments 46,259,398 4,378,002 1,398,306 6,191,778 28,399,004 1,450,358 1,341,609 2,185,307 915,034 Advances 20,054,921 4,701,918 4,319,252 2,588,251 6,287,035 739,740 492,510 418,505 7,956 499,754 Other assets 1,244,267 1,108,002 41,165 46,213 35,284 12,793 810 - - Operating fixed assets 3,165,117 24,466 86,780 92,950 141,187 273,270 258,132 413,675 203,389 1,671,268 Deferred tax assets 699,272 - - - - - - 699,272 - 81,569,995 19,229,138 5,852,568 9,327,913 35,043,111 2,709,582 2,243,161 3,867,121 1,126,379 2,171,022 Liabilities Bills payable 713,747 713,747 - - - - - - - Borrowings 8,222,273 7,298,799 306,374 617,100 - - - - - Deposits and other accounts 62,543,793 16,509,222 15,058,983 5,910,703 8,111,770 10,250 13,121 16,929,744 - Sub-ordinated loans - - - - - - - - - Liabilities against assets subject - - - - - - - - to finance lease - - - - - - - - - Other liabilities 1,134,373 1,061,203 22,968 - - - - 50,202 - Deferred tax liabilities - - - - - - - - - 72,614,186 25,582,971 15,388,325 6,527,803 8,111,770 10,250 13,121 16,979,946 - Net assets 8,955,809 (6,353,833) (9,535,757) 2,800,110 26,931,341 2,699,332 2,230,040 (13,112,825) 1,126,379 2,171,022 10,724,643 231,613 (2,105,401) (76,377) 181,331 8,955,809

Share capital Statutory reserve Discount on issue of right shares Accumulated losses Surplus on revaluation of assets - net

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

To identify the behavorial maturities of non-contractual assests and liabilities, the Bank has used the follwing methodology:

For determining the core portion of non contractual assets and liabilities (non- volatile portion), the bank has used the Average method whereby average balance maintained over past four year has been classified as core and has been placed in the farthest maturity bucket. The remaining volatile portion of non contractual assets & liabilities has been stratified in maturity bucket by relative bucket wise percentage by determining using value at risk (VAR) methodology at 99% confidence interval. Over 1 to 3 months 25% Over 3 to 6 months 7% Over 6 months to 1 year 6% Over 3 to 5 years 42%

Annual Report / JS Bank

Up to 1 month Weighted average 20%

101

102

Annual Report / JS Bank

FOR THE YEAR ENDED DECEMBER 31, 2012

2011 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above Total month months months 1 year years years years years 10 years -------------------------------------------------------------------------------------------------- Rupees in 000 -------------------------------------------------------------------------------------------------- Assets Cash and balances with treasury banks 3,880,688 3,880,688 - - - - - - - Balances with other banks 136,880 136,880 - - - - - - - Lendings to financial institutions 4,073,103 760,590 450,000 429,858 1,580,296 537,000 199,947 - 47,252 68,160 Investments 22,649,824 660,817 18,480 73,820 12,246,324 946,904 3,537,133 2,275,128 2,802,075 89,143 Advances 18,018,778 2,931,332 3,008,368 2,497,792 7,127,068 516,434 735,574 975,645 4,277 222,288 Other assets 1,057,391 742,012 33,351 42,073 222,406 8,531 819 810 - 7,389 Operating fixed assets 3,021,439 36,729 37,487 53,792 102,115 188,926 174,194 306,060 240,417 1,881,719 Deferred tax assets 1,082,466 - - - - - - 1,082,466 - - 53,920,569 9,149,048 3,547,686 3,097,335 21,278,209 2,197,795 4,647,667 4,640,109 3,094,021 2,268,699

Liabilities Bills payable 1,246,994 1,246,994 - - - - - - - - Borrowings 2,944,495 1,821,495 549,500 573,500 - - - - - - Deposits and other accounts 41,487,031 12,209,213 9,442,515 3,570,109 4,219,083 19,975 12,024,787 1,350 - - Sub-ordinated loans - - - - - - - - - Liabilities against assets subject to finance lease - - - - - - - - - - Other liabilities 765,019 645,799 - - - 75,345 - 43,875 - - Deferred tax liabilities - - - - - - - - - 95,320 12,024,787 45,225 - - 46,443,539 15,923,501 9,992,015 4,143,609 4,219,083 Net assets 7,477,030 (6,774,453) (6,444,329) (1,046,274) 17,059,126 2,102,475 (7,377,120) 4,594,884 3,094,021 2,268,699 Share capital 10,002,930 Statutory reserve 89,978 Discount on issue of right shares (1,944,880) Accumulated losses (642,918) (Deficit)/surplus on revaluation of assets - net (28,080) 7,477,030 Over 1 to 3 months 20% 8% Over 3 to 6 months Over 6 months to 1 year 5% Over 2 to 3 years 47%

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

Up to 1 month Weighted average 20%

Annual Report / JS Bank

103

NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

41.5

Operational risk The Bank currently uses Basic Indicator Approach to Operational Risk for regulatory capital calculations. We define the operational risk as the risk of loss resulting from inadequate or failed internal processes, people and system or from external events. With the evolution of Operations Risk Management into a separate distinct discipline, the Banks strategy is to further strengthen its risk management system along new industry standards. Accordingly the Bank has set up a separate Operational Risk Management Unit (ORM). ORM Unit resides within Risk Management Group (RMG). Its responsibility is to implement Operational Risk management tools across the Bank for effective measurement and monitoring of operational risk faced by different areas of the Bank. During the year, bank has formulated a comprehensive document of Operational Risk Management Framework which has also been approved by the Board Risk Management Committee. The purpose of bankwide Operational Risk Management Framework is to guide implementation of Operational Risk Policy. The framework aims at laying out clearly defined roles and responsibilities of individuals/units across different functions of the bank that are / would be involved in performing various Operational Risk Management tasks. Operational risk is much more pervasive in a financial institution and every operating unit is exposed to operational risk, regardless of whether it is a business unit or a support unit. This Framework has been devised to explain the various building blocks of the Operational Risk Management processes, and their interrelationships. During the year, the management has also been in the process of conducting an overall review and updating / consolidation of systems and procedures with the objective of further improving internal controls so as to be fully compliant with the established benchmarks including the framework envisaged by the Committee of Sponsoring Organizations (COSO) and the requirements of relevant international benchmarks (PCAOB Standards) for evaluating the results of testing activities. A Steering Committee is actively functioning to oversee the formulation, design and implementation of the requirements under the COSO framework. Special emphasis is being laid on the expeditious completion of the roadmap pertaining to ICFR (Internal Controls over Financial Reporting) certification as per SBP Guidelines and requirements. The bank has conducted Operational risk profiling for all major operational areas and developed Key Risk Indicators (KRIs) which are monitored against predefined thresholds. Findings from KRIs are used as predictive indicators of potential operational risks. Ops Loss data collection is governed by Banks TID Policy which has been developed and implemented to collate operational losses and near misses in a systematic and organized way. Moreover, the Bank has put in place comprehensive IT Security Policy which addresses enterprise wide risk drivers inclusive of technology infrastructure, software, hardware and IT security. The Banks Business Continuity Policy (BCP) includes risk management strategies to mitigate inherent risk and prevent interruption of mission critical services caused by disaster event.

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NOTES TO THE UNCONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

42. DATE OF AUTHORISATION FOR ISSUE These unconsolidated financial statements were authorized for issue by the Board of Directors as on March 04, 2013. 43. GENERAL The figures in the unconsolidated financial statements have been rounded off to the nearest thousand.

Jahangir Siddiqui Chairman

Kalim-ur-Rahman President/Chief Executive Officer

Rafique R. Bhimjee Director

Adil Matcheswala Director

110

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CONSOLIDATED STATEMENT OF FINANCIAL POSITION

AS AT DECEMBER 31, 2012 2012 Note
ASSETS Cash and balances with treasury banks 8 Balances with other banks 9 Lendings to financial institutions 10 Investments - net 11 Advances - net 12 Operating fixed assets 13 Deferred tax assets 14 Other assets 15 LIABILITIES Bills payable 16 Borrowings 17 Deposits and other accounts 18 Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities 19 NET ASSETS REPRESENTED BY Share capital 20 Reserves Discount on issue of shares Accumulated loss Non-controlling interest Surplus / (deficit) on revaluation of assets - net of tax 21 CONTINGENCIES AND COMMITMENTS 22 10,724,643 231,613 (2,105,401) (62,157) 1,863,194 10,651,892 283,046 10,934,938 10,002,930 89,978 (1,944,880) (642,058) 1,303,146 8,809,116 (28,080) 8,781,036 5,027,942 1,193,864 3,740,958 47,884,719 19,909,385 3,412,167 860,704 1,989,038 84,018,777 3,880,782 165,067 3,803,022 22,906,646 18,029,884 3,064,883 1,228,756 1,423,585 54,502,625

2011

Rupees in 000

713,747 8,704,685 61,934,787 - - - 1,730,620 73,083,839 10,934,938

1,246,994 3,171,800 40,174,351 1,128,444 45,721,589 8,781,036

The annexed notes from 1 to 45 form an integral part of these consolidated financial statements.

Jahangir Siddiqui Chairman

Kalim-ur-Rahman President/Chief Executive Officer

Rafique R. Bhimjee Director

Adil Matcheswala Director

Annual Report / JS Bank

111

CONSOLIDATED PROFIT AND LOSS ACCOUNT

FOR THE YEAR ENDED DECEMBER 31, 2012 2012 Note 2011

Rupees in 000

Mark-up / return / interest earned 24 6,168,310 4,319,252 Mark-up / return / interest expensed 25 3,731,733 2,583,678 Net Mark-up / Interest income 2,436,577 1,735,574 (Provision) / reversal against non-performing loans and advances 12.4 (457,504) 13,675 (Provision) / reversal of diminution in value of investments 11.3 (72,424) 137,524 Bad debts written off directly - (529,928) 151,199 Net mark-up / interest income after provisions 1,906,649 1,886,773 NON MARK-UP / INTEREST INCOME Fee, commission and brokerage income 26 818,790 355,297 Dividend income 82,636 20,620 Income from dealing in foreign currencies 205,775 98,738 Gain on sale of securities - net 27 938,665 247,872 Unrealised gain / (loss) on revaluation of investments classified as held-for-trading 37,762 (4,222) Share of profit from associate - net of tax - 34,118 Other income 28 64,556 17,514 Total non mark-up / interest income 2,148,184 769,937 4,054,833 2,656,710 NON MARK-UP / INTEREST EXPENSES Administrative expenses 29 2,892,734 2,111,534 Other provisions / write offs (25,427) Fixed assets written off - Other charges 30 (2,630) 7,840 Total non-mark-up / interest expenses 2,864,677 2,119,374 1,190,156 537,336 Extra ordinary / unusual items - PROFIT BEFORE TAXATION 1,190,156 537,336 Taxation - Current 31 (147,511) (49,443) - Prior years 61,885 - Deferred (284,697) (126,248) (370,323) (175,691) PROFIT AFTER TAXATION 819,833 361,645 Attributable to : Equity holders of the Bank 721,536 360,551 Non-controlling interest 98,297 1,094 819,833 361,645 ------- Rupee ------ Earnings per share - basic and diluted 32 0.71 0.42 The annexed notes from 1 to 45 form an integral part of these consolidated financial statements. Jahangir Siddiqui Chairman Kalim-ur-Rahman President/Chief Executive Officer Rafique R. Bhimjee Director Adil Matcheswala Director

112

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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED DECEMBER 31, 2012 2012
Profit after tax for the year Other comprehensive income Total comprehensive income for the year 819,833 - 819,833

2011
361,645 361,645

Rupees in 000

Attributable to : Equity holders of the Bank 721,536 360,551 Non-controlling interest 98,297 1,094 819,833 361,645 Surplus / (deficit) arising on revaluation of assets (net) has been reported in accordance with the requirements of the Companies Ordinance, 1984 and the directives of the State Bank of Pakistan in a separate account below equity. The annexed notes from 1 to 45 form an integral part of these consolidated financial statements.

Jahangir Siddiqui Chairman

Kalim-ur-Rahman President/Chief Executive Officer

Rafique R. Bhimjee Director

Adil Matcheswala Director

Annual Report / JS Bank

113

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED DECEMBER 31, 2012
Issued, subscribed and paidup share capital Balance as at January 01, 2011 8,149,715

Attributable to shareholders of the bank

Discount Statutory on issue of Accumulated Sub-total Non controlling reserve shares losses interest Total ------------------------------------------ Rupees in 000 -------------------------------------------18,040 (1,415,477) (930,671) 5,821,607 - 5,821,607

Non controlling interest on acquisition of subsidiary - - - - - 1,302,052 1,302,052 Total comprehensive income for the year Profit after taxation for the year ended December 31, 2011 Other comprehensive income Total comprehensive profit for the year ended December 31, 2011 - - - - - - - - - 360,551 - 360,551 360,551 - 360,551 1,094 - 1,094 361,645 361,645

Transaction with owners recorded directly in equity Issue of shares during the year Discount on issue of shares Transfer to statutory reserve Balance as at December 31, 2011 1,853,215 - 1,853,215 - 10,002,930 - - - 71,938 89,978 - (529,403) (529,403) - (1,944,880) - - - (71,938) (642,058) 1,853,215 (529,403) 1,323,812 - 7,505,970 - - - - 1,303,146 1,853,215 (529,403) 1,323,812 8,809,116

Non controlling interest on acquisition of subsidiary - - - - - 550,026 550,026 Purchase of non controlling interest by the Parent - - - - - (2,613) (2,613)

Total comprehensive income for the year Profit after taxation for the year ended December 31, 2012 Other comprehensive income - - - - - - 721,536 - 721,536 - 98,297 - 819,833

Total comprehensive profit for the year ended December 31, 2012 - - - 721,536 721,536 98,297 819,833 Transaction with owners recorded directly in equity Issue of shares during the year 721,713 - - - 721,713 - 721,713 Discount on issue of shares (Note 20.2.2) - - (160,521) - (160,521) - (160,521) 721,713 - (160,521) - 561,192 - 561,192 Dividend for the year ended December 31, 2012 @ Rs. 3.5 per ordinary share paid to non controlling interest - - - - - (85,662) (85,662) Transfer to statutory reserve Balance as at December 31, 2012 - 10,724,643 141,635 231,613 - (2,105,401) (141,635) (62,157) - 8,788,698 - 1,863,194 10,651,892

The annexed notes from 1 to 45 form an integral part of these consolidated financial statements.

Jahangir Siddiqui Chairman

Kalim-ur-Rahman President/Chief Executive Officer

Rafique R. Bhimjee Director

Adil Matcheswala Director

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CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2012 2012 Note 2011

Rupees in 000

CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation 1,190,156 537,336 Less: Dividend income (82,636) (20,433) 1,107,520 516,903 Adjustments: Depreciation 231,959 226,589 Amortisation of intangible assets 13.3 19,182 17,436 Charge for defined benefit plan 35.6 22,622 17,336 Provision for / (reversal) of against non-performing advances - net 457,504 (13,479) Unrealised (gain) / loss on revaluation of investments classified as held-for-trading (37,762) 4,502 Provision for / (reversal) of provision diminution in the value of investments 11.3 72,424 (137,524) Other provisions (25,427) Share of profit from associate - (34,118) Other income (46,350) (15,933) 694,152 64,809 1,801,672 581,712 Decrease / (increase) in operating assets Lendings to financial institutions 62,064 (159,662) Held for trading securities 3,444,381 (4,332,575) Advances (2,332,945) (4,030,395) Other assets (excluding advance taxation) (362,719) (453,401) 810,781 (8,976,033) Increase in operating liabilities Bills payable (533,247) 877,374 Borrowings 5,187,775 (2,349,997) Deposits 21,760,436 13,898,023 Other liabilities 385,860 (457,375) 26,800,824 11,968,025 27,611,605 2,991,992 Payment to defined benefit plan Income tax paid Net cash from operating activities (75,000) (101,160) 29,237,117 (45,857) 3,527,847

CASH FLOW FROM INVESTING ACTIVITIES Net investment in available-for-sale securities (26,753,088) (2,831,072) Cash received on acquisition of subsidiary 2,196 Dividend received 82,636 20,433 Payments for operating fixed assets (424,707) (391,474) Proceeds on sale of property and equipment disposed-off 70,316 25,087 Net cash used in investing activities (27,022,647) (3,177,026) CASH FLOW FROM FINANCING ACTIVITIES Dividend paid to non-controlling interest (85,662) Net cash used in financing activities Increase / (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year 33 The annexed notes from 1 to 45 form an integral part of these consolidated financial statements. (85,662) 2,128,808 4,044,289 6,173,097 350,821 3,693,468 4,044,289

Jahangir Siddiqui Chairman

Kalim-ur-Rahman President/Chief Executive Officer

Rafique R. Bhimjee Director

Adil Matcheswala Director

Annual Report / JS Bank

115

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

1.

STATUS AND NATURE OF BUSINESS

1.1 The Group consists of: 1.1.1 Holding Company JS Bank Limited (the Bank), incorporated in Pakistan is a scheduled bank, engaged in commercial banking and related services. The Banks ordinary shares are listed on Karachi Stock Exchange in Pakistan. The Bank is a subsidiary of Jahangir Siddiqui & Co. Ltd. (JSCL). The registered office of the Bank is situated at Shaheen Commercial Complex, Dr. Ziauddin Ahmed Road, Karachi. The Bank operates with 185 (December 31, 2011: 147) branches / sub-branches in Pakistan. The Pakistan Credit Rating Agency (Private) Limited (PACRA) has upgraded the long-term entity rating of JS Bank from A to A+ (Single A Plus), while maintaining the short-term rating at A1 (A One). Jahangir Siddiqui Investment Bank Limited (JSIBL, formerly Citicorp Investment Bank Limited which was acquired by JSCL on February 01, 1999) and its holding company, JSCL, entered into a Framework Agreement with American Express Bank Limited, New York (AMEX) on November 10, 2005 for acquisition of its American Express Bank Limited (AEBL) Pakistan Operations. Consequently, a new banking company, JS Bank Limited (JSBL) was incorporated on March 15, 2006 and a restricted Banking License was issued by the State Bank of Pakistan (SBP) on May 23, 2006. A Transfer Agreement was executed on June 24, 2006 between JSIBL and JSBL for the transfer of entire business and undertaking of JSIBL to JSBL and a separate Transfer Agreement was also executed on June 24, 2006 between AMEX and JSBL for the transfer of AEBLs commercial banking business in Pakistan with all assets and liabilities (other than certain excluded assets and liabilities) (AEBL business). The shareholders of JSIBL and JSBL in their respective extra ordinary general meetings held on July 31, 2006 approved a Scheme of Amalgamation (the Scheme) under Section 48 of the Banking Companies Ordinance, 1962. The Scheme was initially approved by the Securities and Exchange Commission of Pakistan (SECP) vide its letter No. SC/NBFC(J)-R/JSIBL/2006/517 dated September 28, 2006. Subsequently, the Scheme was sanctioned by the SBP vide its order dated December 02, 2006 and, in accordance therewith, the effective date of amalgamation was fixed at December 30, 2006. The Bank has signed a Sale and Purchase Agreement on September 10, 2012 with HSBC Middle East Limited for acquisition of HSBC - Pakistan operations. In this regard the Bank has applied to the SBP for an approval. Once the approval is received, the Bank will proceed towards completing other procedural formalties.

1.1.2 Subsidiary Companies JS Global Capital Limited (JSGCL) JS Global Capital Limited (JSGCL), the Company, is principally owned by the Bank, holding 51.05% of its equity interest. The Bank acquired effective controlling interest in JSGCL on December 21, 2011. JSGCL is a public listed company incorporated in Pakistan under the Companies Ordinance, 1984. The shares of the Company are listed on Karachi and Islamabad stock exchanges. Further, the Company is a corporate member of Karachi Stock Exchange Limited and member of Pakistan Merchantile Exchange (formerly National Commodity Exchange Limited). The principal business of the Company is to carry out share brokerage, money market, forex and commodity brokerage, advisory and consultancy services. Other activities include investment in a mix of listed and unlisted equity and debt securities and reverse repurchase transactions. The registered office of the Company is situated at 6th floor, Faysal House, Shahra-e-Faisal, Karachi, Pakistan.

116

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

JS Investments Limited (JSIL) JS Investments Limited (JSIL) (the Company) is principally owned by the Bank, holding 52.24% of its equity interest. The Bank acquired effective controlling interest in JSIL on November 01, 2012. JSIL is a public listed company incorporated in Pakistan on February 22, 1995 under the Companies Ordinance, 1984. The shares of the Company are quoted on the Karachi Stock Exchange since April 24, 2007. The registered office of the Company is situated at 7th floor, The Forum, Khayaban-e-Jami, Clifton, Karachi. The Company has obtained the license of an Investment Advisor and Asset Management Company (AMC) under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003 (the NBFC Rules) and the Non-Banking Finance Companies and Notified Entities Regulations, 2008 (the NBFC Regulations). In addition, the Company has also obtained registration to act as Pension Fund Manager under the Voluntary Pension System Rules, 2005. The Company is an asset management company and pension fund manager for the following at year end:

- Asset management company of the following funds: Closed end: - JS Growth Fund - JS Value Fund Limited Open end: - Unit Trust of Pakistan - JS Income Fund - JS Islamic Fund - JS Aggressive Asset Allocation Fund - JS Fund of Funds - JS KSE-30 Index Fund - JS Aggressive Income Fund - JS Cash Fund - JS Large Cap Fund - Pension fund manager of the following funds: - JS Pension Savings Fund - JS Islamic Pension Savings Fund These funds have been treated as related parties in these consolidated financial statements.

Annual Report / JS Bank

117

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

JS ABAMCO Commodities Limited JS Bank owns JS ABAMCO Commodities Limited (JSACL) indirectly through its subsidiary JS Investment Limited (JSIL) which has 100% holding in JSACL. JSACL was incorporated on September 25, 2007 as a public unlisted company under the Companies Ordinance, 1984 and is a wholly owned subsidiary company of JSIL (a subsidiary of Holding Company). The principal activities of JSACL are to deal and effectuate commodity contracts; to become member of commodity exchange including National Commodity Exchange Limited (NCEL) and to carry on the business as brokers, advisory and consultancy services, dealers and representative of all kinds of commodity contracts and commodity backed securities. The registered office of the Company is situated at 7th floor, the Forum, Block-9, Clifton, Karachi. The Company has not commenced its commercial operations up to the balance sheet date. 1.2 Compliance with Minimum Capital Requirement The State Bank of Pakistan (SBP) through its BSD Circular No. 7 dated April 15, 2009 has prescribed that the minimum paid up capital (net of losses) for Banks / Development Finance Institutions (DFIs) be raised to Rs. 10 billion by the year ending December 31, 2013. The raise is to be achieved in a phased manner requiring Rs. 9 billion paid-up capital (free of losses) by the end of the financial year 2012. To meet the shortfall in the Minimum Capital Requirement (MCR) of the SBP, the Bank acquired in previous year 25,525,169 shares of JS Global Capital Limited (JSGCL) from Jahangir Siddiqui & Co. Ltd. (JSCL) and other shareholders of JSGCL in exchange of issuance of 185,321,537 new shares of the Bank. Further during the current year the Bank acquired 52,236,978 shares of JS Investments Limited (JSIL) from JSCL and other shareholders of JSIL in exchange for issue of 72,171,251 shares of the Bank. As a result of these transactions the paid up capital of the Bank increased by 1.885 billion. The paid-up capital (free of losses) of the Bank as at December 31, 2012 stood at Rs. 8.543 billion. To meet the shorfall in the required MCR, the Bank has plans based on which the SBP has granted an extension upto June 30, 2013 for compliance, subject to certain conditions.

1.3 Basis of consolidation - The consolidated financial statements include the financial statements of the Bank (holding company) and its subsidiary companies together - the Group. - Subsidiary companies are fully consolidated from the date on which more than 50% of voting rights are transferred to the Group or power to control the company is established and excluded from consolidation from the date of disposal or when the control is lost. The financial statements of the subsidiary companies are prepared for the same reporting year as the holding company for the purpose of consolidation, using consistent accounting policies. The assets, liabilities, income and expenses of subsidiary companies have been consolidated on a line by line basis.

- -

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Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

- -

Non-Controlling Interest in equity of the subsidiary companies is measured at proportionate share of net assets of the acquiree as of the acquisition date. Material intra-group balances and transactions have been eliminated.

2. BASIS OF PRESENTATION In accordance with the directives of the Federal Government regarding the conversion of the banking system to Islamic modes, the SBP has issued various circulars from time to time. Permissible forms of trade-related modes of financing include purchase of goods by the Bank from their customers and immediate resale to them at appropriate mark-up in price on deferred payment basis. The purchases and sales arising under these arrangements are not reflected in these financial statements as such but are restricted to the amount of facility actually utilised and the appropriate portion of mark-up thereon. 3. 4. BASIS OF MEASUREMENT These consolidated financial statements have been prepared under the historical cost convention except that certain assets are stated at revalued amounts / fair value as disclosed in their respective notes. STATEMENT OF COMPLIANCE 4.1 These consolidated financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan. Approved Accounting Standards comprise of such International Financial Reporting Standards (IFRSs) issued by the International Accounting Standards Board (IASB) as are notified under the Companies Ordinance, 1984, the provisions of and directives issued under the Banking Companies Ordinance, 1962, the Companies Ordinance, 1984 and the directives issued by the SBP. In case where requirements differ, the provisions of the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962 and the said directives have been followed. The SBP vide BSD Circular No. 10, dated August 26, 2002 has deferred the applicability of International Accounting Standard 39, Financial Instruments: Recognition and Measurement (IAS 39) and International Accounting Standard 40, Investment Property (IAS 40) for Banking companies till further instructions. Further, according to the notification of the Securities and Exchange Commission of Pakistan (SECP) dated April 28, 2008, the IFRS - 7 Financial Instruments: Disclosures has not been made applicable for banks. Accordingly, the requirements of these standards have not been considered in the preparation of these consolidated financial statements. However, investments have been classified and valued in accordance with the requirements of various circulars issued by the SBP. Adoption of New Standards, and Amendments and Interpretations to the published approved accounting standards: The following standards, amendments and interpretations are effective for the year ended December 31, 2012. These standards, interpretations and the amendments are either not relevant to the Groups operations or are not expected to have significant impact on the Groups financial statements other than certain additional disclosures.

4.2

4.3

Annual Report / JS Bank

119

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Effective date (accounting Standards/Amendments/Interpretations period beginning on or after) Amendment to IAS 12 - Income Taxes Deferred Tax: - Recovery of Underlying Assets January 1, 2012 The amendment clarified the determination of deferred tax on investment property measured at fair value. The amendment introduces a rebuttable presumption that deferred tax on investment property measured using the fair value model in IAS 40 should be determined on the basis that its carrying amount will be recovered through sale. Furthermore, it introduces the requirement that deferred tax on non-depreciable assets that are measured using the revaluation model in IAS 16 always be measured on a sale basis of the asset. Amendments to IFRS 7 - Financial Instruments: Disclosures - Transfer of financial assets July 1, 2011 4.4 a. The amendment provides enhanced disclosures for transferred financial assets that are derecognized in their entirety and transferred assets that are not derecognized in their entirety. Standards, interpretations and amendments to the published approved accounting standards not yet effective: The following Standards, amendments and interpretations are only effective for accounting periods, beginning on or after the date mentioned against each of them. These standards, interpretations and the amendments are either not relevant to the Groups operations or are not expected to have significant impact on the Groups financial statements other than certain additional disclosures. Standards/Amendments/Interpretations Effective date (accounting period beginning on or after) Amendments to IAS 1 - Presentation of Financial Statements Presentation of Items of Other Comprehensive Income July 1, 2012

The amendments to IAS 1 change the grouping of items presented in other comprehensive income (OCI). Items that could be reclassified (or recycled) to profit or loss at a future point in time (for example, net gains on hedges of net investments, exchange differences on translation of foreign operations, net movements on cash flow hedges and net losses or gains on available-for-sale financial assets) would be presented separately from items that will never be reclassified (for example, actuarial gains and losses on defined benefit plans). Amendments to IAS 1 - Presentation of Financial Statements Clarification of Requirements for Comparative information January 1, 2013 This improvement clarifies the difference between voluntary additional comparative information and the minimum required comparative information. Generally, the minimum required comparative information is the previous period. Amendments to IAS 16 - Property, Plant and Equipment Classification of servicing equipment. January 1, 2013

120

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

This improvement clarifies that major spare parts and servicing equipment that meet the definition of property, plant and equipment are not inventory. Amendments to IAS 32 Financial Instruments: Presentation - Tax effects of distributions to holders of an equity instrument, and transaction costs of an equity transaction.

January 1, 2013

This improvement clarifies that income taxes arising from distributions to equity holders are accounted for in accordance with IAS 12 Income Taxes. Amendments to IAS 32 Financial Instruments: Presentation - Offsetting financial assets and financial liabilities. January 1, 2014 These amendments clarify the meaning of currently has a legally enforceable right to set-off. It will be necessary to assess the impact to the entity by reviewing settlement procedures and legal documentation to ensure that offsetting is still possible in cases where it has been achieved in the past. In certain cases, offsetting may no longer be achieved. In other cases, contracts may have to be renegotiated. The requirement that the right of setoff be available for all counterparties to the netting agreement may prove to be a challenge for contracts where only one party has the right to offset in the event of default. Amendments to IAS 34 - Interim Financial Reporting - Interim reporting of segment information for total assets and total liabilities.

January 1, 2013

The amendment aligns the disclosure requirements for total segment assets with total segment liabilities in interim financial statements. This clarification also ensures that interim disclosures are aligned with annual disclosures. Amendments to IFRS 7 Financial Instruments: Disclosures - Offsetting financial assets and financial liabilities. January 1, 2013

These amendments require an entity to disclose information about rights to set-off and related arrangements (e.g., collateral agreements). The disclosures would provide users with information that is useful in evaluating the effect of netting arrangements on an entitys financial position. The new disclosures are required for all recognised financial instruments that are set-off in accordance with IAS 32 Financial Instruments: Presentation. The disclosures also apply to recognised financial instruments that are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are set-off in accordance with IAS 32. IFRIC 20 - Stripping Costs in the Production Phase of a Surface Mine January 1, 2013

This interpretation applies to waste removal (stripping) costs incurred in surface mining activity, during the production phase of the mine. The interpretation addresses the accounting for the benefit from the stripping activity. Other than the aforesaid standards, interpretations and amendments, the International Accounting Standards Board (IASB) has also issued the following standards which have not been adopted locally by the Securities and Exchange Commission of Pakistan:

Annual Report / JS Bank

121

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

b. The potential impact of standards, amendments and interpretations not yet effective on the financial statements on the Group is as follows: The amendments to IAS 19 Employee Benefits are effective for annual period beginning on or after January 1, 2013. The amendments eliminate the corridor approach and therefore require an entity to recognize changes in defined benefit plans obligations and plan assets when they occur. All actuarial gains or losses in other comprehensive income arising during the year are recognized immediately through other comprehensive income. The amendments also require additional disclosures and retrospective application with certain exceptions. Management anticipates that the amendments will be adopted in the Banks financial statements for annual period beginning on or after January 1, 2013, and the application of amendments may have impact on amounts reported in respect of defined benefit plans.

- - - - - - - -

IFRS 1 First Time Adoption of International Financial Reporting Standards IFRS 9 Financial Instruments IFRS 10 Consolidated Financial Statements IFRS 11 Joint Arrangements IFRS 12 Disclosure of Interests in Other Entities IFRS 13 Fair Value Measurement IAS 27 (Revised 2011) Separate Financial Statements due to not adoption of IFRS 10 and IFRS 11 IAS 28 (Revised 2011) Investments in Associates and Joint Ventures due to not adoption of IFRS 10 and IFRS 11

5.

CRITICAL ACCOUNTING ESTIMATES AND KEY SOURCES OF ESTIMATION UNCERTAINITY The preparation of consolidated financial statements in conformity with approved accounting standards requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Groups accounting policies. Estimates and judgments are continually evaluated and are based on historic experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. Revisions in accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. The areas where various assumptions and estimates are significant to the Groups consolidated financial statements or where judgment was exercised in application of accounting policies are as follows: i) - Classification of investments In classifying investments as held-for-trading the Group has determined securities which are acquired with the intention to trade by taking advantage of short term market / interest rate movements and are to be sold within 90 days. In classifying investments as held-to-maturity the Group follows the guidance provided in SBP circulars on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity. In making this judgment, the Group evaluates its intention and ability to hold such investments to maturity. The investments which are not classified as held for trading or held to maturity are classified as available for sale.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

ii)

Provision against non performing loans and advances The Group reviews its loan portfolio to assess amount of non-performing loans and advances and provision required there-against. While assessing this requirement various factors including the delinquency in the account, financial position of the borrower, the forced sale value of the securities and the requirement of the Prudential Regulations are considered. For portfolio impairment provision on consumer advances, the Group follows, the general provision requirement set out in Prudential Regulations. Valuation and impairment of available for sale equity investments The Group determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the Group evaluates among other factors, the normal volatility in share price. In addition, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology and operational and financing cash flows. Income taxes In making the estimates for income taxes currently payable by the Group, the management looks, at the current income tax laws and the decisions of appellate authorities on certain issues in the past. In making the provision for deferred taxes, estimates of the individual entitys future taxable profits are taken into account. Fair value of derivatives The fair value of derivatives which are not quoted in active markets are determined by using valuation techniques. The valuation techniques take into account the relevant interest rates in effect at the balance sheet date and the rates contracted. Fixed assets, depreciation and amortisation In making estimates of the depreciation / amortisation method, the management uses a method which reflects the pattern in which economic benefits are expected to be consumed by the Group. The method applied is reviewed at each financial year end and if there is a change in the expected pattern of consumption of the future economic benefits embodied in the assets, the method would be changed to reflect the change in pattern. Such change is accounted for as change in accounting estimates in accordance with International Accounting Standard - 8, Accounting Policies, Changes in Accounting Estimates and Errors. Defined benefits plans and other benefits Liability is determined on the basis of actuarial advice using the Projected Unit Credit Method.

iii)

iv)

v)

vi)

vii)

viii) Impairment of Goodwill Impairment testing involves a number of judgmental areas which are subject to inherent significant uncertainty, including the preparation of cash flow forecasts for periods that are beyond the normal requirements of management reporting and the assessment of the discount rate appropriate to the business. The carrying amount of goodwill at the balance sheet date was Rs. 1,463.624 million. The details assumptions underlying impairment testing of goodwill are given in note 13.3.5 to these consolidated financial statements.

Annual Report / JS Bank

123

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

ix)

Amortisation of intangible assets Intangible assets are initially measured at cost. After initial measurement, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The depreciable amount of intangible assets with a finite useful life amortised using straight line method from the month in which such intangible asset is available for use, whereby, the cost of the intangible asset is amortized over its estimated useful life over which economic benefits are expected to flow to the Group. An intangible asset is regarded as having an indefinite useful life, when based on an analysis of all the relevant factors, there is no foreseeable limit to the period over which the asset is expected to generate net cash inflows for the Group. An intangible asset with an indefinite useful life is not amortized. The useful life and amortization method is reviewed and adjusted, if appropriate, at each balance sheet date.

6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 6.1 Basis of Consolidation Subsidiary Subsidiary is an entity controlled by the Group. Control exists when the Group has power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiary is included in the consolidated financial statements from the date that control commences until the date that control ceases. The profit and loss account of the subsidiary companies (JSGCL for the year ended December 31, 2012 and JSIL for the two months ended December 31, 2012) have been extracted form audited financial statements for the eighteen months ended December 31, 2012. Acquisition of business not under common control Acquisitions of businesses not under common control are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the bank, liabilities incurred by the bank to the former owners of the acquiree and the equity interests issued by the bank in exchange for control of the acquiree. Acquisition-related costs are recognised in profit and loss account as incurred. At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognised at their fair value at the acquisition date. Goodwill on acquisition after July 1, 2009 is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirers previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree and the fair value of the acquirers previously held interest in the acquiree (if any), the excess is recognised immediately in profit or loss as a bargain purchase gain. Goodwill acquired in a business combination before July 1, 2009 is initially measured at cost, being the excess of the cost of business combination over the Banks interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the Groups net assets in the event of liquidation is measured at proportionate share of net assets of the acquiree at the date of the acquisition.

124

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Acquisition of business under common control Acquisition of business under common control are accounted for under pooling of interest method. The assets and liabilities of the combining businesses for the period in which the combination occurs are merged on the date of combination at their respective book values. Appropriate adjustments are made to the book values to reflect application of consistent accounting policies in the combining businesses. Any difference between the amount of net assets merged and consideration transferred in form of cash or other assets are adjusted against equity, except for the transaction made in the current year as disclosed in note 7. Expenditure incurred in relation to the business combination are recognized as expenses in the period in which they are incurred.

6.2 Cash and cash equivalents Cash and cash equivalents represent cash and balances with treasury banks, balances with other banks net of any overdrawn nostro accounts. 6.3 Lendings to / borrowings from financial institutions The Group enters into transactions of lendings to / borrowings from financial institutions at contracted rates for a specified period of time. These are recorded as under: (a) Sale under repurchase obligation Securities sold subject to a re-purchase agreement (repo) are retained in the consolidated financial statements as investments and the counter party liability is included in borrowings. The difference in sale and re-purchase value is accrued over the period of the contract and recorded as an expense using effective interest rate method. (b) Other lendings Other lendings include term lendings and unsecured lendings to financial institutions. These are stated net of provision. Mark-up on such lendings is charged to profit and loss account on a time proportionate basis using effective interest rate method except mark-up on impaired / delinquent lendings, which are recognised on receipt basis. (c) Purchase under resale obligation Securities purchased under agreement to resell (reverse repo) are not included in consolidated statement of financial position as the Group does not obtain control over the securities. Amount paid under these agreements is included in lendings to financial institutions or advances as appropriate. The difference between the contracted price and resale price is amortised over the period of the contract and recorded as income using effective interest method. (d) Other borrowings Other borrowings include borrowings from the SBP and unsecured call borrowings which are recorded at the proceeds received. Mark-up paid on such borrowings is charged to the profit and loss account over the period of borrowings on time proportionate basis using effective interest method.

Annual Report / JS Bank

125

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

6.4 Trade date accounting All regular way purchases and sales of financial assets are recognised on the trade date, i.e. the date on which commitment to purchase / sale is made by the Group. Regular way purchases or sales of financial assets are those, the contract for which requires delivery of assets within the time frame generally established by regulation or convention in the market place.

6.5 Investments The management determines the appropriate classification of its investments at the time of purchase and classifies these investments as held-for-trading, available-for-sale or held-to-maturity. These are initially recognised at cost, being the fair value of the consideration given plus, in the case of investments not held-for-trading, directly attributable acquisition costs. (a) Held-for-trading These are securities which are either acquired for generating profit from short-term fluctuations in market prices, interest rate movements, dealers margin or are securities in a portfolio in which a pattern of short-term profit taking exists. These securities are carried at fair value with any related gain or loss being recognised in profit and loss. (b) Held to maturity These are securities with fixed or determinable payments and fixed maturities that are held with the intention and ability to held-to-maturity. Investments classified as held-to-maturity are carried at amortised cost. (c) Available-for-sale These are securities, other than those in associate and subsidiary, which do not fall under the held for trading or held-to-maturity categories. These are initially recognised at cost, being the fair value of the consideration given including the acquisition cost. Associates Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for under the equity method of accounting. However, in case where associates are considered as fully impaired and financial statements are not available these investments are stated at cost less provision. Under the equity method, the Groups share of its associates post-acquisition profits or losses is recognised in the consolidated profit and loss account, its share of post-acquisition movements in reserves is recognized in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Groups share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. In accordance with the requirements of the SBP, quoted securities, other than those classified as held-to-maturity, are carried at market value. Investments classified as held-to-maturity are carried at amortised cost (less impairment, if any).

126

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FOR THE YEAR ENDED DECEMBER 31, 2012

Further, in accordance with the requirements of the SBP, gain or loss on revaluation of the Groups held-for-trading investments is taken to the consolidated profit and loss account. The surplus or deficit on investments classified as available-for-sale is kept in a separate account shown in the consolidated statement of financial position below equity. The surplus or deficit arising on these securities is taken to the consolidated profit and loss account when actually realised upon disposal or when investment is considered to be impaired. The unrealised surplus or deficit arising on revaluation of quoted securities which are classified as held-for-trading is taken to the consolidated profit and loss account. Premium or discount on acquisition of investments is capitalised and amortised through the consolidated profit and loss account using effective yield over the remaining period till maturities. Provision for diminution in the value of securities (except for term finance certificates) is made after considering impairment, if any, in their value. Provision for diminution in value of term finance certificates is made in accordance with the requirements of the Prudential Regulations issued by the SBP.

6.6 Financial instruments 6.6.1 Financial assets and financial liabilities Financial assets and liabilities are recognized at the time when the Group becomes party to the contractual provision of the instrument. Financial assets are de-recognized when the contractual right to future cash flows from the asset expires or is transferred along with the risk and reward of the asset. Financial liabilities are de-recognized when obligation specific in the contract is discharged, cancelled or expired. Any gain or loss on de-recognition of the financial asset and liability is recognized in the consolidated profit and loss account of the current period. The particular recognition and subsequent measurement method for significant financial assets and financial liabilities are disclosed in the individual policy statements associated with them. Derivative financial instruments Derivative financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into and are subsequently re-measured at fair value using appropriate valuation techniques. All derivative financial instruments are carried as assets when fair value is positive and liabilities when fair value is negative. Any change in the fair value of derivative financial instruments is taken to the consolidated profit and loss account.

6.6.2

6.7 Off-setting of financial assets and financial liabilities Financial assets and liabilities are set off and the net amount is reported in the consolidated financial statements when there exists a legally enforceable right to set off and the Group intends either to settle the assets and liabilities on a net basis or to realise the assets and to settle the liabilities simultaneously. Income and expenses arising from such assets and liabilities are accordingly offset.

Annual Report / JS Bank

127

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

6.8 Advances (including net investment in finance lease) Loan and advances Advances are stated net of general and specific provision. General and specific provisions against funded loans are determined in accordance with the requirements of the Prudential Regulations issued by the SBP and charged to the profit and loss account. Advances are written off when there are no realistic prospects of recovery. Leases, where the Group transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee are classified as finance leases. A receivable is recognised at an amount equal to the present value of the lease payment including any guaranteed residual value, if any.

6.9 Operating fixed assets and depreciation Tangible assets Owned assets are stated at cost less accumulated depreciation and impairment, if any, except land, which is stated at cost. Depreciation is calculated and charged to consolidated profit and loss account using the straight-line method so as to write down the cost of the assets to their residual values over their estimated useful lives at the rates given in note 13. A full months depreciation is charged from the month in which assets are brought into use and no depreciation is charged for the month in which the disposal is made. The residual values, useful lives and depreciation methods are reviewed and changes, if any, are treated as change in accounting estimates, at each balance sheet date. Subsequent costs are included in the assets carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated profit and loss account during the period in which they are incurred. An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is recognised in the consolidated profit and loss account in the year the asset is derecognised. Intangible assets Intangible assets are stated at cost less accumulated amortisation and impairment, if any. Intangible assets are amortised from the month when the assets are available for use, using the straight line method, whereby the cost of the intangible asset is amortised over its estimated useful life over which economic benefits are expected to flow to the Group. The useful life and amortisation method are reviewed and adjusted, if appropriate, at each balance sheet date. Intangible assets having an indefinite useful life are carried at cost less any impairment in value and are not amortised. Intangible assets having an indefinite useful life are reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. Membership cards Membership cards represent corporate membership of Karachi Stock Exchange (Guarantee) Limited and Pakistan Mercantile Exchange with indefinite useful life. These are stated at cost less impairment, if any. The carrying amounts are reviewed at each balance sheet date to assess whether they are in excess of their recoverable amounts, and where the carrying values exceed estimated recoverable amount, these are written down to their estimated recoverable amount.

128

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Capital work-in-process Capital work-in-process is stated at cost less impairment losses, if any. These are transferred to specified assets as and when assets are available for use.

6.10 Impairment At each balance sheet date, the Group reviews the carrying amounts of its assets to determine whether there is an indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to determine the extent of the impairment loss, if any. Recoverable amount is the higher of net selling price (being fair value less cost to sell) and value in use. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the assets is reduced to its recoverable amount. Impairment losses are recognised as an expense in consolidated profit and loss account immediately. Where impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised recoverable amount but limited to the extent of the amount which would have been determined had there been no impairment. Reversal of impairment loss is recognised as income.

6.11 Taxation Current Provision for current taxation is based on taxable income for the year determined in accordance with the prevailing laws for taxation on income. For income covered under final tax regime, taxation is based on applicable tax rate under such regime. The charge for current tax also includes adjustments, where considered necessary, relating to prior years arising from assessments made during the year. Deferred Deferred tax is recognised using the balance sheet liability method on all temporary differences arising between tax bases of assets and liabilities and their carrying amounts appearing in the consolidated financial statements. Deferred tax liability is recognized on taxable temporary differences. Deferred tax asset is recognised for all deductible temporary differences and carry forward of unused tax losses, if any only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefits will be realised. Deferred tax is calculated at the rates that are expected to apply to the period when the differences are expected to reverse, based on tax rates that have been enacted or substantively enacted by the balance sheet date. Deferred tax is charged or credited to the consolidated profit and loss account. Deferred tax, if any, on revaluation of investments is recognised as an adjustment to surplus / (deficit) arising on revaluation in accordance with the requirements of IAS-12 Income Taxes.

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

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129

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Provision against identified non-funded losses is recognised when intimated and reasonable certainty exists for the Group to settle the obligation. The loss is charged to consolidated profit and loss account net of expected recovery.

6.13 Staff retirement benefits 6.13.1 Holding Company Defined contribution plan The Bank has established a provident fund scheme for all permanent employees effective from January 01, 2007. Equal monthly contributions are made, both by the Bank and the employees, to the fund at the rate of 10 percent of basic salary. Contribution by the Bank is charged to profit and loss account. Defined benefit plan The Bank operates a funded gratuity scheme covering all employees, which requires contribution to be made in accordance with the actuarial recommendations. The most recent valuation in this regard was carried out as at December 31, 2012, using the projected unit credit actuarial valuation method. Under this method cost of providing for gratuity is charged to profit and loss account so as to spread the cost over the service lives of the employees in accordance with the actuarial valuation. Actuarial gains and losses are recognised as income or expense when the net cumulative unrecognised actuarial gains and losses at the end of the previous reporting period exceed 10% of the higher of the defined benefit obligation and the fair value of plan assets at that date. These gains or losses are recognised over the expected average remaining working lives of the employees participating in the plan. Subsidiary Defined contribution plan JS Global Capital Limited (subsidiary) The Company operates a defined contribution plan, i.e. recognised provident fund scheme for all its eligible employees in accordance with the trust deed and rules made there under. Equal monthly contributions at the rate of 10% of basic salary are made to the fund by the Company and the employees. JS Investments Limited (subsidiary) The Company operates an approved contributory provident fund for all it permanent employees. The Company and employees make equal monthly contributions to the fund at the rate of 8 to 10 percent of the basic salary.

6.13.2

6.14 Revenue recognition Revenue is recognized to the extent that economic benefits will flow to the Group and the revenue can be reliably measured. These are recognized as follows; - Mark-up / return / interest income on regular loans and advances and investments is recognised on accrual basis using effective interest method. Mark-up / return / interest income on classified advances is recognised on receipt basis.

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FOR THE YEAR ENDED DECEMBER 31, 2012

- -

Financing method is used in accounting for income from lease financing. Under this method, the unearned lease income (excess of the sum of total lease rentals and estimated residual value over the cost of leased assets) is deferred and taken to income over the term of the lease period so as to produce a constant periodic rate of return on the outstanding net investment in lease. Gains / losses on termination of lease contracts, documentation charges, front-end fees and other lease income are recognized as income on receipt basis. Commission is generally recognised as income at the time of affecting the transaction to which it relates, except on guarantees on which the commission is recognised as income over the period of the guarantee. Fees are recognised when earned. Dividend income is recognised when the right to receive the dividend is established. Remuneration for management services and asset investment advisory services are recognized on an accrual basis . Commission income from open end funds is recognised at the time of sale of units. Commission income and share of profit from management of discretionary client portfolios is recognised on accrual basis. Brokerage, consultancy and advisory fee, commission on foreign exchange dealings and government securities etc. are recognised as and when such services are provided. Gains and losses arising on revaluation of derivatives to fair value are taken to profit and loss account. Late payment surcharge on overdue balance of trade debts is recognised on receipt basis.

- - - - - - -

6.15 Dividend and appropriation to reserves Dividend and appropriation to reserves except for statutory reserves are recognised in the consolidated financial statements in the periods in which these are approved.

6.16 Foreign currencies Functional and presentation currency Items included in the consolidated financial statements are measured using the currency of the primary economic environment in which the Group operates. The consolidated financial statements are presented in Pakistani Rupees, which is the Groups functional and presentation currency. Foreign currency transactions Transactions in foreign currencies are translated into rupees at the foreign exchange rates ruling on the transaction date. Monetary assets and liabilities in foreign currencies are expressed in rupee terms at the rates of exchange ruling on the balance sheet date. Forward foreign exchange contracts are valued at forward rates applicable to their respective maturities.

Annual Report / JS Bank

131

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Translation gains and losses Translation gains and losses are included in the consolidated profit and loss account. Commitments Commitments for outstanding forward foreign exchange contracts disclosed in these consolidated financial statements are translated at contracted rates. Contingent liabilities / commitments for letters of credit and letters of guarantee denominated in foreign currencies are expressed in rupee terms at the rates of exchange ruling on the consolidated statement of financial position date.

6.17 Goodwill Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Banks cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units.

6.18 Segment reporting A segment is a distinguishable component of the Group that is subject to risks and rewards that are different from those of other segments. A business segment is one that is engaged either in providing certain products or services, whereas a geographical segment is one engaged in providing certain products or services within a particular economic environment. Segment information is presented as per the Groups functional structure and the guidance of State Bank of Pakistan. The Group comprises of the following main business segments: 6.18.1 Business segments Corporate finance This includes investment banking activities such as mergers and acquisitions, underwriting, privatization, securitization, Initial Public Offers (IPOs) and secondary private placements. Trading and sales This segment undertakes the Groups treasury, money market and capital market activities. Retail banking Retail banking provides services to small borrowers i.e. consumers, small and medium enterprises (SMEs) and borrowers and agricultural sector. It includes loans, deposits and other transactions with retail customers.

132

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Commercial banking This includes loans, deposits and other transactions with corporate customers. Payment and settlement

6.19 6.20 6.21 6.18.2

This includes activities such as payment and collections, fund transfer, clearing and settlement etc. Geographical segment The Bank has 185 (December 31, 2011: 147) branches / sub-branches and operates only in one geographic region which is Pakistan. Assets acquired in satisfaction of claims The Bank occasionally acquires assets in settlement of certain advances. These are stated at lower of the net realisable value of the related advances and the current fair value of such assets. Fiduciary assets Assets held in a fiduciary capacity are not treated as assets of the Group in consolidated statement of financial position. Operating leases / ijarah Operating leases / Ijarah in which a significant portion of the risks and rewards of ownership are retained by the lessor / Mujir are classified as operating leases / Ijarah. Payments made during the period are charged to profit and loss account on straight-line basis over the period of the lease / Ijarah. Earnings per share The Group presents earning per share (EPS) data for its ordinary shares of the Bank. EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period.

6.22

7.

BUSINESS COMBINATION - Under common control 7.1 During the year, the Bank acquired 52,236,978 shares of JS Investments Limited (JSIL), the Company, in lieu of issuance of 72,171,251 shares of the Bank. The share acquisition was effected partly through a private arrangement with Jahangir Siddiqui & Co. Ltd. (the parent company of the Bank) whereas the remaining shares were acquired from general public. The Bank acquired equity interest in JSIL by virtue of a share to share exchange. The share exchange arrangement was approved by the State Bank of Pakistan with a condition that transaction will be effected on the respective break-up values of the Bank and the Company. Accordingly, the Bank issued its share at Rs.7.77583790 per share (the break-up value of the Bank). The purpose of acquisition was to increase the Banks equity base to meet the minimum capital requirements of the SBP.

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133

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

The Bank acquired the shares in the following manner; Date of acquisition Number of shares issued October 30, 2012 December 05, 2012 7.1.1 71,876,469 294,782 72,171,251

Number of shares acquired 52,023,617 213,361 52,236,978

Proportion of voting equity interest acquired 52.02% 0.21% 52.23%

The JSIL owned 100% shareholding of JS Abamco Commodities Limited (JSACL) which is now indirectly controlled by the Bank as a result of acquisition of JSIL. The detail of net assets acquired as at October 31, 2012 is as follows:

JSIL JSACL Rupees in 000 7.1.2 7.1.3 Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Operating fixed assets Deferred tax assets Other assets Total Assets Bills payable Borrowings Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities Total Liabilities Net Assets 7.1.2 57 2,119 - 1,277,500 4,060 193,679 29,910 161,748 1,669,073 - 297,961 - - - - 230,670 528,631 1,140,442 21 40,142 3,500 43,663 178 178 43,485

Operating fixed assets of the subsidiaries have been appropriately adjusted to reflect the consistent accounting policies with parent. In accordance with SBPs letter number BSD/CSD/4809/2012 dated February 18, 2012 regarding approval granted to the Bank for acquisition of JSIL, the swap ratio for share-exchange arrangement would be fixed at break-up values of both the Bank and the JSIL as of April 30, 2012 and there would be no creation of any goodwill. Accordingly, carrying values of the net assets of the JSIL have been appropriately adjusted to avoid recognition of any difference between the consideration transferred and book value of net assets acquired.

134

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

8.

2012 2011 Note Rupees in 000

CASH AND BALANCES WITH TREASURY BANKS In hand Local currency 1,198,450 829,063 Foreign currencies 203,140 177,363 1,401,590 1,006,426 With State Bank of Pakistan in

Local currency current account 2,324,310 1,917,125 Foreign currency accounts - Cash reserve account - non remunerative 8.1 194,299 140,765 - Special cash reserve account - remunerative 8.2 573,183 419,147 - Local US Dollar instruments collection and settlement account - remunerative 8.3 29,162 7,098 3,120,954 2,484,135 With National Bank of Pakistan in - Local currency current accounts - Foreign currencies current account 8.4 National Prize Bonds 8.1 8.2 499,919 1,160 501,079 4,319 5,027,942 385,133 4,063 389,196 1,025 3,880,782

This represents current account maintained with the SBP under the requirements of BSD Circular No. 18 dated June 30, 2008. This represents deposit account maintained with SBP under the requirements of BSD Circular No. 18 dated June 30, 2008. Profit rates on this deposit account are fixed on a monthly basis by the SBP. It carries profit of 0% (2011: 0%) per annum. This represents mandatory reserve maintained to facilitate collection and settlement and to settle foreign currency accounts under FE-25, as prescribed by the SBP. Profit rates on this account are fixed on a monthly basis by the SBP. It carries profit at 0% (2011: 0%) per annum. This represents balance held in current account with a foreign branch of National Bank of Pakistan.

8.3

8.4

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 9. BALANCES WITH OTHER BANKS In Pakistan On current accounts 119,788 75,840 On deposit accounts 9.1 10,879 27,111 130,667 102,951 Outside Pakistan On current accounts 455,494 39,220 On deposit accounts 9.2 607,703 22,896 1,063,197 62,116 1,193,864 165,067 9.1 These carry mark-up at the rate of 0% to 5% (2011: 0% to 11.5%) per annum. This represents deposits accounts / term placements outside Pakistan, carrying mark-up rate at 0% (2011: 0%) per annum. 2012 2011 Note Rupees in 000 10. LENDINGS TO FINANCIAL INSTITUTIONS Call money lendings 10.1 Lending to financial institutions 10.2 Repurchase agreement lendings 10.3 10.1 600,000 1,136,983 2,003,975 3,740,958 1,000,000 772,758 2,030,264 3,803,022 9.2

These represent unsecured call money lendings to financial institutions, carrying interest at the rates ranging between 7.50% and 9.75% (2011: 11.55% and 12.50%) per annum. These are due to mature between January 02, 2013 to January 4, 2013. This represents secured lending to various financial institutions, carrying interest at the rates ranging between 1.50% and 14.03% (2011: 1.50% and 14.92%) per annum. These are due to mature between June 30, 2013 to June 07, 2017. These are secured short-term lendings to various financial institutions, carrying mark-up rates ranging from 8.00% to 11.25%. These are due to mature between January 02, 2013 to January 21, 2013. These are collaterlized by Market Treasury Bills and Pakistan Investment Bonds as shown in Note 10.5 below.

10.2

10.3

2012 2011 Rupees in 000 10.4 Particulars of lendings In local currency In foreign currency 3,740,958 - 3,740,958 3,803,022 3,803,022

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FOR THE YEAR ENDED DECEMBER 31, 2012

10.5

Securities held as collateral against lendings to financial institutions Market values of securities held as collateral against reverse repurchase lendings to financial institution are as under:

2012 2011 Further Further Held by given as Held by given as bank collateral Total bank collateral Total --------------- Rupees in 000 --------------- --------------- Rupees in 000 ---------------
Market Treasury Bills Term Finance Certificates Pakistan Investment Bonds 1,169,912 - 867,141 2,037,053 - - - - 1,169,912 - 867,141 2,037,053 1,712,210 67,574 253,690 2,033,474 - - - - 1,712,210 67,574 253,690 2,033,474

11. INVESTMENTS - net

Held by bank Note

2012 2011 Given as Held by Given as collateral Total bank collateral Total ---------------- Rupees in 000 ---------------

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

11.1

Investments by type
Held-for-trading securities Market Treasury Bills 11.2.1 & 11.2.2 Pakistan Investment Bonds 11.2.1 National Saving Bonds Ijara Sukuk 11.2.1 Term Finance Certificates-listed 11.2.5 Term Finance Certificates-unlisted 11.2.6 Engro Rupiya Certificates 11.2.12 Ordinary shares of listed companies 11.2.3 Open end mutual funds 11.2.10 1,933,372 709,286 186 149,440 72,731 20,527 39,143 - 912,801 228,700 - - - - - - - - 228,700 2,162,072 709,286 186 149,440 72,731 20,527 39,143 - 912,801 4,066,186 4,755,435 306,812 5,547 998,000 4,955 135,000 15,000 22,400 734,766 6,977,915 451,953 49,149 - - - - - - - 501,102 5,207,388 355,961 5,547 998,000 4,955 135,000 15,000 22,400 734,766 7,479,017

3,837,486 Available-for-sale securities Market Treasury Bills 11.2.1 & 11.2.2 26,937,159 Pakistan Investment Bonds 11.2.1 3,746,352 Ordinary shares of listed companies 11.2.3 1,042,548 Preference shares of listed company 11.2.4 143,739 Term Finance Certificates-listed 11.2.5 1,589,004 Term Finance Certificates-unlisted 11.2.6 974,206 Sukuk Certificates-unlisted 11.2.7 105,294 Commercial Papers 11.2.8 - Closed end mutual funds 11.2.9 1,151,696 Open end mutual funds 11.2.10 765,832
US dollar bonds 11.2.11 787,052 37,242,882

7,041,450 - - - -

33,978,609 3,746,352 1,042,548 143,739 1,589,004 974,206 105,294 - 1,151,696 765,832

5,951,430 4,421,551 19,096 394,174 1,375,972 829,774 193,966 51,256 118,601 264,290 459,705 14,079,815

1,696,954 - - - - -

7,648,384 4,421,551 19,096 394,174 1,375,972 829,774 193,966 51,256 118,601 264,290

- 787,052 7,041,450 44,284,332

- 459,705 1,696,954 15,776,769

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137

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Note

Held by bank

2012 Given as collateral Total

Held by bank

2011 Given as collateral Total

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

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

Total investments at cost 41,080,368 7,270,150 48,350,518 21,057,730 2,198,056 23,255,786 Less: Provision for diminution in value in investments 11.3 (1,439,540) - (1,439,540) (322,083) - (322,083) Investments (net of provision) 39,640,828 7,270,150 46,910,978 20,735,647 2,198,056 22,933,703 Unrealized gain / (loss) on revaluation of securities classified as held-for-trading 11.1.1 & 11.4 69,516 - 69,516 26,586 (3,424) 23,162 Surplus / (deficit) on revaluation of available-for-sale securities 11.1.2 888,137 16,088 904,225 (49,541) (678) (50,219) Total investments at market value 40,598,481 7,286,238 47,884,719 20,712,692 2,193,954 22,906,646

11.1.1 This includes unrealized gain on revaluation of securities classified as held for trading of subsidiaries amounting to Rs.26.469 million which represents the pre-acquisition gain and has been included here only for meeting with requirement of the prescribed format of Banks/DFIs issued by the State Bank of Pakistan. 11.1.2 This includes surplus on revaluation of available for sale investments of subsidiaries amounting to Rs. 523.539 million which represents the pre-acquisition deficit and has been included here only for meeting with requirement of the prescribed format of Banks/DFIs issued by the State Bank of Pakistan.

2012 2011 Note Rupees in 000 11.2 Investments by segments Federal Government Securities Market Treasury Bills 11.2.1 & 11.2.2 36,140,681 12,855,772 Pakistan Investment Bonds 11.2.1 4,455,638 4,777,512 National Saving Bonds 186 5,547 Ijara Sukuk 11.2.1 149,440 998,000 40,745,945 18,636,831 Fully Paid Ordinary Shares Listed companies 11.2.3 1,042,548 41,496 Fully Paid Preference Shares Listed company 11.2.4 143,739 394,174 Term Finance Certificates Term Finance Certificates listed 11.2.5 1,661,735 1,380,927 Term Finance Certificates unlisted 11.2.6 994,733 964,774 Sukuk Certificates 11.2.7 105,294 193,966 2,761,762 2,539,667 Mutual Funds Closed end mutual funds 11.2.9 1,151,696 118,601 Open end mutual funds 11.2.10 1,678,633 999,056 2,830,329 1,117,657

138

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 Others Commercial Papers 11.2.8 - 51,256 Engro Rupiya Certificates 11.2.12 39,143 15,000 Investment in US Dollar Bonds 11.2.11 787,052 459,705 826,195 525,961 Total investments at cost 48,350,518 23,255,786 Less: Provision for diminution in value of investments 11.3 (1,439,540) (322,083) Investments (net of provisions) 46,910,978 22,933,703 Unrealized gain on revaluation of held for trading securities 11.1.1 & 11.4 69,516 23,162 Surplus/(Deficit) on revaluation of available-for-sale securities 11.1.2 904,225 (50,219) Total investments at market value 47,884,719 22,906,646 11.2.1 Principal terms of investment in Federal Government Securities Redemption Period Coupon On maturity On maturity On maturity At maturity Half Yearly Half Yearly

Name of investment Maturity Market Treasury Bills January 10, 2013 to November 14, 2013

Pakistan Investment Bonds October 06, 2013 to July 19, 2022 Ijara Sukuk March 02, 2015

11.2.2 Included herein are Market Treasury Bills having a book value of Rs. 7,270.150 million (December 31, 2011: Rs. 1,696.954 million), given as collateral against repurchase agreement borrowings from financial institutions.

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139

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

11.2.3 Details of investment in Ordinary shares - listed

Shares of Shares of Market Rs. 10 each Rs. 10 each Rating Cost value 2012 2011 2012 2011 2012 --------- Numbers --------- -------------------- Rupees in 000 -------------------Market value 2011

Held-for-trading securities Bank Al-Falah - 2,000,000 Unrated - 22,400 - 22,500 - 22,400 - 22,500 Available-for-sale securities Adamjee Insurance Company Limited 2,795,353 - AA 213,123 - 190,475 D.G Khan Cement Limited 2,264,000 - Unrated 123,227 - 123,569 Fauji Fertilizer Company Limited 1,940,700 100,000 Unrated 231,061 15,381 227,334 14,953 Ghani Glass Limited 9,090,908 83,326 Unrated 347,587 3,715 558,636 3,419 Indus Motor Company Limited 9,200 - Unrated 2,575 - 2,484 Millat Tractor Limited 188,500 - Unrated 103,453 - 106,420 23,150 Samba Bank Limited 7,742,500 - Unrated 19,390 - Shifa International Hospitals Limited 50,000 - Unrated 2,132 - 2,025 1,042,548 19,096 1,234,093 18,372

11.2.4 Details of investment in preference shares - listed Shares of Shares of Market Rs. 10 each Rs. 10 each Rating Cost value 2012 2011 2012 2011 2012 --------- Numbers --------- -------------------- Rupees in 000 -------------------

Market value 2011

Available-for-sale securities Agritech Limited Azgard Nine Limited - (Related Party) 8.95% per annum cumulative preference shares 4,823,746 - - 25,601,986 Unrated Unrated - 48,237 - 229,178 - 48,719 63,015 -

Chenab Limited 9.25% per annum cumulative preference shares (note 11.2.4.1) 13,357,000 13,357,000 Unrated 95,502 95,503 14,025 Pakistan International Containers Terminal Limited 8.99% per annum cumulative preference shares - 6,949,320 Unrated - 69,493 - 143,739 394,174 62,744

22,707

62,474 148,196

11.2.4.1 These are cumulative preference share redeemable in part after four years from the date of issuance i.e. August 2008. The investee company also has option to redeem, in part, cumulative preference shares after August 2008. The Bank has recognised impairment on these shares amounting to Rs. 72.796 million due to decline in fair market value of the shares.

140

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

11.2.5 Details of investment in Term Finance Certificates - listed *

Market Market certificates Rating Cost value value 2012 2011 2012 2011 2012 2011 --------- Numbers --------- ---------------- Rupees in 000 ---------------Held-for-trading securities Bank Al Habib Limited II 400 - AA 2,041 - 2,057 Engro Fertilizers Pakistan Limited IV 1,500 - A 6,750 - 6,725 - Jahangir Siddiqui Co. Ltd. 3,000 - AA 15,000 - 15,000 Orix Leasing Pakistan Limited 100 - AA+ 6,000 - 5,957 Pakistan Mobile Communication Limited 200 - AA- 19,000 - 18,578 Pakistan Mobile Communication Limited 800 - AA- 3,940 - 3,980 Pakistan Mobile Communication Limited - 410 A+ - 1,953 - 2,016 Tameer Sarmaya Certificate 4,000 - A(SO) 20,000 - 20,000 United Bank Limited IV - 600 AA - 3,002 - 2,986 72,731 4,955 72,297 5,002 Available-for-sale securities Allied Bank Limited - 2nd Issue 9,000 9,000 AA 44,946 44,964 43,823 42,641 Askari Bank Limited - 1st Issue 1,080 1,080 AA- 5,384 5,386 5,382 5,382 Askari Bank Limited - 3rd Issue 8,236 8,236 AA- 41,220 41,244 45,422 42,125 Bank Alfalah Limited - 2nd Issue - 19,000 AA- - 63,166 - 63,149 Engro Fertilizer Limited - 1st Issue 45,880 45,880 A 227,142 226,769 223,293 224,473 Engro Fertilizer Limited - 3rd Issue 35,119 35,119 A 161,659 175,686 146,914 178,177 Faysal Bank Limited 2,341 2,341 AA- 11,682 11,686 11,863 11,608 Faysal Bank Limited - 3rd Issue 3,090 3,090 AA- 3,853 7,700 3,859 7,742 NIB Bank Limited 43,898 30,798 A+ 215,654 148,962 219,645 150,710 Orix Leasing Pakistan Limited - 2nd Issue (face value of Rs.100,000 each) 1,294 1,134 AA+ 77,640 113,400 77,087 117,418 Pak Arab Fertilizer Limited - 2nd Issue 75,343 39,950 AA 113,004 147,370 113,057 148,479 Pakistan Mobile Communication Limited 31,260 31,260 AA- 25,888 76,885 26,117 78,236 Pakistan Mobile Communication Limited 4,200 - AA- 399,000 - 390,141 United Bank Limited 2nd Issue unsecured 15,317 15,837 AA 76,103 73,969 76,281 72,776 United Bank Limited 3rd Issue unsecured - 1,000 AA - 3,229 - 3,150 World Call Telecommunication Limited 90,650 90,650 D 185,829 235,556 135,893 225,190 1,589,004 1,375,972 1,518,777 1,371,256

* **

Secured and have a face value of Rs.5,000 each unless specified otherwise.

Wherever rating of instrument is not available or in case the instrument is unrated, the same has been marked as unrated.

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141

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Name of the Company

11.2.5.1

Other particulars of listed Term Finance Certificates are as follows:

Repayment frequency Profit Rate per annum Maturity Date
August 28, 2019 February 04, 2013 November 18, 2019 November 30, 2015 December 17, 2016 February 10, 2013 November 12, 2014 March 05, 2016 June 30, 2014 February 28, 2013 May 31, 2013 April 18, 2016 October 07, 2013 March 15, 2013 February 07, 2015 October 28, 2013 April 18, 2016 December 26, 2013 & November 26, 2014 October 30, 2016 March 18, 2018

Allied Bank Limited - 2nd issue Semi-annually 6 Months KIBOR ask rate plus 1.30% (for five years) Askari Bank Limited - 1st Issue Semi-annually 6 Months KIBOR ask rate plus 1.50% Askari Bank Limited - 3rd Issue Semi-annually 6Months KIBOR ask rate plus 2.95% (for first five years) Engro Fertilizer Limited - 1st Issue Semi-annually 6 Months KIBOR ask rate plus 1.55% Engro Fertilizer Limited - 3rd Issue Semi-annually 6 Months KIBOR ask rate plus 2.40% Faysal Bank Limited Semi-annually 6 Months KIBOR ask rate plus 1.50% Faysal Bank Limited- 3rd Issue Semi-annually 6 Months KIBOR ask rate plus 1.40% NIB Bank Limited Semi-annually 6 Months KIBOR ask rate plus 1.15% Orix Leasing Pakistan Limited - 2nd Issue Quarterly 3 Months KIBOR ask rate plus 2.15 %. Pak Arab Fertilizer Limited - 2nd Issue Semi-annually 6 Months KIBOR ask rate plus 1.50% Pakistan Mobile Communication Limited Semi-annually 6 Months KIBOR ask rate plus 2.85% Pakistan Mobile Communication Limited Quarterly 3 Months KIBOR ask rate plus 2.65% World Call Telecommunication Limited Semi-annually 6 Months KIBOR ask rate plus 1.60% United Bank Limited - 2nd Issue Semi-annually Fixed 9.49% Bank Al Habib Limited II Semi-annually 6 Months KIBOR ask rate plus 1.95% Pakistan Mobile Communication Limited Semi-annually 6 Months KIBOR ask rate plus 1.65% Pakistan Mobile Communication Limited Quarterly 3 Months KIBOR ask rate plus 2.65% Tameer Sarmaya Certificate Semi-annually Fixed 12% Jahangir Siddiqui & Co. Ltd. - related party Semi-annually 6 Months KIBOR ask rate plus 2.4% Engro Fertilizers Pakistan Limited IV Semi-annually 6 Months KIBOR ask rate plus 1.7%

11.2.6 Details of Investment in Term Finance Certificates - unlisted, secured

Name of the Company Certificates Rating Face value per certificate Cost Cost 2012 2011 Rupees 2012 2011 ------ Numbers ------ Rupees in 000 Held-for-trading securities Askari Bank Limited I - 100 AA- 1,000,000 - 100,000 Bank Al Falah Limited - Fixed 950 - AA- - 5,029 Faysal Bank Limited 3,000 - AA- - 15,498 Orix Leasing Pakistan Limited - 350 AA+ 100,000 - 35,000 20,527 135,000 Available-for-sale securities Askari Bank Limited 75 50 AA- 1,000,000 75,256 50,000 Agritech Limited 30,000 30,000 D 5,000 149,860 149,860 Azgard Nine Limited (related party) 29,998 30,000 D 5,000 65,022 149,880 Bank Alfalah Limited 30,000 7,000 AA- 5,000 10,067 35,286 Engro Fertilizer Limited 1,100 1,300 A 5,000 5,027 5,879 KASB Securities Limited - 14,000 AA- 5,000 - 22,901 Nishat Chunian Limited 50,000 50,000 A 5,000 171,875 234,375 Orix Leasing Pakistan Limited 3,395 2,795 AA+ 100,000 56,525 135,593 Pakistan Mobile Communication Limited 20,000 - Unrated 5,000 94,118 TPL Trakker Limited (note 11.2.6.2) 1 1 Unrated - 20,000 46,000 Azgard Nine Limited (related party) (privately placed TFCs - note 11.2.6.1) 1 - D - 326,456 974,206 829,774

142

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

11.2.6.1 The Group has received these privately placed term finance certificates (PPTFCs) of Rs. 326.46 million as settlement for its investment in quoted preference shares of Azgard Nine Limited (the issuer). The Settlement Agreement between the subsidiary company and the issuer stipulates that the entire outstanding amount inclusive of accrued dividend and other charges due from the issuer will be converted into PPTFCs with a tenor of 8 years inclusive of grace period of 2 years and carrying interest at the rate of 11.00%. These certificates are redeemable in 12 equal semi annual installments with first such redemption falling due on April 19, 2015. These PPTFCs has been issued to the subsidiary company under agreement dated October 22, 2012 which contains the term that issuer will pass the resolution within 175 days of completion to give right to investor to convert these PPTFCs into ordinary shares of ANL in case of any default by issuer to redeem PPTFCs in accordance with term of agreement. The CEO of the issuer has given personal guarantee in respect of these PPTFCs. Considering the financial position of ANL the management has recognised the PPTFCs at the same amount which was receivable against preference shares.

11.2.6.2 These unlisted term finance certificates were due to mature on October 31, 2009. However, owing to the financial difficulties being faced by the issuer the investee company was unable to fully redeem the said certificates. Uptil December 31, 2012 a total of Rs. 36 million has been received against the principal in various installments whereas Rs. 5 million has been received subsequent to balance sheet date. Markup at the rate of 17.95% per annum (last coupon rate) has been paid on a monthly basis. The Group also holds 23.6 million ordinary shares of TPL Direct Insurance limited as a security against the exposure having market value of 213.34 million as at December 31, 2012. 11.2.6.3 Other particulars of unlisted Term Finance Certificates are as follows:

Profit Name of the Company Repayment frequency Rate per annum

Maturity date

Askari Bank Limited (Chief Executive: Mr. M.R. Mehkari) Semi-annually 6 Months KIBOR ask rate plus 1.75%. December 23, 2021 Azgard Nine Limited - a related party (Chief Executive: Mr. Ahmed H. Shaikh) Semi-annually 6 Months KIBOR ask rate plus 1.25%. December 04, 2017 Agritech Limited (Chief Executive: Mr. Jaudet Bilal) Semi-annually 6 months KIBOR ask rate plus 1.75%. November 29, 2019 Bank Alfalah Limited (Chief Executive: Mr. Atif Bajwa) Semi-annually 6 Months KIBOR ask rate plus 2.50 %. December 02, 2017 Engro Fertilizer Ltd. (Chief Executive: Mr. Ruhail Mohammad) Semi-annually 6 Months KIBOR ask rate plus 1.70%. 3 Months KIBOR ask rate plus 2.25%. 6 Months KIBOR ask rate plus 1.40%. March 18, 2018

Nishat Chunian Limited (Chief Executive: Mr. Shahzad Saleem) Quarterly Orix Leasing Pakistan Limited (Chief Executive: Mr. Teizoon Kisat) Semi-annually

September 30,2015 January 15, 2013

Pakistan Mobile Communication Limited (Chief Executive: Mr. Rashid Khan) Quarterly 3 Months KIBOR ask rate plus 2.65% October 16, 2016 Faysal Bank Limited (Chief Executive: Mr. Naved A. Khan) Semi-annually 6 Months KIBOR ask rate plus 2.25% December 27, 2017 Bank Al Falah Limited (Chief Executive: Mr. Atif Bajwa) Semi-annually Fixed 15.00% December 2, 2017

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143

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Name of the Company Certificates Rating Face value per certificate Cost Cost 2012 2011 Rupees 2012 2011 ------ Numbers ------ Rupees in 000 Available-for-sale securities Century Paper & Board Mills Limited 49,950 49,950 A+ 5,000 Orix Leasing Pakistan Limited - 12,160 AA+ 5,000 Sitara Chemical Industries Limited 19,000 19,000 A+ 5,000 97,378 - 7,916 105,294 144,303 10,080 39,583 193,966

11.2.7 Sukuk Certificates - unlisted

Profit Name of the Company Repayment frequency Rate per annum Maturity date Century Paper & Board Mills Limited (Chief Executive: Mr. Aftab Ahmad) Semi-annually 6 months KIBOR ask rate Plus 1.35% September 25, 2014 Sitara Chemical Industries Limited Chief Executive: Mr. Muhammad Adrees) Quarterly 3 months KIBOR ask rate Plus 1.0% January 02, 2013

11.2.7.1 Other particulars of Sukuk Certificates are as follows:

11.2.8 Commercial papers are for a period of six months and carry a yield of 0% (2011: 14.16%) per annum.

11.2.9 Closed End Mutual Funds Face value per Market Market Fund Certificates Rating certificate Cost Cost value value 2012 2011 Rupees 2012 2011 2012 2011 Numbers --------------------- Rupees in 000 --------------------- Available-for-sale First Dawood Mutual Fund - 2,362,100 2-Star 10 - 18,900 - 4,017 JS Value Fund - related party 30,244,660 8,745,668 5-Star 10 479,034 99,701 272,202 37,606 JS Growth Fund 6,581,000 - 3-Star 10 663,032 - 421,807 PICIC Growth Fund 563,500 - 1-Star 10 9,046 - 9,241 PICIC Investment Fund 82,500 - 2-Star 10 584 - 583 1,151,696 118,601 703,833 41,623

144

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Net asset value Market Market Fund Units Rating per unit Cost Cost value value 2012 2011 Rupees 2012 2011 2012 2011 Numbers --------------------- Rupees in 000 ---------------------
Held For Trading JS Cash Fund - related party 2,762,076 3,564,067 AA+ 192.32 250,216 350,216 289,086 361,188 JS Income Fund - related party 3,593,972 - A+ 90.65 308,754 - 325,793 MCB-Cash Management - Optimizer fund - 397,592 AA+ - - 38,633 - 40,907 UBL Government Securities Fund 292,288 263,564 Unrated 100.76 25,000 25,000 29,450 26,452 Nafa Government Securities Liquid Fund 2,661,123 - AAA 10.05 25,000 - 26,754 Primus Cash Fund 517,707 - AAA 100.22 50,000 - 51,883 Primus Daily Reserve Fund* - - AA+ - 200,000 - 200,000 UBL Islamic Cash Fund 2,692 - Unrated 102.15 269 - 275 Nafa Financial Sector Income Fund 2,419,409 - A+ 10.33 25,000 - 25,000 UBL Liquidity Plus Fund 332,751 300,979 AA+ 100.28 28,562 28,562 33,368 30,244 JS Principal Secure Fund - 2,756,543 Unrated - - 292,355 - 307,437 912,801 734,766 981,609 766,228 Available-for-sale JS Aggressive Income Fund 860,585 - BBB-f 104.80 90,000 - 90,189 JS Cash Fund - a related party - 411,855 AA+ 100.94 - 41,572 - 41,729 JS Fund of Funds 718,146 - 4-Star 91.21 65,000 - 65,502 JS Income Fund - a related party - 2,325,311 A+ 86.01 - 200,000 - 200,070 JS Islamic Fund - a related party 539,665 - 4-Star 56.73 30,000 - 30,615 JS Islamic Pension Savings Fund Equity 250,000 - Unrated 212.77 25,000 - 53,193 JS Islamic Pension Savings Fund Debt 232,690 - Unrated 156.73 23,269 - 36,470 JS Islamic Pension Savings Fund Money Market 236,585 - Unrated 137.87 23,659 - 32,618 JS KSE 30 Index Fund 3,259,827 - 4-Star 20.82 68,000 - 67,870 JS Large Cap Fund-Class B 6,581,000 - Unrated 59.72 373,040 - 393,017 JS Pension Savings Fund Money Market 189,695 - Unrated 142.02 18,970 - 26,940 JS Pension Savings Fund Debt 188,940 - Unrated 176.08 18,894 - 33,269 JS Pension Savings Fund Equity 300,000 - Unrated 139.36 30,000 - 41,808 JS Principal Secure Fund - a related party - 204,564 AA 111.05 - 22,718 - 22,815 765,832 264,290 871,491 264,614

11.2.10

Open End Mutual Funds

* This represents investment made under Initial Public Offering (IPO) of the fund. Units have been issued subsequent to the year end.

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145

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

11.2.11

Redemption Period in years Cost 2012 2011 Rupees in 000 Available for sale Allianz SE A2 / A+ 5.50% 28-Nov-12 26-Sep-18 5.8 38,860 Barclays Bank Plc BBB- 7.63% 21-Nov-12 21-Nov-22 10.0 97,227 Finansbank AS Ba2 5.15% 01-Nov-12 01-Nov-17 5.0 96,231 FLR NTS Emirates NBD PJSC A3 / A+ 3.66% 29-Mar-12 29-Mar-17 5.0 97,150 Indian Overseas Bank Baa3 / BBB- 4.63% 21-Aug-12 21-Feb-18 5.5 99,079 Investec Bank Ltd Baa1 3.88% 24-Jul-12 24-Jul-17 5.0 96,631 Sberbank (Sb Cap Sa) Baa1 5.13% 29-Oct-12 29-Oct-22 10.0 145,724 Syndicate Bank Baa2 / BBB- 4.13% 12-Oct-12 12-Apr-18 5.5 48,374 Tupras-Turkiye Petrol Ra Ba1 4.13% 02-Nov-12 02-May-18 5.5 24,238 Turkiye Bankasi Ba2 6.00% 24-Oct-12 24-Oct-22 10.1 19,430 Turkiye Garanti Bank Baa2 4.00% 13-Sep-12 13-Sep-17 5.0 24,108 ABN Amro Bank BBB+ 6.25% 27-Apr-11 27-Apr-22 11 - 89,147 African Bank BAA2 6.00% 15-Jun-11 15-Jun-16 5 - 22,444 Doosan Infracore America Corporation A 4.50% 23-Nov-11 23-Nov-16 5 - 26,912 Gaz Capital SA BBB 4.95% 23-May-11 23-May-16 5 - 44,973 Indian Oil Corporation Limited BBB- 5.63% 02-Aug-11 02-Aug-21 10 - 26,780 NTPC Limited BBB- 5.63% 14-Jul-11 14-Jul-21 10 - 45,120 Royal Bank of Scotland Group BB+ 5.00% 12-Nov-03 12-Nov-13 10 - 44,761 Societe Generale Group A+ 2.20% 14-Sep-10 14-Sep-13 3 - 21,526 Standered Chartered Bank PLC BBB+ 8.13% 27-May-08 27-Nov-13 6 - 56,362 VEB Leasing BBB 5.13% 27-May-11 27-May-16 5 - 36,188 VTB Capital SA BBB 6.55% 13-Oct-10 13-Oct-20 10 - 45,492 787,052 459,705 11.2.12 These represent 2,143 and 5,635 secured certificates having face value of Rs.4,997 and Rs.5,000 per Name of Bond Rating Coupon Rate Date of Issue Date of Maturity

Investment in US Dollar Bonds

certificate respectively. These certificates carry fixed markup at the rate of 14.5% payable semi-annually and mature on January 31, 2014 and September 15, 2014. These certificates have a credit rating of A+.

2012 2011 Rupees in 000 11.3 Particulars of provision for diminution in value of investments

Charge for the year Reversal on disposal of investments Closing balance

Opening balance

1,367,116 87,332 (14,908) 72,424 1,439,540

459,607 10,686 (148,210) (137,524) 322,083

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 11.3.1 Particulars of provision for diminution in value of investments by type and segment Available-for-sale Ordinary shares of listed companies 14,652 Preference shares of listed company 95,503 238,959 Closed end mutual funds 770,487 83,124 Open end mutual funds 245,485 Term Finance Certificates - unlisted 313,413 1,439,540 322,083 11.4 Unrealized Gain / (Loss) on revaluation of investments classified as held for trading Market Treasury Bills Pakistan Investment Bonds National Saving Bonds Ijara Sukuk Term Finance Certificates-listed Term Finance Certificates-unlisted Ordinary shares of listed companies Open end mutual funds 368 - 14 780 227 - - 68,127 69,516 (4,245) (6,280) 838 47 1,240 100 31,462 23,162

12. ADVANCES Loans, cash credit, running finances, etc. In Pakistan 19,076,720 Outside Pakistan 245,323 19,322,043 Net investment in finance lease 12.2 388,725 Bills discounted and purchased (excluding treasury bills) payable in Pakistan 104,080 payable outside Pakistan 1,065,790 1,169,870 Financing in respect of margin trading system - Advances - gross 20,880,638 Provision for non-performing advances - specific 12.3 (970,062) Provision for non-performing advances - general 12.4 (1,191) (971,253) Advances - net of provision 19,909,385

16,540,422 1,116,517 17,656,939 413,039

320,468 149,654 470,122 3,533 18,543,633 (512,666) (1,083) (513,749) 18,029,884

12.1 Particulars of advances (gross) 12.1.1 In local currency 19,569,525 17,277,462 In foreign currencies 1,311,113 1,266,171 20,880,638 18,543,633 12.1.2 Short term (for up to one year) 18,718,609 15,429,145 Long term (for over one year) 2,162,029 3,114,488 20,880,638 18,543,633

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147

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

12.2 Particulars of net investment in finance lease

2012 Not later Later than than one and less one year than five years Total ------------------ Rupees in 000 -------------------

Lease rentals receivable 146,028 265,521 411,549 Guaranteed residual value - 50,202 50,202 Minimum lease payments 146,028 315,723 461,751 Less: Finance charges for future periods 36,102 36,924 73,026 Present value of minimum lease payments 109,926 278,799 388,725
2011 Later than one and less than five years Total

Not later than one year

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

12.3

Lease rentals receivable 147,370 329,540 Guaranteed residual value - 43,874 Minimum lease payments 147,370 373,414 Less: Finance charges for future periods 68,747 38,998 Present value of minimum lease payments 78,623 334,416

476,910 43,874 520,784 107,745 413,039

Advances include Rs.3,037.264 (December 31, 2011: Rs.2,776.895) million which have been placed under non-performing status as detailed below: 2012
Provision required Provision held

Category of classification

Domestic

Overseas

Total

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

Other assets especially mentioned - - - - Substandard 406,944 - 406,944 70,855 70,855 Doubtful 603,800 - 603,800 97,899 97,899 Loss 2,026,520 - 2,026,520 801,308 801,308 12.3.1 3,037,264 - 3,037,264 970,062 970,062 2011
Provision required Provision held

Category of Classification

Domestic

Overseas

Total

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

Other assets especially mentioned - Substandard 973 Doubtful 1,671,373 Loss 1,104,549 2,776,895

- - 973 95 95 1,671,373 248 248 1,104,549 512,323 512,323 2,776,895 512,666 512,666

148

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

12.3.1 The State Bank of Pakistan (SBP) vide its letter number BPRD/BRD(Policy)/2013-1857 dated February 15, 2013 has allowed the relaxation to the Bank from provision required in respect of Banks exposure in Agritech Limited. The provision will now be made in phased manner at 10% of the required provision by December 31, 2012 and subsequently at 25%, 50%, 75% and 100% by end of each quarter till December 31, 2013. Currently, on prudent basis the Bank has made provision at the rate of 20% of the required provision on the aforesaid exposure. Had the relaxation not been granted by the SBP, the provision charge for the year would have increased by Rs. 584.783 million. 12.4 Particulars of provision against non-performing advances

2012 2011 Specific General Total Specific General Total ----------------------------------------------------------- Rupees in 000 ----------------------------------------------------

Opening balance 512,666 1,083 513,749 525,364 2,060 527,424 Charge for the year 488,202 108 488,310 78,683 - 78,683 Amounts written off - - - - - Reversals (30,806) - (30,806) (91,381) (977) (92,358) 457,396 108 457,504 (12,698) (977) (13,675) Amount written off from the opening balance - - - - - Closing Balance 970,062 1,191 971,253 512,666 1,083 513,749 In local currency In foreign currencies 12.5 12.4.1 970,062 - 970,062 1,191 971,253 512,666 - - - 1,191 971,253 512,666 1,083 513,749 - - 1,083 513,749

The general provision includes provision made against consumer portfolio in accordance with the Prudential Regulations issued by SBP at 1.5% of fully secured consumer portfolio.

The Group has availed total benefit of collateral amounting to Rs. 544.734 million under the directives of the SBP. Had the benefit not been taken the provision charge for the year would have increased by Rs. 544.734 million and profit after tax would have been reduced by Rs. 354.0771 million. As required by the SBP directives, the increase in profit will not be available for distribution as dividend or other appropriations. Details of Loan write off of Rs. 500,000 and above In terms of sub-section (3) of section 33A of the Banking Companies Ordinance, 1962 the statement in respect of written-off loans or any other financial relief of five hundred thousand rupees or above allowed to a person during the year ended December 31, 2012 is given in Annexure A to these financial statements. These loans are written-off as a book entry without prejudice to the Banks right of recovery against the customers. Particulars of loans and advances to directors, associated companies, subsidiaries, etc. Debts due by directors, executives or officers of the Group or any of them either severally or jointly with any other persons:

12.6

12.7

Annual Report / JS Bank

149

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 Balance at the beginning of the year Loans granted during the year Repayments Balance at the end of the year 324,979 428,846 (106,849) 646,976 250,345 168,479 (93,845) 324,979

13. OPERATING FIXED ASSETS Capital work-in-progress 13.1 66,014 17,591 Property and equipment 13.2 1,619,054 1,418,793 Intangible assets 13.3 1,727,099 1,628,499 3,412,167 3,064,883 13.1 Capital work-in-progress Property and equipment Civil works 13,695 3,744 Advances for purchase of furniture & fixtures 1,870 2,744 Advance for purchase of vehicles 23,712 2,484 Advance for purchase of equipment 26,737 8,619 66,014 17,591 13.2 Property and equipment
COST ACCUMULATED DEPRECIATION

Depreciation Book value As at As at As at On As at as at January 01, Additions / December 31, January 01, Deletions / Charge for December 31, December 31, Rate 2012 Adjustments* Deletions 2012 2012 Adjustments * the year 2012 2012 % -------------------------------------------------------------------- Rupees in 000 --------------------------------------------------------------------- 2,341 - - 41,350 (26,196) * 34,923 8,590 * 119,367 194,109 342,300 493,375 - 241,535 - - 61,540 20,432 146,833 - 81,483 - 558,344 - 135,743 - - - - (9,978) * (181) 3,469 * (3,353) 6,509 * (47,799) (51,333) - * - 2,543 7,212 47,937 - 24,434 - 96,712 - 53,121 - 64,083 27,644 184,792 - 109,205 - 658,212 - 141,065 119,367 130,026 1.01 - 10.0 314,656 1.02 - 4.78 308,583 10 - - 132,330 10 - 12.5 - 387,331 12.5 - 33.3 - 226,761 20

Land, Freehold Building on free hold land Building on lease hold land Lease hold improvements Furniture and fixture Electrical, office and computer equipment Vehicles 117,026 194,109 342,300 478,221 - 198,203 - 912,483 - 269,221 2,511,563 -

(181) -

121,104 (5,650) 1,045,543 17,606 * - - 168,073 (69,468) 367,826

367,791 (75,299) 2,804,055 1,004,375 - * - - -

231,959 1,185,001 1,619,054 - - -

150

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

COST

ACCUMULATEDDEPRECIATION

As at As at As at Depreciation As at as at January 01, December 31, January 01, On Charge for December 31, December 31, Rate 2011 Additions Deletions 2011 2011 Deletions the year 2011 2011 % -------------------------------------------------------------------- Rupees in 000 ---------------------------------------------------------------------

Land, Freehold - 117,026 - 117,026 - - - - 117,026 Building on free hold land 55,478 - - 55,478 1,124 - - 1,124 54,354 1.01 - 10.0 Building on lease hold land 342,300 - - 342,300 20,432 - - 20,432 321,868 1.02 - 4.78 Lease hold improvements 441,599 33,693 (502) 474,790 90,013 (84) 53,908 143,837 330,953 10 Furniture and fixture 156,418 28,343 (9,756) 175,005 47,486 (3,289) 18,405 62,602 112,403 10 - 20 Electrical, office and computer equipment 722,919 100,189 (1,784) 821,324 359,624 (525) 111,494 470,593 350,731 12.5 - 33.3 Vehicles 211,133 85,064 (31,907) 264,290 110,942 (20,923) 42,813 132,832 131,458 20 1,929,847 364,315 (43,949) 2,250,213 629,621 (24,821) 226,620 831,420 1,418,793

13.2.1 Included in cost of property and equipment are fully depreciated items still in use having cost of Rs. 325.158 (December 31, 2011: 282.109) million. 13.2.2 Details of fixed assets deleted with original cost or book value in excess of Rs.1.00 million or Rs.0.25 million respectively (whichever is less).

Buyers particulars Accumulated Written Sale Profit / Mode of and relationship with Particulars Cost depreciation down value proceeds (loss) disposal Bank (if any) ----------------------------------------------- Rupees in 000 -----------------------------------------------Vehicles Honda Civic 1,376 1,307 69 1,260 1,191 Negotiation Honda Civic 1,376 1,353 23 1,260 1,237 Negotiation Honda Civic 1,376 1,215 161 1,366 1,205 Negotiation Honda Civic 1,376 1,238 138 1,150 1,012 Insurance Claim Honda Civic 1,376 1,376 - 1,260 1,260 Negotiation Honda Civic 1,506 1,506 - 1,142 1,142 Negotiation Honda Civic 1,506 1,506 - 1,286 1,286 Negotiation Honda Civic 1,376 1,376 - 1,270 1,270 Negotiation Honda Civic 1,830 153 1,678 1,650 (28) Insurance Claim Honda Civic 1,891 189 1,702 1,901 199 Insurance Claim Honda Civic 1,759 1,114 645 1,445 800 Negotiation 317 765 448 Negotiation Suzuki Cultus 905 588 Suzuki Cultus 905 588 317 774 457 Negotiation Suzuki Cultus 830 415 415 738 323 Negotiation Suzuki Cultus 850 538 312 775 463 Negotiation

Mr. Iqbal Ahmed Khilji Address: 5-C-11/9, Nazimabad, Karachi NIC No. 42101-8918941-3 Mr. Shafiq Pasha,Staff JS Bank Limited Mr. Ammad Ahmed Ursani Staff JS Bank Limited EFU General Insurance Limited, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Mr. Fahad Shaikh Staff JS Bank Limited Mr. Kanwer Ali Khan Address: House No. A-135/12, Gulberg, FB Area, Karachi MR. Syed Imtiaz Bukhari Staff JS Bank Limited Ms. Nabila Arif Staff JS Bank Limited EFU General Insurance Limited, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi EFU General Insurance Limited, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi MR. Mushtaq Ahmed Staff JS Bank Limited Mr. Asad Shahzad MR. Pettocelli Fernandes Staff JS Bank Limited Mr. Ehsan Saeed Staff JS Bank Limited Mr. Rizwan Staff JS Bank Limited

Annual Report / JS Bank

151

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Accumulated Written Sale Profit / Mode of Particulars Cost depreciation down value proceeds (loss) disposal ----------------------------------------------- Rupees in 000 -----------------------------------------------Suzuki Cultus 855 542 314 802 488 Negotiation Suzuki Cultus 825 440 385 757 372 Negotiation

Buyers particulars and relationship with Bank (if any) Mr. Mian Suhaib Staff JS Bank Limited MR. Anjum Gulzar Staff JS Bank Limited

Suzuki Cultus 815 503 312 765 453 Negotiation MR. Raja Zahid Staff JS Bank Limited Toyota Corolla 1,015 880 135 1,106 971 Negotiation MUKARAM ALI MOTORS Address: 32/3, Main Jail Road, Opp. Toyota Sahara Motors, Lahore Toyota Corolla 1,564 1,173 391 1,405 1,014 Negotiation Mr. Zeeshan Wajid- Staff JS Bank Limited Toyota Corolla 1,462 268 1,194 1,462 268 Insurance Claim EFU General Insurance Limited, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Toyota Corolla 1,529 204 1,325 1,529 204 Insurance Claim EFU General Insurance Limited, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Toyota Corolla 1,028 908 120 992 872 Negotiation Mr. Taufeeq Ahmed Staff JS Bank Limited Toyota Corolla 1,578 26 1,551 1,578 26 Insurance Claim EFU General Insurance Limited, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Toyota Corolla 1,025 854 171 1,146 975 Negotiation Mr. Tayyab Raza Staff JS Bank Limited Toyota Corolla 1,319 945 374 1,208 834 Negotiation Mr. Imtiaz Shah Staff JS Bank Limited Toyota Corolla 1,529 331 1,198 1,510 312 Insurance Claim EFU General Insurance Limited, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Toyota Corolla 1,426 499 927 1,400 473 Insurance Claim EFU General Insurance Limited, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Toyota Corolla 1,389 1,042 347 1,205 858 Negotiation MR. Arafat Yaseen Staff JS Bank Limited Toyota Corolla 1,608 161 1,447 1,607 160 Insurance Claim EFU General Insurance Limited, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Toyota Corolla 1,389 1,111 278 1,142 864 Negotiation Mr. Sultan Hasan, NIC # 42101-1926350-5 Toyota Corolla 1,319 1,055 264 1,201 937 Negotiation Mr. Shah Irfan Staff JS Bank Limited Toyota Corolla 1,529 459 1,070 1,550 480 Insurance Claim EFU General Insurance Limited, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Toyota Corolla 1,608 188 1,420 1,608 188 Insurance Claim EFU General Insurance Limited, Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi 526 Loan basis Mr. Shahid Kamal (Ex-employee JS Suzuki Margalla 472 181 291 817 Global Capital Limited) 45,520 26,231 19,290 42,831 23,541 Electrical, office and computer equipment Generator 1,200 738 463 530 68 Negotiation ELEVATOR EXP. INTL. Abu Yousaf Traders, 188-Ferozepur Road, Lahore Generator 1,200 738 463 505 43 Negotiation ELEVATOR EXP. INTL. Abu Yousaf Traders, 188-Ferozepur Road, Lahore UPS 615 333 282 - (282) Insurance Claim EFU General Insurance Limited - Address: 1st Floor Kashif Centre Main Shahra-e-faisal Karachi Others (Note 13.2.3) 2012 2011

3,015 26,764 75,299 43,949

1,808 23,294 51,333 24,821

1,207 3,469 23,966 19,130

1,035 26,450 70,316 25,087

(172) 22,981 Various Various 46,350 15,933

152

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

13.2.3 Other represent disposal whose original cost or book value is not in excess of Rs. 1.0 million or Rs. 0.25 million respectively.
ACCUMULATED AMORTISATION / IMPAIRMENT Amortisation As at Book value as at on Charge for December 31, December 31, Rate Deletoons the year 2012 2012 %

-------------------------------------------------------------------- Rupees in 000 --------------------------------------------------------------------- Stock exchange card 13.3.1 32,000 - - 32,000 - - - - 32,000 Membership card - Pakistan Mercantile Exchange Limited 13.3.2 3,500 - - 3,500 - - - - 3,500 Rights of ICP Mutual Funds 13.3.3 175,000 - - 175,000 70,000 - - 70,000 105,000 Computer software 213,514 11,648 - 225,162 83,005 - 19,182 102,187 122,975 Goodwill 13.3.4 1,463,624 - - 1,463,624 - - - - 1,463,624 1,887,638 11,648 - 1,899,286 153,005 - 19,182 172,187 1,727,099

COST As at As at As at Note January 01, December 31, January 01, 2012 Additions Deletions 2012 2012

13.3 Intangible assets

- 10 - 50 -

Stock exchange card 32,000 Merchantile exchange card 13.3.2 2,500 Computer software 160,594 Goodwill 13.3.4 1,463,624 1,658,718

ACCUMULATED AMORTISATION / COST IMPAIRMENT As at As at As at Amortisation As at Book value as at Note January 01, December 31, January 01, on Charge for December 31, December 31, 2011 Additions Deletions 2011 2011 Deletoons the year 2011 2011

-------------------------------------------------------------------- Rupees in 000 --------------------------------------------------------------------- - - 32,000 - - - - 32,000 - - - 2,500 - - - - 2,500 22,289 - 182,883 35,072 - 17,436 52,508 130,375 10 - - 1,463,624 - - - - 1,463,624 22,289 - 1,681,007 35,072 - 17,436 52,508 1,628,499

Rate %

13.3.1 During the period, in accordance with the requirements of the Stock Exchanges (Corporatisation, Demutualization and Integration) Act, 2012 ( The Act), the Bank was entitled to receive equity shares of Islamabad Stock Exchange (ISE) and Karachi Stock Exchange (KSE) and a Trading Right Entitlement in lieu of its Membership cards. The said process of demutualization was finalized during the period and the Group has been allotted 3,034,603 shares of ISE and 4,007,383 shares of KSE of Rs. 10/- each based on the revaluation of their assets and liabilities as approved by Securities and Exchange Commission of Pakistan (SECP). The Group has received 40% equity shares and the remaining 60% shares are transferred to blocked CDC account maintained by the ISE and KSE. The valuation of Trading Right Entitlement and the accounting treatment of shares received from Stock Exchange are under discussion with the Institute of Chartered Accountants of Pakistan (ICAP) and will be finalized in due course. 13.3.2 This represents membership cards of Pakistan Mercantile Exchange. It has an indefinite useful life and is carried at cost. 13.3.3 Intangible asset in respect of Management Rights of ICP Mutual Funds represents the amount paid for the acquisition of the management rights of 12 ICP Mutual Funds under a Management Rights Transfer Agreement between the subsidiary company, Privatisation Commission, Government of Pakistan and Investment Corporation of Pakistan in October 2002. These funds were consolidated into ABAMCO Stock Market Fund, ABAMCO Growth Fund and ABAMCO Capital Fund and then merged to form JS Growth fund in 2006. The Group carried out a review of the useful life of the above management rights of ICP mutual funds. In addition, the subsidiary company revisited and revised its future plans with respect to these funds which have now been merged to form the JS Growth fund. Consequently, keeping in view the revised future plans, and opinion from its legal advisor in respect of the subsidiary companys rights and obligations under the above mentioned Management Rights Transfer Agreement and an analysis of the relevant factors the management considers that this intangible asset has an indefinite useful life. The amortisation of the management rights acquired by the subsidiary company had been discontinued with effect from July 1, 2006. Previously, the useful life was considered to be definite and cost incurred for acquisition of management rights was being amortised on a straight line basis over a period of ten years with effect from the year ended June 30, 2003.

Annual Report / JS Bank

153

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

13.3.4 For impairment testing, goodwill has been allocated to Trading and Sales Segment as Cash Generating Unit (CGU), which is also a reportable segment. 13.3.5 Key assumptions used in value in use calculation The recoverable amount of the CGU has been determined based on value in use calculation, using cash flow projections based on business projections approved by the Board of Directors of the Bank covering a five year period. The discount rates applied to cash flows beyond the five year period are extrapolated using a terminal growth rate. The following rates are used by the Bank: 2012 21.29% 10.00% 2011 23.86% 10.00%

Cost of equity Terminal growth rate

The calculation of value in use is most sensitive to the following assumptions: (a) Interest margins Interest margins are based on prevailing industry trends and anticipated market conditions.

(b) Discount rates Discount rates reflect management estimates of the rate of return required for each business and are calculated after taking into account the prevailing risk free rate, industry risk and business risk. Discount rates are calculated by using the cost of equity of the Bank.

(c) Key business assumptions These assumptions are important as they represent management assessment of how the units position might change over the projected period. Based on expansion plans, management expects aggressive growth in advances, investments and deposits during the projected periods and thereafter stabilisation in line with industry trends.

(d) Sensitivity to changes in assumptions The estimated recoverable amount of the Trading and Sales CGU exceeds its carrying amount by approximately Rs. 750.135 million. Management has identified two key assumptions for which there could be a reasonably possible change that could cause the carrying amount to exceed the recoverable amount. The following table shows the amount that these two assumptions are required to change individually in order for the estimated recoverable amount to be equal to the carrying amount: Change required for carrying amount to equal recoverable amount (%) 2012 2011 1.79 1.86 (2.86) (3.17)

Cost of equity Terminal growth rate

154

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note ------- Rupees in 000 ------14. DEFERRED TAX ASSETS Deferred tax debits arising from: Unused tax losses 14.1 1,023,300 1,248,585 Provision against investments and loans 318,918 254,045 Unrealized loss of revaluation of investment classified as held for trading - 1,053 Unrealized gain on revaluation of forward foreign exchange contracts 818 Deferred cost - 235 Provision for gratuity - 26,371 Minimum tax 81,968 86,140 Deficit on revaluation of assets - 15,120 1,425,004 1,631,549 Deferred tax credits arising due to: Fixed assets (152,772) (139,284) Goodwill (307,361) (256,134) Unrealized loss of revaluation of investment classified as held for trading (6,527) Unrealized gain on revaluation of forward foreign exchange contracts - (1,436) Share of profit from associate - (3,412) Surplus on revaluation of assets (97,640) (2,527) (564,300) (402,793) 860,704 1,228,756 14.1

Movement in temporary differences during the year: Balance as Recognised Recognised Balance as Recognised Recognised in Balance as at at January in profit and Recognised in business at December in profit and Recognised business December 01, 2011 loss account in equity combination 31, 2011 loss account in equity combination 31, 2012 ----------------------------------------------------------------------------------- Rupees in 000 ---------------------------------------------------------------------------------- Deferred tax debits arising from: Unused tax losses 1,310,758 (62,173) - - 1,248,585 (265,357) - 40,072 1,023,300 Provision against investments and loans 231,692 (125,277) - 147,630 254,045 64,473 - 400 318,918 Unrealized loss on revaluation of forward foreign exchange contracts - - - - 818 - - 818 Deferred cost 472 (237) - - 235 (235) - - Provision for gratuity - 26,371 - - 26,371 (26,371) - - Unrealized loss on revaluation of investment classified as held for trading - 1,053 - - 1,053 (1,053) - - Minimum tax - 86,140 - - 86,140 (4,172) - - 81,968 Deficit on revaluation of assets - - 15,120 - 15,120 - (15,120) - 1,542,922 (74,123) 15,120 147,630 1,631,549 (231,897) (15,120) 40,472 1,425,004
Deferred tax credits arising due to: (152,772) (307,361) (6,527) (97,640) (564,300) 860,704 Fixed assets (144,280) 3,809 - 1,187 (139,284) 106 - (13,594) Goodwill (205,048) (51,086) - - (256,134) (51,227) - - Unrealized gain on revaluation of forward foreign exchange contracts - (1,436) - - (1,436) 1,436 - - Unrealized gain of revaluation of investment classified as held for trading - - - - - (6,527) - - (3,412) - - (3,412) 3,412 - - Share of profit from associate - Surplus on revaluation of assets (8,980) - 8,980 (2,527) (2,527) - (95,113) (358,308) (52,125) 8,980 (1,340) (402,793) (52,800) (95,113) (13,594) 1,184,614 (126,248) 24,100 146,290 1,228,756 (284,697) (110,233) 26,878

Annual Report / JS Bank

155

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

14.2

Included herein is a sum of Rs. 51.734 million (December 31, 2011: Rs.305.885 million) representing deferred tax asset relating to American Express Bank Limited - Pakistan Branch, respectively, in respect of tax losses, expected to be available for carry forward and set off against the income of the Bank in terms of Section 57A of the Income Tax Ordinance, 2001. In addition, it also includes deferred tax asset set up in respect of tax loss of the Bank. The management of the Bank believes that based on the projections of future taxable profit, it would be able to realise these tax losses in the future. The management of the Bank has prepared a five year projections which has been approved by the Board of Directors of the Bank. The projections involves certain key assumptions underlying the estimation of future taxable profits projected in the projections. The determination of future taxable profits is most sensitive to certain key assumptions such as cost to income ratio of the Bank, deposit composition, growth of deposits and advances, investment returns, potential provision against assets, branch expansion plan, etc. Any significant change in the key assumptions may have an effect on the realisability of the deferred tax asset. The management believes that it is probable that the Bank will be able to achieve the profits projected in the projections and consequently the deferred tax asset will be fully realised in the future. 2012 2011 Note ------- Rupees in 000 ------- 708,162 10,236 564,277 207,558 171,120 15,541 - 3,148 505 20,666 - 257,675 30,150 1,989,038 610,669 14,891 311,388 194,312 54,968 8,396 3,475 3,196 364 4,103 178,159 39,664 1,423,585

14.3

15. OTHER ASSETS

Income / mark-up accrued in local currency Income / mark-up accrued in foreign currencies Trade receivable form brokerage & advisory business Advances, deposits, advance rent and other prepayments Taxation (payments less provision) Receivable against bancaassurance from a related party Dividend receivable on preference shares from related parties Stationery and stamps on hand Prepaid exchange risk fee Balances due from funds under management Unrealised gain on forward foreign exchange contracts - net Receivable from other banks in respect of remittance 15.1 Others 15.1

This includes an amount of Rs. 204.985 million (December 31, 2011: 150.085 million) receivable from State Bank of Pakistan in respect of home remittance services provided by the Bank.

2012 2011 16. BILLS PAYABLE Rupees in 000 In Pakistan Outside Pakistan 17. BORROWINGS In Pakistan Outside Pakistan 17.1 8,655,976 48,709 8,704,685 3,170,240 1,560 3,171,800 708,734 5,013 713,747 1,242,139 4,855 1,246,994

Particulars of borrowings with respect to currencies In local currency 8,655,976 3,170,240 In foreign currencies 48,709 1,560 8,704,685 3,171,800

156

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 17.2 Details of borrowings from financial institutions Secured Borrowing from SBP under export refinancing scheme 17.2.1 1,023,474 1,248,000 Repurchase agreement borrowings 17.2.2 7,281,278 1,922,240 Short-term running finance 17.2.3 251,224 8,555,976 3,170,240 Unsecured Call borrowings 17.2.4 100,000 Overdrawn nostro accounts 17.2.5 48,709 1,560 148,709 1,560 8,704,685 3,171,800 17.2.1 The Bank has entered into agreement with the State Bank of Pakistan (SBP) for extending export finance to customers. As per the terms of the agreement, the Bank has granted SBP the right to recover the outstanding amount from the Bank at the date of maturity of finances by directly debiting the current account maintained by the Bank with SBP. These borrowings are repayable on a quarterly basis and carry mark-up at the rate ranging between 8.50% to 10% (2011: 10.0% to10.5%) per annum. This represents collateralised borrowing from SBP against Market Treasury Bills carrying mark-up at the rate ranging between 8.80% to 8.86% (2011: 11.63% and 11.90%) per annum and would mature in January 2013 (December 31, 2011: January 2012). This represents running finance facilities availed by a subsidiary company with a total limit of Rs. 500 million obtained from commercial banks. The facilities carry mark-up of 2% and 1.75% over 3 months KIBOR rate which shall be reviewed on quarterly basis. Mark-up is payable on quarterly basis. The facilities are secured by way of Equitable mortgage of office premises and pledge of shares / certificates of funds under management. These represent call money borrowings from financial institutions, carrying interest at the rate of 8.50% (2011:NIL) per annum.

17.2.2

17.2.3

17.2.4

17.2.5 This represents borrowings from financial institutions outside Pakistan. 2012 2011 Rupees in 000 18. DEPOSITS AND OTHER ACCOUNTS Customers Fixed deposits 20,771,890 14,252,810 Savings deposits 17,360,619 11,404,426 Current accounts - non-remunerative 16,841,045 11,293,377 Margin account 317,491 94,834 55,291,045 37,045,447 Financial Institutions Remunerative deposits 6,420,235 3,054,842 Non-remunerative deposits 223,507 74,062 6,643,742 3,128,904 61,934,787 40,174,351

Annual Report / JS Bank

157

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Rupees in 000 18.1 Particulars of deposits 58,052,891 3,881,896 61,934,787 37,181,569 2,992,782 40,174,351

In local currency In foreign currencies

2012 2011 Note Rupees in 000 19. OTHER LIABILITIES Mark-up / return / interest payable in local currency 19.1 474,495 249,514 Mark-up / return / interest payable in foreign currencies 8,629 1,958 Accrued expenses 302,082 213,162 Advance fee from clients - Advisory business - 3,277 Trade payable from brokerage business 265,843 319,143 Securitisation of management fee 169,559 Payable in respect of defined benefit plan 35.4 22,967 75,345 Customer insurance payable 2,997 3,695 Unrealised loss on forward foreign exchange contracts - net 2,337 Unclaimed dividends 8,263 6,760 Government duties 32,818 10,268 Lease key money deposit 50,202 43,875 Provision for Workers Welfare Fund - WWF 39,948 4,634 Payable against remittance 169,619 88,538 SSC / DSC Sale Payable 8,000 3,592 Staff reimbursements payable 6,770 4,626 ATM Charges payable 5,903 1,746 5,110 Payable against export bill Retention money payable 6,210 4,011 Payable against maintenance of IT equipment 3,630 2,554 Payable to VISA on transaction settlements 8,593 3,607 Others 136,645 88,139 1,730,620 1,128,444 19.1 Included herein is a sum of Rs. 46.465 million (December 31, 2011: Rs.NIL) payable to related parties. 20. SHARE CAPITAL 20.1 Authorised capital 2012 2011 2012 2011 Number of shares Rupees in 000 1,500,000,000 1,200,000,000 Ordinary shares of Rs.10 each 15,000,000 12,000,000

158

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

20.2 Issued, subscribed and paid-up capital Ordinary shares of Rs.10 each 2012 2011 2012 2011 Number of shares Note Rupees in 000 538,558,965 538,558,965 Issued for cash 5,385,590 5,385,590 Issued for consideration 533,905,297 461,734,046 other than cash 20.2.1 5,339,053 4,617,340 1,072,464,262 1,000,293,011 20.2.2 10,724,643 10,002,930 20.2.1 During the year, the Board of Directors of the Bank in their meeting held on May 25, 2012 and the shareholders of the Bank in the extraordinary general meeting held on June 27, 2012 approved acquisition of shares of JS Investment Limited (JSIL) from Jahangir Siddiqui & Co. Ltd. (JSCL) and other shareholders of JSIL in exchange of issuance of new shares of the Bank. After obtaining all regulatory approvals, 52,236,978 shares of JSIL (52,023,617 shares from JSCL and 213,361 shares from other shareholders of JSIL) were acquired in exchange for issuance of 72,171,251 shares (71,876,469 shares to JSCL and 294,782 shares to other shareholders of JSIL) of the Bank.

20.2.2 Jahangir Siddiqui & Co. Ltd. held 755,245,007 ordinary shares (December 31, 2011: 683,368,538 ordinary shares) of Rs.10 each as at December 31, 2012 representing a holding of 70.42% (December 31, 2011: 68.32%). 2012 2011 Rupees in 000 21. SURPLUS / (DEFICIT) ON REVALUATION OF ASSETS - net of tax Available-for-sale securities: Term Finance Certificates - listed (70,227) (4,716) Ordinary shares - listed 213,217 (724) Preference shares - listed 14,507 Closed end mutual funds 110,632 6,146 Open end mutual funds 32,579 324 US dollar bonds 7,589 (15,373) Government securities 72,389 (28,857) 380,686 (43,200) Related deferred tax (liability) / asset (97,640) 15,120 283,046 (28,080) Groups share 234,381 (28,080) Non-controlling interest 48,665 283,046 (28,080)

Annual Report / JS Bank

159

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

22. CONTINGENCIES AND COMMITMENTS 22.1 Transaction-related contingent liabilities Includes performance bonds, bid bonds, warranties, advance payment guarantees, shipping guarantees and standby letters of credit related to particular transactions. i) Government 1,950,045 890,007 ii) Banking companies and other financial institutions 188,099 98,165 iii) Others 293,522 203,562 2,431,666 1,191,734 22.2 Trade-related contingent liabilities Documentary credits 5,392,746 2,921,223

22.3 Other contingencies Claims not acknowledged as debts 66,718 66,481 22.4 Commitments in respect of forward exchange contracts Purchase 2,292,630 1,948,987 Sale 2,450,968 1,446,561 The Bank utilises foreign exchange instruments to meet the need of its customers and as part of its asset and liability management activity to hedge its own exposure to currency risk. At year end, all foreign exchange contracts have a remaining maturity of less than one year. 22.5 Commitments in respect of forward lending Forward commitments to extend credit 604,511 214,800 22.6 Other commitments 22.7 Future commitments in respect of sale of equity and other securities - 22,660 Royalty and advisory payment 10,000 Commitment in respect of capital expenditure 33,229 8,438 Motor Vehicle acquired under Ijarah from Bank Islami Limited - related party - Due in One year 2,480 - Due in two to five years 1,240 Contingencies In respect of the appeals filed by the subsidiary against orders passed for tax years 2006 and 2009 against demand of Rs. 162 million and 66 million respectively, the Commissioner Inland Revenue Appeal has not accepted the basis of addition and set aside both the orders in respect of allocation of expenses between

160

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

various sources of income for denovo proceedings with the directions to apportionment of expenditure according to actual incurrence of expenditure to the various sources of income. The subsidiary has filed second appeal in Appellate Tribunal Inland Revenue in respect of disallowance and taxability of portion of capital gain on dividend received from mutual funds. The subsidiary has also submitted constitutional petition before the Honorable High Court of Sindh. Management and tax advisors are confident that good ground exist to contest these disallowance at appellate forums, these additions can not be maintainable and eventually outcome will come in favour of the subsidiary. Hence, no provision has been made in the financial statements.

23. DERIVATIVE INSTRUMENTS The Bank, at present, does not offer structured derivative products such as Interest Rate Swaps, Forward Rate Agreements and FX Options. However, the Banks Treasury buys and sells financial instruments such as forward foreign exchange contracts. The management is committed to managing risk and controlling business and financial activities in a manner which enables it to maximise profitable business opportunities, avoid or reduce risks, which can cause loss or reputation damage, ensure compliance with applicable laws and regulations and resilience to external events. The Asset and Liability Committee (ALCO) regularly reviews the Banks risk profile in respect of derivatives. Operational procedures and controls have been established to facilitate complete, accurate and timely processing of transactions and derivative activities. These controls include appropriate segregation of duties, regular reconciliation of account and the valuation of assets and liability positions. The Bank has established trading limits, allocation process, operating controls and reporting requirements that are specifically designed to control risk of aggregate positions, assure compliance with accounting and regulatory standards and provide accurate management information regarding these activities. Accounting policies in respect of derivative financial instruments are described in note 6.6.2.

2012 2011 24. MARK-UP / RETURN / INTEREST EARNED Rupees in 000 On loans and advances to: Customers 2,561,243 2,013,332 Financial institutions 54,881 147,672 On investments in: Available-for-sale securities 2,301,054 1,478,564 Held-for-trading securities 1,102,886 527,786 On deposits with financial institutions 1,820 2,541 On securities purchased under resale agreements 146,426 149,357 6,168,310 4,319,252

Annual Report / JS Bank

161

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 25. MARK-UP / RETURN / INTEREST EXPENSED Deposits 3,239,571 2,102,314 Securities sold under repurchase agreements 352,641 305,137 Borrowings 134,459 176,227 Mark-up and other charges of securitisation of management fee receivables 5,062 3,731,733 2,583,678 26. FEE, COMMISSION AND BROKERAGE INCOME Advisory fee 58,225 9,958 Brokerage income 203,528 3,895 Trustee fee 9,487 3,896 Management fee 34,896 Other fees, commission and charges 26.1 512,654 337,548 818,790 355,297 26.1 This includes Rs. 84.650 million (December 31, 2011: 63.322 million) in respect of commission income from home remittance services provided by the Bank. The amount is received from State Bank of Pakistan at the rate of Saudi Riyal 25 per transaction over USD 100 and is shared between the Bank and various exchange companies as per terms of agreement with them. 2012 2011 Rupees in 000 27. GAIN ON SALE OF SECURITIES - net Federal Government Securities - Treasury Bills 264,523 112,930 - Pakistan Investment Bonds 400,051 141,563 Ordinary shares - listed 90,636 (16,364) Term Finance Certificates 32,221 26,688 US Dollar Bonds 56,658 3,218 Mutual Fund Units / Certificates 94,576 (20,163) 938,665 247,872 27.1 Included herein a sum of Rs. 33.95 million (December 31, 2011: Rs.15.72 million) representing gain arising on sale of shares / units of a related party. 2012 2011 Rupees in 000 28. OTHER INCOME Gain on sale of fixed assets 46,350 15,050 Late payment charges 14,125 Rental income from properties 2,389 Others 1,692 2,464 64,556 17,514

162

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 29. ADMINISTRATIVE EXPENSES Salaries, wages, allowances, etc. Charge for defined benefit plan Contribution to defined contribution plan Non-executive directors fee, allowances and other expenses Contractor wages Brokerage, fee and commission Royalty Rent, taxes, insurance, electricity, etc. Legal and professional charges Donations 29.1 Communication Repairs and maintenance Travel and other related expenses Stationery and printing Advertisement and publicity Postage and courier service Stamp duty CDC and other charges Bank charges and clearing house charges Consultancy fee Security services Fees and subscription Auditors remuneration 29.2 Depreciation 13.2 Amortisation of intangible assets 13.3 Staff training Others 29.1 1,141,489 22,622 41,810 3,613 116,733 14,630 10,000 472,798 35,442 14,000 70,172 318,175 32,369 57,399 54,428 15,825 4,704 1,884 42,677 41,830 52,850 27,027 6,619 231,959 19,182 4,519 37,978 2,892,734 781,169 17,336 34,386

313 92,305 13,509 269 378,512 12,172 69,171 207,716 11,671 44,640 48,881 14,000 1,581 3,571 25,188 24,797 44,194 16,642 3,159 226,620 17,436 1,976 20,320 2,111,534

Donation is for Mahvash & Jahangir Siddqui Foundation where in Mrs. Mahvash Jahangir Siddiqui is chairperson who is spouse of Mr. Jahangir, chairman of the Board of the Bank. 2012 2011 Note Rupees in 000 29.2 Auditors Remuneration

Audit fee 2,495 1,200 Half-yearly review 400 400 Special certification and Tax Fee 3,448 1,525 Out of pocket expenses 276 34 6,619 3,159 30. OTHER CHARGES Penalties imposed by State Bank of Pakistan 1,737 7,840 Refund of penalties by State Bank of Pakistan (4,367) (2,630) 7,840

Annual Report / JS Bank

163

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

31. TAXATION 31.1 31.2 31.3

In view of tax losses of the Bank tax provision has been made for minimum taxation @ 0.5% under section 113 of the Income Tax Ordinance, 2001 During the year, the Bank has revised the income tax returns for the tax years 2010 and 2011 claiming back the minimum tax charged for the said years on account of gross losses in those years. Under Section 114 of the Income Tax Ordinance, 2001, the Bank has filed the tax returns for the tax years 2006 through 2012. The said returns are deemed to be assessed under the provisions of prevailing income tax laws as applicable in Pakistan. However, tax authorities have issued notices for the amendment of assessments for the tax year 2008 to 2010. Since such proceedings have not yet been concluded by the authorities, therefore any estimate of tax exposure cannot be determined at this stage. Further, withholding tax monitoring has been initiated by LTU, Karachi for tax years 2010 and 2012 which was carried out through monitoring of expenses with respect to salaries and profit on debt. Moreover, the withholding tax monitoring pertaining to tax year 2011 was also initiated by the authorities under section 161/205 of the Income Tax Ordinance, 2001 which is currently in the process of furnishing information. As the said proceedings are currently under way, therefore tax exposure, if any, cannot be determined at this stage. Moreover, previously the monitoring for tax year 2008 and 2009 were also taken up by the Regional Tax Office, Karachi but due to the transferring the Banks jurisdiction to LTU by the FBR during such proceedings, the same has not been taken up again by LTU authorities as yet.

2012 2011 Rupees in 000 32. EARNINGS PER SHARE - BASIC AND DILUTED Profit for the year after taxation (Rupees in 000) 721,536 360,551 Weighted average number of Ordinary shares outstanding during the year (Numbers) 1,012,293,818 858,615,404 Earnings per share - basic and diluted (Rupee) 0.71 0.42 Diluted earnings per share has not been presented as the Group does not have any convertible instruments in issue at December 31, 2011 and 2012 which would have any effect on the earnings per share if the option to convert is exercised.

2012 2011 Note Rupees in 000 33. CASH AND CASH EQUIVALENTS Cash and balances with treasury banks 8 5,027,942 3,880,782 Balances with other banks 9 1,193,864 165,067 Overdrawn nostro account 17.2 (48,709) (1,560) 6,173,097 4,044,289

164

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

33.1

Non-cash transactions During the year, the Bank acquired 52.24% shareholding of JS Investment Limited amounting to Rs. 561.192 million in a share-exchange arrangement. The issuance and acquisition of shares, being a non-cash financing and investment activity, is not reflected in the consolidated cash flow statement. 2012 2011 Number 1,242 84 1,326 619 1,945 1,056 65 1,121 498 1,619

34. STAFF STRENGTH Permanent Temporary / on contractual basis Own staff strength at the end of the year Outsourced

35. DEFINED BENEFIT PLAN 35.1 General description 35.2 The Bank operates a recognized gratuity fund for all employees who opted for the new staff retirement benefit scheme introduced by the management with effect from January 01, 2007. Number of employees under the schemes The number of employees covered under the following defined benefit scheme is 1,062 ( December 31, 2011: 952).

35.3 Principal actuarial assumptions Principal actuarial assumptions at the end of the reporting period expressed as weighted averages. The actuarial valuations were carried out on December 31, 2012 based on the Projected Unit Credit Method, using the following significant assumptions: 2012 2011 Valuation discount rate per annum 11.50% 12.50% Expected return on plan assets per annum 10% 9% Future salary increase rate per annum 11.50% 12.50% Normal retirement age years 60 60 2012 2011 Note Rupees in 000 35.4 Reconciliation of payable to defined benefit plan Present value of defined benefit obligation 35.4.1 91,269 61,399 Fair value of any plan assets 35.4.2 (79,911) Deficit 11,358 61,399 Past service cost - non vested 754 1,132 Cumulative unrecognised actuarial gains 35.4.3 10,855 12,814 22,967 75,345

Annual Report / JS Bank

165

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 35.4.1 Movement in present value of defined benefit obligation Opening balance 61,399 49,634 Current service cost 27,745 22,304 Interest cost 7,600 6,949 Benefits paid during the year (1,204) Negative past service cost - Vested - (2,997) Negative past service cost - Non Vested - (1,132) Curtailment gains (4,404) (7,488) Actuarial losses / (gains) on obligation 133 (5,871) Closing balance 91,269 61,399 35.4.2 Movement in fair value of plan assets Opening balance - Contribution made 75,000 Expected return on plan assets 6,750 Benefits paid by the fund (1,204) Actuarial losses (635) Closing balance 35.4.2.1 79,911 35.4.2.1 Plan assets consist of the following: Pakistan Investment Bonds 70,753 Bank balances 9,158 79,911 35.4.2.2 Actual return on plan assets 6,115 35.4.3 Cumulative unrecognised actuarial gains / (losses) -net 12,814 (133) (635) 12,046 (524) (667) 10,855 8,860 5,871 14,731 (1,563) (354) 12,814

Opening balance Actuarial (loss) / gain on defined benefit obligation Actuarial loss on plan assets Actuarial gains recognised due to curtailment gain Actuarial gains recognised due to corridor limits

166

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Note Rupees in 000 35.5 Movement in payable to defined benefit plan Opening net liability 75,345 58,009 Expense for the year 35.6 22,622 17,336 Contributions (75,000) Closing net liability 22,967 75,345 35.6 Charge for defined benefit plan Current service cost 27,745 22,304 Interest cost 7,600 6,949 Transitional liability recognised - 485 Expected return on contributions (6,750) Actuarial (gain) due to curtailment gain (524) Curtailment gain (4,405) (7,488) Actuarial gain / loss recognized (667) (1,917) Past service cost - vested (377) (2,997) 22,622 17,336 2012 2011 2010 2009 2008 ----------------------------- Rupees in 000 ---------------------------- 35.7 Five year data on plans and experience adjustments Present value of defined benefit obligation 91,269 61,399 Fair value of plan assets (79,911) - 11,358 61,399 Experience adjustment on obligation - gain / (loss) (133) 5,871 Experience adjustment on plan assets - gain / (loss) (635) - 35.8 The Bank amortises transitional liability over a period of five years. 49,634 - 49,634 7,848 - 36,247 - 36,247 1,732 - 19,242 19,242 (141)

36. DEFINED CONTRIBUTION PLAN The Group operates a contributory provident fund scheme for all permanent employees. The employer and employee both contribute 10% of the basic salaries to the funded scheme every month. Number of employees covered under this plan are 1,144 (2011: 1,056). During the year, employees made a contribution of Rs.46.5 (2011: Rs.34.386) million to the fund. The Group has also made a contribution of equal amount to the fund.

Annual Report / JS Bank

167

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

37. COMPENSATION OF DIRECTORS AND EXECUTIVES

The aggregate amount charged in the financial statements for the year in respect of the remuneration and benefits to the President / Chief Executive, Directors and Executives are as follows: Note 2012 President Directors Executives ----------------- Rupees in 000 ----------------Total 316,929 30,677 20,558 140,267 31,576 4,931 50,801 97,307 3,613 696,659 304

Managerial remuneration 18,238 639 298,052 Defined contribution plan 837 23 29,817 Charge for defined benefit plan - - 20,558 Rent and house maintenance 7,589 244 132,434 Utilities 1,707 64 29,805 Medical 328 29 4,574 Conveyance and vehicle maintenance 95 48 50,658 Fees for attending meetings - - - Bonus 4,000 - 93,307 Non-executive directors fee, allowances and other expenses - 3,613 - 32,794 4,660 659,205 Number of persons 37.1 3 15 286

2011 President Directors Executives Total ----------------- Rupees in 000 ---------------- Managerial remuneration 8,954 6,194 209,231 224,379 Defined contribution plan 15 619 18,481 19,115 Charge for defined benefit plan - 514 16,372 16,886 Rent and house maintenance 4,030 2,787 94,154 100,971 Utilities 888 619 20,910 22,417 Medical 33 11 3,284 3,328 Conveyance and vehicle maintenance 946 461 37,207 38,614 Bonus 4,000 4,076 56,290 64,366 Non-executive directors fee, allowances and other expenses - 313 - 313 18,866 15,594 455,929 490,389 Number of persons 37.1 2 13 214 229 37.1 The President, Directors and certain executives are also provided with other facilities, including free use of the Bank and/ or Company maintained cars.

168

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

38. FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of traded investments is based on quoted market price. Fair value of fixed term loans, other assets, other liabilities and fixed term deposits cannot be calculated with sufficient reliability due to absence of current and active market for assets and liabilities and reliable data regarding market rates for similar instruments. The provision for impairment of loans and advances has been calculated in accordance with the Groups accounting policy as stated in note 6.6 to these financial statements. The repricing profile, effective rates and maturity are stated in note 42.3.4 to these financial statements. In the opinion of the management, the fair value of the remaining financial assets and liabilities are not significantly different from their carrying values since assets and liabilities are either short term in nature or in the case of customer loans and deposits are frequently repriced. 39. SEGMENT DETAILS WITH RESPECT TO BUSINESS ACTIVITIES The segment analysis with respect to business activities is as follows:
Total

2012 Corporate Trading and Retail Commercial Payment and Asset

finance sales banking banking settlement Brokerage Management Other

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

Total income - external Inter-segment revenues - net Total income Total expenses Taxation

51,373 - 51,373 (4,776) - - 46,597 - - - - - -

4,998,527 (2,859,890) 2,138,637 (667,276) - - 1,471,361 48,579,733 - - 7,771,612 10.39 8.90

509,194 3,646,291 4,155,485 (4,258,459) - - (102,974) 3,270,146 50,589 31,805 48,295,991 12.68 5.87

2,323,892 (786,401) 1,537,491 (1,636,826) - - (99,335) 17,247,885 2,986,676 939,448 14,068,503 13.02 9.53

161,326 - 161,326 (34,858) - - 126,468 - - - 713,747 - -

205,340 - 205,340 (156,564) - - 48,776 594,484 - - 332,156 - -

34,896 - 34,896 (29,462) - - 5,434 - - - 386,496 - -

33,821 - 33,821 (339,992) - - (306,171) - - - 1,515,334 - -

8,318,369 - 8,318,369 (7,128,213) (85,626) (284,697) 819,833 69,692,248 3,037,265 971,253 73,083,839 -

Deferred tax Net income / (loss) Segment assets (gross) Segment non performing loans Segment provision required Segment liabilities Segment return on net assets (ROA) (%) Segment cost of funds (%)

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169

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2011 Corporate Trading and Retail Commercial Payment and Asset finance sales banking banking settlement Brokerage Management Other Total

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

Total income - external 13,583 2,841,036 421,104 1,868,784 40,774 5,650 - 49,457 5,240,388 Inter-segment revenues - net - (1,712,569) 2,680,823 (968,254) - - - - Total income 13,583 1,128,467 3,101,927 900,530 40,774 5,650 - 49,457 5,240,388 Total expenses (2,614) (494,044) (3,298,590) (817,457) (28,311) (7,463) - (54,573) (4,703,052) Tax expense - - - - - - - - (49,443) Deferred tax - - - - - - - - (126,248) Net income / (loss) 10,969 634,423 (196,663) 83,073 12,463 (1,813) - (5,116) 361,645 Segment assets (gross) - 27,403,167 2,715,566 16,235,609 - 228,700 - 8,433,332 55,016,374 Segment non performing loans - - 42,945 2,733,950 - - - - 2,776,895 Segment provision required - - 27,825 485,924 - - - - 513,749 Segment liabilities - 1,715,437 31,514,528 9,617,240 1,246,994 848,498 - 778,892 45,721,589 Segment return on net assets (ROA) (%) - 10.74 10.98 13.60 - 1.15 - - Segment cost of funds (%) - 11.31 6.58 9.05 - - - - -

170

40. RELATED PARTY TRANSACTIONS

The Group has related party relationship with its associates, parent, companies having common directors, companies in which parent holds more than 20% shares, employee benefit plans, and its key management personnel (including their associates).

Annual Report / JS Bank

Contributions to the accounts in respect of staff retirement benefits are made in accordance with terms of the contribution plans. Remuneration of the key management personnel are in accordance with the terms of their employment. Other transactions are carried out as per agreed terms.

The details of transactions with related parties, other than those which have been specifically disclosed elsewhere in the financial statements are as follows:

Key management personnel Other related parties Total 2012 2011 2012 2011 2012 2011 -------------------------------------------------------- (Rupees in 000) -------------------------------------------------------Advances
39,651 69,045 (14,625) 94,071 3,200 3,480 440,115 39,651 1,378,039 (6,464) 42,692 7,356,245 7,387,316 2,975,684 401,684 3,423 2,975,684 2,994,330 3,015,335 7,425,290 1,472,110 443,315 2,997,753 7,430,008 3,015,335 405,164

Opening balance

FOR THE YEAR ENDED DECEMBER 31, 2012

Disbursements

Repayments

(8,953,890) (7,405,962) (8,968,515) (7,412,426)

Balance as at December 31

Mark-up / return / interest earned

Parent Key management personnel Other related parties Total 2012 2011 2012 2011 2012 2011 2012 2011 --------------------------------------------------------------------------------- (Rupees in 000) ------------------------------------------------------------------------------

560,818 8,747,957 (1,976,414) 560,818 11,268 2,002,829 53,682 2,535,433 1,799 10,994 270,304 (264,567) 16,731 375

9,695 1,733,460 771,816 173,263 40,912,613 25,371,652 10,994 139 4,387,067 275,440 1,733,460 134,699 2,305,272 49,930,874 6,406,627 329,497 783,310 28,080,348 (171,964) (38,259,006) (24,410,008) (45,829,519) (26,558,386) 2,305,272 146,106

Deposits

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

(7,305,946)

Opening balance

Deposits during the year

Withdrawals during the year

Balance as at December 31

Mark-up / return / interest expensed

The related party status of outstanding receivables and payables as at December 31, 2012 is included in respective notes to the financial statements. Material transactions with related parties are given below: Companies having Companies in which parent common directorship company holds 20% or more Other related parties Total 2012 2011 2012 2011 2012 2011 2012 2011 ---------------------------------------------------------- (Rupees in 000) ---------------------------------------------------------- Nature of transactions

FOR THE YEAR ENDED DECEMBER 31, 2012

Companies having Companies in which parent common directorship company holds 20% or more Other related parties Total 2012 2011 2012 2011 2012 2011 2012 2011 ---------------------------------------------------------- (Rupees in 000) ----------------------------------------------------------
20,323 - 166 147 37,171 - 420 - 92,087 - - - - 10,937 - - 35 30,791 - - - 70,441 - - - - - - 869 1,090 - - - - 2,262 - - - - - - - 17 - 822 106 - 1,942 6,096 - - - - 79,585 345 193 - - - - 9,604 12,218 8,000 7,500 40,459 8 - - 42 - - 34 - 3,640 - 2,800 250 -

Sale of Term Finance Certificates - - - - - 41,419 - 41,419 Purchase of Term Finance Certificates - - - - 16,347 - 16,347 Sale of Government Securities 46,575,731 24,072,927 - 1,288,844 2,889,665 186,729 49,465,396 25,548,500 Purchase of Government Securities 9,332,872 1,225,435 - 1,938 69,292 - 9,402,164 1,227,373 Purchase of Sukuk - - 4,252,287 - - - 4,252,287 Sale of Sukuk / Ijara 143,788 104,448 1,543,690 - - - 1,687,487 104,448 Sale of shares / Units - - - 542,677 1,560,614 - 1,560,614 542,677 Purchase of shares / Units - - 350,000 737,670 1,367,675 - 1,717,675 737,670 Subscription in shares - 22,560 - - - 127,374 - 149,934 Rent Receivable - - - 966 - - - 966 Call lending / Reverse Repo - - - 1,705,000 - - - 1,705,000 Call borrowing / Repo - - 5,550,000 14,850,000 - - 5,550,000 14,850,000 Purchase of forward foreign exchange contracts - - 8,306,908 4,946,891 - - 8,306,908 4,946,891 Sale of forward foreign exchange contracts - - 10,160,117 6,506,439 - - 10,160,117 6,506,439 Letter of credits - - - - - 47,798 - 47,798 Letter of guarantees - - - - 30,295 - 30,295

Nature of transactions

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Insurance claim received Markup on TFCs Rent received Reimbursement of expenses Payment of insurance premium Services rendered Rent expense paid / accrued Commission paid / accrued Commission income Dividend income Consultancy fee Royalty Remunerative income

20,323 79,585 1,380 1,430 37,171 - 420 - 103,953 12,218 8,000 7,500 40,459

10,945 94 30,791 822 140 76,023 6,096 2,800 250 -

Annual Report / JS Bank

Parent company 2012 2011 (Rupees in 000) Nature of transactions Subscription in right shares - 1,127,233 Purchase of Government Securities - 597,478 Sale of Government Securities 728,550 - Rent expense paid / accrued 1,023 1,448 Reimbursement of expenses 925 45

171

172

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

41. 41.1

CAPITAL ASSESSMENT AND ADEQUACY BASEL II SPECIFIC Scope of application

Basel II Framework is applicable to the Bank both at consolidated level (comprising of partly owned subsidiaries - JS Global Capital Limited & JS Investments Limited.) and also on stand alone basis. Capital structure

41.2

Groups regulatory capital is analyzed into two tiers Tier I capital, which includes fully issued, subscribed and paid up capital, balance in share premium account, reserve for bonus issue, general reserves as per the financial statements and net un-appropriated profits and non-controlling interest etc. after deductions of goodwill & other intangible assets and deficit on revaluation of available for sale investments. Tier II capital, which includes general provision for loan losses (upto maximum of 1.25% of risk weighted assets), reserve on the revaluation of fixed assets and equity investments (upto a maximum of 45% of the balance in the related revaluation reserve) and subordinated debt (upto a maximum of 50% of Tier I Capital) Tier III capital has also been prescribed by the SBP for managing market risk; however, the Bank does not have any Tier III capital. Detail of the Banks eligible capital (on an consolidated basis) is as follows:

2012 2011 Rupees in 000 Tier I Capital Shareholders equity / assigned capital 10,724,643 10,002,930 Reserves 231,613 89,978 Discount on issue of shares (2,105,401) (1,944,880) (Accumulated losses) / Unappropriated unremitted profits (62,157) (642,058) Minority interest (for consolidated position reporting) 1,863,194 1,303,146 10,651,892 8,809,116 Less: Goodwill, other intangible assets and deficit on account of revaluation of available-for-sale portfolio etc. 1,740,179 1,630,295 Shortfall in provisions required against classified assets irrespective of any relaxation allowed - Deficit on account of revaluation of investments held in AFS category - 43,200 Other deductions (50% of Investments in equity and other regulatory capital of majority owned securities or other financial subsidiaries not consolidated in statement of financial position) - - 1,740,179 1,673,495 Total Tier I Capital 8,911,713 7,135,621 Tier II Capital General provisions subject to 1.25% of total risk weighted assets 1,191 1,083 Revaluation reserve (upto 45%) 171,309 172,500 1,083

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173

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 2011 Rupees in 000 Less: Other deductions (50% of Investments in equity and other regulatory capital of majority owned securities or other financial subsidiaries not consolidated in statement of financial position) - Total Tier II Capital 172,500 1,083 Eligible Tier III Capital - Total regulatory capital base 9,084,213 7,136,704 41.3 Capital adequacy Capital management

The primary objective of the Groups capital management is to ensure that the Group complies with all regulatory capital requirements and at the same time maintains strong credit ratings and healthy capital ratios in order to support its business and to maximize shareholders value. Statutory minimum capital requirement and management of capital The State Bank of Pakistan through its BSD Circular No. 07 dated April 15, 2009 requires the minimum paid up capital (net of losses) for Banks / Development Finance Institutions (DFIs) to be raised to Rs.10 billion by the year ending December 31, 2013. This increase in capital is to be achieved in a phased manner requiring Rs.9 billion paid up capital (net of losses) by the end of the financial year 2012. The paid up capital (net of losses) of the Bank as at December 31, 2012 stood at Rs.8.543 billion. The Bank plans to meet the shortfall in equity capital through further issuance of shares as disclosed in note 1.3. In addition, the Group was also required to maintain a minimum Capital Adequacy Ratio (CAR) of 10% of the risk weighted exposure of the Bank. Banks CAR as at December 31, 2012 was 24.26% of its risk weighted exposures. The Bank in alignment with its corporate strategy has laid down its footprints across Pakistan with plans to further expand its outreach with more branches nationwide this year, providing a range of innovative financial products and services to a wide customer base. The capital adequacy is constantly being monitored and stress tested by using various adverse scenarios. The Bank has developed a formalised strategy for the Internal Capital Adequacy Assessment (ICAAP) as laid down by SBP under ICAAP Guidelines, which commensurate with the size, nature and complexity of its business operations.

174

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FOR THE YEAR ENDED DECEMBER 31, 2012

41.4

Risk Weighted Exposures

Capital requirements Risk weighted assets 2012 2011 2012 2011 ------------------- Rupees in 000 ------------------- Credit Risk Portfolios subject to standardised approach On balance sheet Corporate 1,679,866 1,459,345 16,798,658 14,593,448 Retail 86,616 32,637 866,158 326,373 Banks and DFIs 141,366 71,210 1,413,661 712,102 Public sector entity 10,772 1,393 107,724 13,932 Sovereign (include GoP and SBP) - - - Residential mortgage finance 17,937 7,815 179,371 78,148 Past due loans 264,123 325,095 2,641,229 3,250,950 Fixed assets 167,199 143,459 1,671,988 1,434,588 Other assets 168,482 180,651 1,684,824 1,806,512 2,536,361 2,221,605 25,363,613 22,216,053 Off balance sheet - non market related 239,617 164,566 2,396,172 1,645,655 - market related 1,288 1,326 12,884 13,263 240,905 165,892 2,409,056 1,658,918 Equity exposure risk in the banking book 254,907 86,754 2,549,074 867,541 Total Credit Risk 3,032,173 2,474,251 30,321,743 24,742,512 Market risk Capital requirement for portfolios subject to standardised approach Interest rate risk 27,341 60,722 341,759 759,025 Equity position risk 157,058 126,196 1,963,225 1,577,450 Foreign exchange risk 2,954 3,091 36,925 38,632 Operational risk Capital requirement for operational risks 382,658 234,790 4,783,225 2,934,874 Total 3,602,184 2,899,050 37,446,877 30,052,493 Capital Adequacy Ratio Total eligible regulatory capital held (a) 9,084,213 7,136,704 Total risk weighted assets (b) 37,446,877 30,052,493 Capital adequacy ratio (a) / (b) 24.26% 23.75% 42. RISK MANAGEMENT Risk Management is a discipline at the core of every financial institution and encompasses all the activities that affect its risk profile. At the Group, it involves identification, measurement, monitoring and controlling risks to ensure that: a) The individuals who take or manage risks, clearly understand it; b) The Groups Risk exposure is within the limits established by Board of Directors (BoD); c) Risk taking decisions are in line with the business strategy and objectives set by BoD;

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FOR THE YEAR ENDED DECEMBER 31, 2012

d) e) f) g)

The expected payoffs compensate for the risks taken; Risk taking decisions are explicit and clear; Sufficient capital as a buffer is available to take risk; and Risk management function is independent of risk taking unit.

Keeping in view the dynamics of internal and external environment, we regularly review and update our Risk Management policies and procedures in accordance with regulatory environment and international standards. Risk Management of Group includes: a) b) Clearly defined risk management policies and procedures covering risk identification, acceptance, measurement, monitoring, reporting and control; Well constituted organizational structure, defining clearly roles and responsibilities of individuals involved in risk taking as well as managing it. The Group, in addition to risk management functions for various risk categories, has instituted an Integrated Risk Management Committee (IRMC) that supervises overall risk management at the Bank. The IRMC establishes the Banks overall risk-taking capacity. This involves an effective portfolio management strategy, keeping in view the earnings growth target and capital constraints. The IRMC sets the strategic target and aggregate limits at the Business Group level and concentration limits (by industry, geography, size, tenor) so that one category of assets or dimension of risk cannot materially harm the performance of the Group; An effective management information system that ensures flow of information from operational level to top management and a system to address any exceptions observed; and A mechanism to ensure an ongoing review of systems, policies and procedures for risk management and procedures to adopt changes. While the overall responsibility of risk management rests with the BoD, it is the duty of Senior Management to devise risk management strategy by setting up well defined policies and procedures for mitigating / controlling risks, duly approved by the Board. Giving due consideration to the above, the Group has put in place the following hierarchy of Risk Management: - - - - Board of Directors (BoD), Risk Management Sub-Committee; Integrated Risk Management Committee (IRMC) which comprises of the President / Chief Executive Officer (CEO), Group Head Risk Management, Business Heads, and Other Functional Heads. Asset - Liability Committee which comprises of the President / CEO, Treasurer, Group Head Risk Management, Other Business Heads. Risk Management Group (RMG) which comprises of Risk Managers for Credit, Market and Operational Risks and Treasury Middle Office.

c) d)

RMG is managed by Group Head Risk Management to supervise the following Divisions: a) b) c) d) e) f) Credit Risk Management (CRM) covering both Corporate / Commercial and Retail Banking Risks as well as Consumer Risks Operational Risk Management Market Risk Management (MRM) Treasury Middle Office Financial Institution Risk Management Unit (also responsible for Cross-border Risk Management) Basel II / III Implementation The Banks RMG generates the requisite risk reporting for the different tiers of management. These are also subjected to internal audit review.

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FOR THE YEAR ENDED DECEMBER 31, 2012

Risk matrix / categories Bank, in common with other banks, generates its revenues by accepting country, credit, liquidity, interest rate risk in the Banking Book, market, operational and other risks. Effective management of these risks is the decisive factor in the Banks profitability. Risk Appetite The Banks risk appetite is reflected in its endeavours to maintain a favourable credit rating and encompasses the following: - - - - - The business strategy The expectations of stakeholders at different time horizons The characteristics of the risk-bearing entities The nature and characteristics of the risks undertaken The possible spread of risk situations across organizational units, assets-at-risk, and future time horizons.

Risk appetite drives business activity. It combines anticipations in risk and profitability with management preferences to control capital and resource allocation, as well as the distribution of exposure across activities and portfolios.

Banks hedging strategy is embedded in its risk management practices for addressing material categories of risk. 42.1 Credit Risk Credit risk is the risk which arises with the possibility that one party to a financial instrument will fail to discharge its obligation and cause the other party to incur a financial loss. Credit risk is managed in terms of credit policies, approved by the BoD and regulations issued by the SBP. The Group is exposed to credit risk on loans and advances, fund placements with financial institutions and certain investments.

The Groups strategy is to minimise credit risk through product, geography, and industry and customer diversification. Credit limits are established for all counter-parties after a careful assessment of their credit worthiness. An effective credit granting procedure, which requires pre-sanction evaluation of credit proposal, adequacy of security and predisbursement examination of charge documents has been established and managed by Risk Management Group (RMG) and Credit Administration Department (CAD). The Group maintains a sound portfolio diversified in nature to counter the risk of credit concentration and further limits risk through diversification of its assets by geographical and industrial sector. For managing impaired assets in the portfolio, the Bank follows the Prudential Regulations and Risk Management guidelines issued by SBP and the Remedial Management Policy approved by the Board. 42.1.1 Segmental Information Segmental information is presented in respect of the class of business and geographical distribution of advances, deposits, contingencies and commitments.

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FOR THE YEAR ENDED DECEMBER 31, 2012

2012 Advances Contingencies and (gross) Deposits commitments Rupees in 000 Percent % Rupees in 000 Percent % Rupees in 000 Percent %

42.1.1.1

Segment by class of business

Mining and quarrying 24,016 Textile 5,011,079 Chemical and pharmaceuticals 880,364 Fertilizer 1,455,725 Automobile and transportation equipment 99,458 Electronics and electrical appliances 323,704 Construction 47,497 Power, gas, water and sanitary - Paper/board/furniture 93,559 Petroleum/oil and gas 17,901 Food/confectionery/beverages 1,599,971 Trust and non-profit organisations 103,964 Wholesale and retail trade 123,891 Transport, storage and communication 773,256 Financial 1,201,717 Insurance 50,000 Services 2,027,202 Cement - Sugar 1,355,476 Individuals 2,653,669 Others 3,038,189 20,880,638

0.12 24.00 4.22 6.97 0.48 1.55 0.23 - 0.45 0.09 7.66

54,103 227,554 984,644 - - 201,081 576,207 45,679 - 2,636 49,455

0.09 0.37 1.59 - - 0.32 0.93 0.07 - 0.00 0.08 12.26 1.58 1.08 9.74 0.42 1.21 0.00 0.10 57.24

191 856,368 94,635 612,000 12,440 108,697 541,957 300,024 161,702 333,823 3,697,411 17,609 - 71,346

0.00 6.34 0.70 4.53 0.09 0.80 4.01 2.22 1.20 2.47 27.36 0.13 0.53

0.50 7,591,978 0.59 3.70 979,127 668,918

5.76 6,034,736 0.24 9.71 - 6.49 261,142 750,981 1,224 59,542

5,224,901 38.66 867 108,000 - 208,921 92,902 0.01 0.80 1.55 0.69 7.93 100

12.71 35,449,645 14.55 7,996,135 100 61,934,787

12.90 1,070,394 100 13,514,188

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FOR THE YEAR ENDED DECEMBER 31, 2012

2011 Advances Contingencies and (gross) Deposits commitments Percent % Rupees in 000 Percent % Rupees in 000 Percent %

Rupees in 000

Mining and quarrying Textile Chemical and pharmaceuticals Fertilizer Automobile and transportation equipment Electronics and electrical appliances Construction Power, gas, water and sanitary Paper and board Petroleum / oil and gas Food/confectionery/beverages Trust and non-profit organisations Wholesale and retail trade Transport, storage and communication Financial Insurance Services Cement Sugar Individuals

462,190 3,654,453 2,091,210 - 100,326 286,129 68,602 9,920 9,908 - 1,915,471 11,024 114,804 664,974 851,907 25,006 134,760 19,863 1,710,774 2,600,338 3,811,974 18,543,633

2.49 19.71 11.28 - 0.54 1.54 0.37 0.05 0.05 - 10.33

30,904 304,080 799,950 - 50,890 101,613 267,540 60,836 1,165 - 110,031

0.08 0.76 1.99 - 0.13 0.25 0.67 0.15 0.00 - 0.27 10.61 1.97 1.48 6.66 1.13 1.50 0.30 0.07 61.40 10.58 100

95

0.00

1,031,700 13.19 958,123 369,041 125,163 151,855 52,710 217,520 99,382 136,477 297,318 12,073 - 9,894 12.25 4.72 1.60 1.94 0.67 2.78 1.27 1.75 3.80 0.15 - 0.13

0.06 4,263,356 0.62 3.59 791,602 592,877

4.59 2,675,741 0.13 0.73 0.11 9.23 452,724 602,065 119,003 29,476

3,864,843 49.42 - 770 - 165,000 16,526 312,394 7,820,884 - 0.01 - 2.11 0.21 4.00 100

14.02 24,666,794 20.56 4,253,704 100 40,174,351

Others

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FOR THE YEAR ENDED DECEMBER 31, 2012

42.1.1.2 Segment by sector

2012 Advances Contingencies and (gross) Deposits commitments Rupees Percent Rupees Percent Rupees Percent in 000 % in 000 % in 000 %

Public / Government - - 5,070,401 8.19 1,960,794 14.51 Private 20,880,638 100 56,864,386 91.81 11,553,394 85.49 20,880,638 100 61,934,787 100 13,514,188 100 2011
Advances (gross) Deposits Rupees Percent Rupees Percent in 000 % in 000 % Contingencies and commitments Rupees Percent in 000 %

Public / Government Private

3,533 18,540,100 18,543,633

0.02 5,700,281 99.98 34,474,070 100 40,174,351

14.19 85.81 100

890,007 11.38 6,930,877 88.62 7,820,884 100

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

2012 2011 Specific Specific Classified provisions Classified provisions advances held advances held ------------------------- Rupees in 000 ------------------------ Textile Automobile and transportation equipment Chemical and pharmaceutical Wholesale and retail trade Financial Individuals Other 691,011 134,686 1,536,009 167,144 185,575 261,224 61,615 3,037,264 318,859 104,101 222,362 102,991 155,163 11,682 54,904 970,062 636,842 56,895 1,261,984 - 185,575 248,756 386,843 2,776,895 96,273 26,058 81,087 8,237 301,011 512,666

42.1.1.4 Details of non-performing advances and specific provisions by sector Public / Government - - - Private 3,037,264 970,062 2,776,895 512,666 3,037,264 970,062 2,776,895 512,666

180

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

42.1.1.5 Geographical segment analysis 2012 2011 Total assets Net assets Total assets Net assets employed employed employed employed ------------------------- Rupees in 000 ----------------------- Pakistan 84,018,777 10,934,938 54,502,625 8,781,036 2012 2011 Profit Contingencies Profit Contingencies before and before and taxation commitments taxation commitments ------------------------- Rupees in 000 ----------------------- Pakistan 1,190,156 13,514,188 537,336 7,820,884 42.1.2 Credit risk: Standardised approach The Bank has adopted the Standardised Approach of Basel II for risk weighing its Credit Risk Exposures. The following table illustrates the approved External Credit Assessment Institutions (ECAIs) whose ratings are being utilised by the Bank with respect to material categories of exposures: Exposures JCR-VIS PACRA MOODYS FITCH S&P Corporate - - Banks SMEs (retail exposures) - - Sovereigns N/A N/A N/A N/A N/A Securitisations N/A N/A N/A N/A N/A Others (specify) N/A N/A N/A N/A N/A The Group has used Issue Specific Ratings for rating / risk weighing Issue Specific Exposures and Entity Ratings for rating / risk weighing claims against specific counterparties. Both short and long term ratings have been used to rate corresponding short and long term exposures. For this purpose, Mapping Grid provided by SBP has been used.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Long - Term Ratings Grades Mapping SBP Rating Grade PACRA JCR-VIS 1 AAA AAA AA+ AA+ AA AA AA- AA- 2 A+ A A- A+ A A-

Fitch AAA AA+ AA AA- A+ A A-

Moodys Aaa Aa1 Aa2 Aa3 A1 A2 A3

S&P AAA AA+ AA AA-

ECA Scores 1

A+ 2 A A- BBB+ 3 BBB BBB- BB+ BB BB- 4

3 BBB+ BBB+ BBB+ Baa1 BBB BBB BBB Baa2 BBB- BBB- BBB- Baa3 4 BB+ BB+ BB+ Ba1 BB BB BB Ba2 BB- BB- BB- Ba3 5 6 B+ B B- CCC+ and below B+ B B- CCC+ and below B+ B B- CCC+and below B1 B2 B3 Caa1 and below

B+ 5,6 B BCCC+ and below 7

Short - Term Ratings Grades Mapping SBP Rating Grade S1 S2 S3 S4 PACRA A-1 A-2 A-3 Others JCR-VIS A-1 A-2 A-3 Others Fitch F1 F2 F3 Others Moodys P-1 P-2 P-3 Others S&P A-1+, A-1 A-2 A-3 Others

182

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Exposures

42.1.2.1 Credit exposures subject to Standardised approach 2012

Rating category Rating risk weight Amount outstanding

Deduction Risk weighted CRM* Net amount asset

Cash and Cash Equivalents

------------------ Rupees in 000 ----------------------- 0% 1,401,590 - 1,401,590

273,438 476,948 424,276 1,173,923 14,450,073 16,798,658 236 865,922 866,158 91,169 494,784 213,673 8,030 43,248 850,904 204,700 63,148 45,626 46,102 359,576 203,181 203,181 179,371 99,984 7,740 107,724 2,420,630 128,444 2,549,074

Corporate 0 0% - 629,837 629,837 1 20% 1,366,882 307 1,367,189 2 50% 1,195,866 (241,970) 953,896 3,4 100% 424,276 - 424,276 5,6 150% 782,615 - 782,615 Unrated 100% 14,838,247 (388,174) 14,450,073 18,607,886 - 18,607,886 Retail 0% - 606,430 606,430 20% - 1,179 1,179 50% - - - 75% 1,762,171 (607,609) 1,154,562 1,762,171 - 1,762,171 Banks 335,000 - Maturity Over 3 Months 0% - 335,000 1 20% 455,844 - 455,844 2,3 50% 1,324,568 (335,000) 989,568 4,5 100% 213,673 - 213,673 6 150% 5,353 - 5,353 Unrated 50% 86,496 - 86,496 2,085,934 - 2,085,934 - Maturity Upto and under 3 Months in FCY 0% - - - 1,2,3 20% 1,023,499 - 1,023,499 4,5 50% 126,295 - 126,295 6 150% 30,417 - 30,417 unrated 20% 230,508 - 230,508 1,410,719 - 1,410,719 - Maturity Upto and under 3 Months in PKR 0% - 1,387,691 1,387,691 20% 2,403,596 (1,387,691) 1,015,905 2,403,596 - 2,403,596 - 512,489 Residential Mortgage Finance 35% 512,489 Public Sector Entity 0% - - - 1 20% 499,919 - 499,919 2,3 50% - - - 4,5 100% - - - 6 150% - - - Unrated 50% 15,479 - 15,479 515,398 - 515,398 Sovereigns (SBP / GoP) 0% 41,514,310 - 41,514,310 Equity Investments - Listed 100% 2,420,630 - 2,420,630 - Unlisted 150% 85,629 - 85,629 2,506,259 - 2,506,259

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FOR THE YEAR ENDED DECEMBER 31, 2012

Exposures

Rating category Rating risk weight

Amount outstanding

2012 Deduction Risk weighted CRM* Net amount asset

------------------ Rupees in 000 ---------------------- Past Due Loans (Not Secured by Residential S.P less than Mortgages) 20% 150% 1,441,514 - 1,441,514 S.P upto 20% 100% 332,219 - 332,219 S.P greater than 50% 50% 293,477 - 293,477 2,067,210 - 2,067,210 Investment in fixed assets 100% 1,671,988 - 1,671,988 Other assets 100% 1,684,824 - 1,684,824 Total 78,144,374 - 78,144,374 * Credit Risk Mitigation (CRM)
Rating Rating Amount Exposures category risk weight outstanding

2,162,271 332,219 146,739 2,641,229 1,671,988 1,684,824 27,912,687

2011 Deduction Risk weighted CRM* Net amount asset

------------------ Rupees in 000 ---------------------- Cash and Cash Equivalents 0% 1,007,451 - 458,646 Corporate 0 0% - 1 20% 2,410,238 128,275 2 50% 1,197,367 (200,103) 3,4 100% 567,137 - 5,6 150% 362,755 - Unrated 100% 12,862,661 (386,818) 17,400,158 Retail 0% - 721,446 20% - 20,718 50% - - 75% 1,171,802 (742,164) 1,171,802 - Banks - Maturity over three Months 0% - - 1 20% 450,678 - 2,3 50% 287,204 - 4,5 100% 41,389 - 6 150% - - Unrated 50% 60,133 - 839,404 - - Maturity Upto and under three months in FCY 0% - - 1,2,3 20% 49,716 - 4,5 50% - - 6 150% - - unrated 20% 36,665 - 86,381 - 1,007,451 458,646 2,538,513 997,264 567,137 362,755 12,475,843 17,400,158 721,446 20,718 - 429,638 1,171,802 - 450,678 287,204 41,389 - 60,133 839,404 - 49,716 - - 36,665 86,381 - - 507,703 498,632 567,137 544,133 12,475,843 14,593,448 - 4,144 - 322,229 326,373 - 90,136 143,602 41,389 - 30,067 305,194 - 9,943 - - 7,333 17,276

184

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FOR THE YEAR ENDED DECEMBER 31, 2012

Rating Rating Amount Exposures category risk weight outstanding

2011 Deduction Risk weighted CRM* Net amount asset

------------------ Rupees in 000 ----------------------- - Maturity upto and under three months in PKR 0% - 1,407,455 1,407,455 - 20% 3,355,615 (1,407,455) 1,948,160 389,632 3,355,615 - 3,355,615 389,632 Residential Mortgage Finance 35% 223,280 - 223,280 78,148 Public Sector Entity 0% - - - - 1 20% - - - - 2,3 50% - - - - 4,5 100% - - - - 6 150% - - - - 27,864 Unrated 50% 27,864 - 13,932 27,864 - 27,864 13,932 Sovereigns (SBP / GoP) 0% 14,944,513 - 14,944,513 - Equity Investments - Listed 100% 738,227 - 738,227 738,227 - Unlisted 150% 86,209 - 86,209 129,314 824,436 - 824,436 867,541 Past Due Loans (Not Secured by Residential S.P less than 20% 150% 2,057,347 - 2,057,347 3,086,021 Mortgages) S.P upto 20% 100% 122,974 - 122,974 122,974 S.P greater than 50% 50% 83,909 - 83,909 41,955 2,264,230 - 2,264,230 3,250,950 Investment in fixed assets 100% 1,434,588 - 1,434,588 1,434,588 1,806,512 - 1,806,512 1,806,512 Other assets 100% Total 45,386,234 - 45,386,234 23,083,594 * Credit Risk Mitigation (CRM)

42.1.2.2 Policies and processes for collateral valuation and management as regards Basel II;

For Credit Risk Mitigation purposes the Group uses only the eligible collaterals under Simple Approach of Credit Risk Mitigation under Standardised Approach as prescribed by SBP under Circular No. 8 of 2006, which includes Cash and Cash Equivalent Securities including Government Securities (like Cash Margins, Lien on Bank Accounts, Foreign Deposit Receipts, Term Deposit Receipts, Pledge of Defense Saving Certificates, Regular Income Certificates, Special Saving Certificates, T-Bills and Pakistan Investment Bonds etc.) and Shares Listed on the Main Index.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

Under Group policy all collaterals are subject to periodic valuations to monitor the adequacy of margins held. Shares / Marketable securities are valued by the Group on daily / weekly basis to calculate the Drawing Power (DP). In case of any shortfall in the requisite margins, the DP is adjusted to the appropriate level and the business units are informed to take appropriate action as per the agreement with the customer. Equity position risk in the banking book Equity positions in the banking book include Investment in equities that are available-for-sale or held for strategic investment purposes. These investments are generally regarded as riskier relative to fixed income securities owing to the inherent volatility of stock market prices. The Group mitigates these risks through diversification and capping maximum exposures in a single company, compliance with regulatory requirement, following the guidelines laid down in the Banks Investment Policy as set by the Board of Directors (BoD). The Group follows a delivery verses payment settlement system thereby minimizing risk available in relation to settlement risk. Market risk

42.2

42.3

42.3.1 Market risk is the risk of loss due to adverse changes in interest rates, foreign exchange rates, equity prices and market conditions. From the perspective of a Group, market risk comprises of interest rate risk, foreign exchange risk and equity position risk, which the Group is exposed to in both its trading and banking books. The Group has an approved market risk policy wherein the governance structure for managing market risk, measurement tools used and the market risk exposure limits have been addressed. The Groups strategy for managing Market Risk is to relate the level of risk exposures to their risk appetite and the capital at hand. The Board of Directors (BoD) and the Asset and Liability Committee (ALCO) are responsible for addressing market risk from a strategic perspective and are assisted by the market risk function in meeting these objectives. The Market Risk function is also supported by personnel in the Middle Office function and directly report to Group Head Risk Management. Its responsibility includes ensuring the implementation of the Market Risk policy above in line with the Groups strategy.

186

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FOR THE YEAR ENDED DECEMBER 31, 2012

Risk reporting undertaken by the Market Risk function includes: a) Portfolio Reports b) Limit monitoring reports c) Sensitivity analysis ; and d) Stress testing of the portfolio Hedging measures are undertaken to maintain limits set out in the risk management policy. Currently, the Group is using the market risk standardised approach for the purpose of computing regulatory capital, the details of which are set out above.

42.3.2 Foreign exchange risk Main objective of foreign exchange risk management is to ensure that the foreign exchange exposure of the Group lies within the defined appetite of the Group. Daily reports are generated to monitor the internal and regulatory limits with respect to the overall foreign currency exposures and those in different currencies. The overall net open position, whether short or long has the potential to negatively impact the profit and loss depending upon the direction of movement in foreign exchange rates. Foreign exchange open and mismatched positions are marked to market on a daily basis. Currency risk arises where the value of financial instruments changes due to changes in foreign exchange rates. In order to manage currency risk exposure the bank enters into ready, spot forward and swap transactions with SBP and in the interbank market. The Groups foreign exchange exposure comprises of forward contracts, foreign currencies cash in hand, balances with banks abroad, foreign placement with SBP and foreign currencies assets and liabilities. The net open position is managed within the statutory limits, as fixed by SBP. Counter parties limit are also fixed to limit risk concentration. Appropriate segregation of duties exists between the front and back office functions while compliance with the net open position limit is independently monitored on an ongoing basis.

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NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

2012 Net foreign Off-balance currency Assets Liabilities sheet items exposure ------------------------- Rupees in 000 ----------------------- Pakistan Rupee 79,838,530 69,095,909 155,690 10,898,311 United States Dollar 3,711,531 3,463,780 (228,852) 18,899 Great Britain Pound 311,221 364,650 53,874 445 Euro 139,360 158,820 23,322 3,862 Other currencies 18,135 680 (4,034) 13,421 4,180,247 3,987,930 (155,690) 36,627 84,018,777 73,083,839 - 10,934,938 2011 Net foreign Off-balance currency Assets Liabilities sheet items exposure ------------------------- Rupees in 000 ------------------------

Pakistan Rupee 51,947,524 42,702,878 (502,242) 8,742,404 United States Dollar 2,430,423 2,523,050 128,249 35,622 Great Britain Pound 41,364 226,968 185,751 147 Euro 77,243 265,795 189,155 603 Other currencies 6,071 2,898 (913) 2,260 2,555,101 3,018,711 502,242 38,632 54,502,625 45,721,589 - 8,781,036 42.3.3 Equity position risk in trading book The Groups objective with regard to holding equity investments in its trading book is to earn income from favourable market movements. Positions in the equity market are substantiated by sound fundamental and technical research. Equity price risk is managed by applying trading limit and scrip-wise and portfolio wise nominal limits.

188

42.3.4

Mismatch of interest rate sensitive assets and liabilities Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in the market interest rates. The Group is exposed to interest / mark-up rate risk as a result of mismatches or gaps in the amount of interest / mark up based assets and liabilities that mature or re-price in a given period. The Group manages this risk by matching/re-pricing of assets and liabilities. The Group is not excessively exposed to interest / mark-up rate risk as its assets and liabilities are repriced frequently. The assets and liabilities committee (ALCO) of the Group monitors and manages the interest rate risk with the objective of limiting the potential adverse effects on the profitability of the Group.

Annual Report / JS Bank

2012 Effective Non-interest yield Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 bearing interest Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above financial rate - % Total month months months 1 year years years years years 10 years instrument Rupees in 000

On-balance sheet financial instruments

FOR THE YEAR ENDED DECEMBER 31, 2012

Assets Cash and balances with treasury banks - 5,027,942 602,415 Balances with other banks - 1,193,864 613 Lendings to financial institutions 11.55-14.79 3,740,958 2,994,641 Investments 5.75-16.50 47,884,719 1,725,850 Advances 4.25-18.50 19,909,385 5,636,418 Other assets 1,604,374 - 79,361,242 10,959,937 - - - - - - - - 7,053 708,702 30,562 - 1,771,373 7,194,688 28,458,128 1,416,341 4,471,915 2,638,809 6,318,403 169,531 - - - - 6,250,341 10,542,199 34,807,093 1,585,872 - - - - - - 801,511 1,937,030 41,277 123,756 - - 842,788 2,060,786 - - - 745,760 8,129 - 753,889 - 4,425,527 - 1,193,251 - - 3,834,038 499,754 1,394 - 1,604,374 499,754 11,058,584

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Liabilities Bills payable - 713,747 - - - - - - - - - 713,747 Borrowings 10.0-13.0 8,704,685 7,581,211 306,374 617,100 - - - - - - 200,000 Deposits and other accounts 5.0-14.70 61,934,787 13,292,186 12,450,952 3,302,673 5,503,740 10,250 13,121 9,974,997 - - 17,386,868 Other liabilities - 1,591,735 - - 48,006 - 66,439 - - - - 1,477,290 76,689 13,121 9,974,997 - - 19,777,905 72,944,954 20,873,397 12,757,326 3,967,779 5,503,740 On-balance sheet financial instruments 6,416,288 (9,913,460) (6,506,985) 6,574,420 29,303,353 1,509,183 829,667 (7,914,211) 753,889 499,754 (8,719,321) Commitments in respect of forward exchange contracts Purchase 2,292,630 2,016,307 145,123 131,200 - - - - - - Commitments in respect of forward exchange contracts Sale (2,450,969) (1,717,979) (534,790) (198,200) - - - - - - Off-balance sheet gap 4,743,599 3,734,286 679,913 329,400 - - - - - - (6,179,175) (5,827,072) 6,903,820 29,303,353 1,509,183 829,667 (7,914,211) 753,889 499,754 (8,719,321) 19,379,454 19,879,208 11,159,887

Total yield / interest risk sensitivity gap

Cumulative yield / interest risk sensitivity gap

(6,179,175) (12,006,247) (5,102,427) 24,200,926 25,710,109 26,539,776 18,625,565

 2011 Effective Non-interest yield Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 bearing interest Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above financial rate - % Total month months months 1 year years years years years 10 years instrument --------------------------------------------------------------------------------------------- Rupees in 000 --------------------------------------------------------------------------------------------- On-balance sheet financial instruments

Assets Cash and balances with treasury banks - 3,880,782 426,339 - - - - Balances with other banks - 165,067 51,144 - - - Lendings to financial institutions 11.55-14.79 3,803,022 2,816,022 658,333 318,667 2,000 2,000 Investments 5.75-16.50 22,906,646 662,430 632,951 1,300,922 3,518,059 9,264,116 Advances 4.25-18.50 18,029,884 6,156,755 9,002,296 2,022,609 578,381 128,913 Other assets - 1,178,598 - - - - - 49,963,999 10,112,690 10,293,580 3,642,198 4,098,440 9,395,029 - - - - 6,000 - 446,077 3,497,192 42,496 65,370 - - 494,573 3,562,562 - - 28,647 - 28,647 465,926 3,554,362 2,503,755 - (7,948,964) - - 8,200 - 8,200 - - 1,150 - 1,150 - 1,246,994 - - - 11,463,382 - 1,098,610 - 13,808,986 - - - 2,471,841 33,064 - 2,504,905 - 3,454,443 - 113,923 - - - 1,113,058 - - - 1,178,598 - 5,860,022 - - - - 549,500 573,500 - - 4,395,876 1,392,336 1,337,911 1,808,212 - - - - 4,945,376 1,965,836 1,337,911 1,808,212 5,348,204 1,676,362 2,760,529 7,586,817

FOR THE YEAR ENDED DECEMBER 31, 2012

Liabilities Bills payable - Borrowings 10.0-13.0 Deposits and other accounts 5.0-14.70 Other liabilities - On-balance sheet financial instruments

1,246,994 - 3,171,800 2,048,800 40,174,351 19,738,637 1,098,610 - 45,691,755 21,787,437

4,272,244 (11,674,747)

Commitments in respect of forward exchange contracts Purchase 1,948,987 1,628,997 243,161 76,829 - - - - - - Commitments in respect of forward exchange contracts Sale (1,446,561) (1,426,507) (20,054) - - - - - - - 202,490 223,107 76,829 - - - - - - -

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Off-balance sheet gap

502,426

Total yield / interest risk sensitivity gap (11,472,257) 5,571,331 1,753,191 2,760,529 7,586,817 465,926 3,554,362 2,503,755 - (7,948,964) Cumulative yield / interest risk sensitivity gap (11,472,257) (5,900,946) (4,147,755) (1,387,226) 6,199,591 6,665,517 10,219,879 12,723,634 12,723,634 4,774,670 2012 2011 2012 2011 Rupees in 000 Rupees in 000 Reconciliation to total assets Reconciliation to total liabilities

Annual Report / JS Bank

Balance as per balance sheet 84,018,777 54,502,625 Balance as per balance sheet 73,083,839 45,721,589 Less: Non financial assets Less: Non financial liabilities Operating fixed assets 3,412,167 3,064,883 Government duties 37,487 10,268 Deferred tax assets 860,704 1,228,756 Other Liabilities 101,398 19,566 Other assets 384,664 244,987 72,944,954 45,691,755 4,657,535 4,538,626 79,361,242 49,963,999

189

190 Annual Report / JS Bank

42.4 Liquidity risk Liquidity risk is the risk that the Group will not be able to raise funds to meet its commitments. The Groups Asset and Liability Management Committee manages the liquidity position on a continuous basis. Groups policy to liquidity management is to maintain adequate liquidity at all times and in all currencies under both normal and stress conditions, to meet our contractual and potential payment obligations without incurring additional and unacceptable cost to the business. Treasury is responsible for the managing liquidity risk under the guidance of Asset Liability Committee of the Group. Our liquidity risk management approach starts at the intraday level (operational liquidity) managing the daily payments queue and factoring in our access to the qualifying securities of State Bank of Pakistan. It then covers tactical liquidity risk management dealing with the access to unsecured funding sources and the liquidity characteristics of our asset inventory (asset liquidity). Finally, the strategic perspective comprises the maturity profile of all assets and liabilities on our statement of financial position. For monitoring and controlling liquidity risk, the Bank generates a scenario sensitive maturity statement of financial position, and run controlled mismatches that are monitored daily and discussed by ALCO members atleast monthly. The Group prepares various types of reports and analysis for assisting ALCO in taking necessary strategic actions for managing liquidity risk in the Group. Maturity of assets and liabilities - Based on contractual maturities of assets and liabilities of the Bank 2012 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above Total month months months 1 year years years years years 10 years Rupees in 000

FOR THE YEAR ENDED DECEMBER 31, 2012

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Assets Cash and balances with treasury banks 5,027,942 5,027,942 - - - - - - - Balances with other banks 1,193,864 1,193,864 - - - - - - - Lendings to financial institutions 3,740,958 2,610,688 7,065 408,721 180,601 233,421 150,100 150,362 - Investments 47,884,719 3,945,564 2,381,937 6,550,897 28,732,957 1,831,414 1,341,609 2,185,307 915,034 Advances 19,909,385 12,730,331 2,956,359 1,679,791 382,014 741,640 492,636 418,731 8,129 499,754 Other assets 1,989,038 1,747,028 41,230 46,289 140,508 12,924 941 118 - Operating fixed assets 3,412,167 29,891 91,662 100,764 157,265 298,156 281,161 454,643 295,193 1,703,432 Deferred tax assets 860,704 - - - - - - 860,704 - 84,018,777 27,285,308 5,478,253 8,786,462 29,593,345 3,117,555 2,266,447 4,069,865 1,218,356 2,203,186 Liabilities Bills payable 713,747 713,747 - - - - - - - Borrowings 8,704,685 7,781,211 306,374 617,100 - - - - - 5,150 - Deposits and other accounts 61,934,787 48,136,930 5,084,956 3,180,640 5,503,740 10,250 13,121 Sub-ordinated loans - - - - - - - - - Liabilities against assets subject to finance lease - - - - - - - - - Other liabilities 1,730,620 1,438,390 22,967 103,120 - 66,439 - 50,202 - 49,502 Deferred tax liabilities - - - - - - - - - 73,083,839 58,070,278 5,414,297 3,900,860 5,503,740 76,689 13,121 55,352 - 49,502 Net assets 10,934,938 (30,784,970) 63,956 4,885,602 24,089,605 3,040,866 2,253,326 4,014,513 1,218,356 2,153,684 Share capital 10,724,643 Statutory reserve 231,613 Discount on issue of right shares (2,105,401) Accumulated losses (62,157) Non-controlling interest 1,863,194 Surplus on revaluation of assets - net 283,046 10,934,938

The expected maturity dates do not differ significantly from the contract date except for the maturity of Rs. 25.02 (December 31, 2011: Rs. 12.02) billion of deposits considered stable core source of funding by the Group.

 2011 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above Total month months months 1 year years years years years 10 years -------------------------------------------------------------------------------------------------- Rupees in 000 -------------------------------------------------------------------------------------------------- Assets Cash and balances with treasury banks 3,880,782 3,880,782 - - - - - - - Balances with other banks 165,067 165,067 - - - - - - - Lending to financial institutions 3,803,022 490,509 450,000 429,858 1,580,296 537,000 199,947 - 47,252 68,160 Investments 22,906,646 683,316 18,480 759,990 12,759,201 1,055,919 3,673,373 2,275,128 1,592,095 89,144 Advances 18,029,884 8,252,639 173,871 14,515 7,133,339 517,736 735,574 975,645 4,277 222,288 Other assets 1,423,585 739,395 33,351 42,073 226,828 372,920 819 810 - 7,389 Operating fixed assets 3,064,883 36,730 37,487 53,792 102,115 188,926 174,194 316,786 249,635 1,905,218 Deferred tax assets 1,228,756 - - - - - 1,228,756 - - 54,502,625 14,248,438 713,189 1,300,288 21,801,779 2,672,501 4,783,907 4,797,125 1,893,259 2,292,199 1,246,994 1,246,994 - - - 3,171,800 2,048,800 549,500 573,500 - 40,174,351 31,241,690 4,356,650 1,473,936 3,072,750 - - - - - - - - - - - - - - 1,128,444 1,009,224 - - - 75,345 - 43,875 - - - - - - - - - - 45,721,589 35,546,708 4,906,150 2,047,436 3,072,750 95,320 8,000 45,225 - 8,781,036 (21,298,270) (4,192,961) (747,208) 18,729,029 2,577,181 4,775,907 4,751,900 1,893,259 10,002,930 89,978 (1,944,880) (642,058) 1,303,146 (28,080) 8,781,036 19,975 8,000 - - 1,350 - - 2,292,199

FOR THE YEAR ENDED DECEMBER 31, 2012

Liabilities Bills payable Borrowings Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred tax liabilities Net assets Share capital Statutory reserve Discount on issue of right shares Accumulated losses Non-controlling interest Surplus on revaluation of assets - net

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

The expected maturity dates do not differ significantly from the contract date except for the maturity of Rs. 12.02 (December 31, 2010: Rs. 7.59) billion of deposits representing retail deposit accounts being consideredstable core source of funding by the Bank.

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Annual Report / JS Bank

Maturity of assets and liabilities - Based on working prepared by the Asset and Liability Committee (ALCO) of the Bank 2012 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above Total month months months 1 year years years years years 10 years -------------------------------------------------------------------------------------------------- Rupees in 000 -------------------------------------------------------------------------------------------------- Assets Cash and balances with treasury banks 5,027,942 5,027,942 - - - - - - - Balances with other banks 1,193,864 1,193,864 - - - - - - - Lendings to financial institutions 3,740,958 2,610,688 7,065 408,721 180,601 233,421 150,100 150,362 - Investments 47,884,719 3,945,564 2,381,937 6,550,897 28,732,957 1,831,414 1,341,609 2,185,307 915,034 Advances 19,909,385 4,546,325 4,320,360 2,589,125 6,292,685 741,640 492,636 418,731 8,129 499,754 Other assets 1,989,038 1,747,028 41,230 46,289 140,508 12,924 941 118 - Operating fixed assets 3,412,167 29,891 91,662 100,764 157,265 298,156 281,161 454,643 295,193 1,703,432 Deferred tax assets 860,704 - - - - - - 860,704 - 84,018,777 19,101,302 6,842,254 9,695,796 35,504,016 3,117,555 2,266,447 4,069,865 1,218,356 2,203,186

FOR THE YEAR ENDED DECEMBER 31, 2012

Liabilities Bills payable 713,747 713,747 - - - - - - - Borrowings 8,704,685 7,781,211 306,374 617,100 - - - - - Deposits and other accounts 61,934,787 15,900,216 15,058,983 5,910,703 8,111,770 10,250 13,121 16,929,744 - Sub-ordinated loans - - - - - - - - - Liabilities against assets subject to finance lease - - - - - - - - - Other liabilities 1,730,620 1,438,390 22,967 103,120 - 66,439 - 50,202 - 49,502 Deferred tax liabilities - - - - - - - - - 73,083,839 25,833,564 15,388,324 6,630,923 8,111,770 76,689 13,121 16,979,946 - 49,502 Net assets 10,934,938 (6,732,262) (8,546,070) 3,064,873 27,392,246 3,040,866 2,253,326 (12,910,081) 1,218,356 2,153,684

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

For determining the core portion of non contractual assets and liabilities (non- volatile portion), the bank has used the Average method whereby average balance maintained over past four year has been classified as core and has been placed in the farthest maturity bucket. The remaining volatile portion of non contractual assets & liabilities has been stratified in maturity bucket by relative bucket wise percentage by determining using value at risk (VAR) methodology at 99% confidence interval. Over 1 Over 3 Over 6 Over 3 Upto 1 to 3 to 6 months to to 5 month months months 1 year years Weighted average 20% 25% 7% 6% 42%

Share capital 10,724,643 Statutory reserve 231,613 Discount on issue of right shares (2,105,401) Accumulated losses (62,157) Non-controlling interest 1,863,194 Surplus on revaluation of assets - net 283,046 10,934,938 To identify the behavorial maturities of non-contractual assests and liabilities, the Bank has used the following methodology:

Maturity of assets and liabilities - Based on working prepared by the Asset and Liability Committee (ALCO) of the Bank 2011 Over 1 Over 3 Over 6 Over 1 Over 2 Over 3 Over 5 Up to 1 to 3 to 6 months to to 2 to 3 to 5 to 10 Above Total month months months 1 year years years years years 10 years -------------------------------------------------------------------------------------------------- Rupees in 000 -------------------------------------------------------------------------------------------------- Assets Cash and balances with treasury banks 3,880,782 3,880,782 - - - - - - - Balances with other banks 165,067 165,067 - - - - - - - Lending to financial institutions 3,803,022 490,509 450,000 429,858 1,580,296 537,000 199,947 - 47,252 68,160 Investments 22,906,646 683,316 18,480 759,990 12,759,201 1,055,919 3,673,373 2,275,128 1,592,095 89,144 Advances 18,029,884 2,931,332 3,011,901 2,497,792 7,133,339 517,736 735,574 975,645 4,277 222,288 Other assets 1,423,585 739,395 33,351 42,073 226,828 372,920 819 810 - 7,389 Operating fixed assets 3,064,883 36,730 37,487 53,792 102,115 188,926 174,194 316,786 249,635 1,905,218 Deferred tax assets 1,228,756 - - - - - - 1,228,756 - - 54,502,625 8,927,131 3,551,219 3,783,505 21,801,779 2,672,501 4,783,907 4,797,125 1,893,259 2,292,199

FOR THE YEAR ENDED DECEMBER 31, 2012

Liabilities Bills payable 1,246,994 1,246,994 - - - - - - - Borrowings 3,171,800 2,048,800 549,500 573,500 - - - - - Deposits and other accounts 40,174,351 10,896,533 9,442,515 3,570,109 4,219,082 19,975 12,024,787 1,350 - Sub-ordinated loans - - - - - - - - - Liabilities against assets subject to finance lease - - - - - - - - - Other liabilities 1,128,444 1,009,224 - - - 75,345 - 43,875 - Deferred tax liabilities - - - - - - - - - 45,721,589 15,201,551 9,992,015 4,143,609 4,219,082 95,320 12,024,787 45,225 - Net assets 8,781,036 (6,274,420) (6,440,796) (360,104) 17,582,697 2,577,181 (7,240,880) 4,751,900 1,893,259

- - 2,292,199

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

Share capital 10,002,930 Statutory reserve 89,978 Discount on issue of right shares (1,944,880) Accumulated losses (642,058) Non-controlling interest 1,303,146 Surplus on revaluation of assets - net (28,080) 8,781,036 Over 1 Over 3 Over 6 Over 2 Upto 1 to 3 to 6 months to to 3 month months months 1 year years Weighted average 20% 20% 8% 5% 47%

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194

Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

42.5

Operational risk The Bank currently uses Basic Indicator Approach to Operational Risk for regulatory capital calculations. We define the operational risk as the risk of loss resulting from inadequate or failed internal processes, people and system or from external events. With the evolution of Operations Risk Management into a separate distinct discipline, the Banks strategy is to further strengthen its risk management system along with new industry standards. Accordingly the Bank has set up a separate Operational Risk Management Unit (ORM). ORM Unit resides within Risk Management Group (RMG). Its responsibility is to implement Operational Risk management tools across the Bank for effective measurement and monitoring of operational risk faced by different areas of the Bank. During the year, bank has formulated a comprehensive document of Operational Risk Management Framework which has also been approved by the Board Risk Management Committee. The purpose of bankwide Operational Risk Management Framework is to guide implementation of Operational Risk Policy. The framework aims at laying out clearly defined roles and responsibilities of individuals/units across different functions of the bank that are / would be involved in performing various Operational Risk Management tasks. Operational risk is much more pervasive in a financial institution and every operating unit is exposed to operational risk, regardless of whether it is a business unit or a support unit. This Framework has been devised to explain the various building blocks of the Operational Risk Management processes, and their interrelationships. During the year, the management has also been in the process of conducting an overall review and updating / consolidation of systems and procedures with the objective of further improving internal controls so as to be fully compliant with the established benchmarks including the framework envisaged by the Committee of Sponsoring Organizations (COSO) and the requirements of relevant international benchmarks (PCAOB Standards) for evaluating the results of testing activities. A Steering Committee is actively functioning to oversee the formulation, design and implementation of the requirements under the COSO framework. Special emphasis is being laid on the expeditious completion of the roadmap pertaining to ICFR (Internal Controls over Financial Reporting) certification as per SBP Guidelines and requirements. The bank has conducted Operational risk profiling for all major operational areas and developed Key Risk Indicators (KRIs) which are monitored against predefined thresholds. Findings from KRIs are used as predictive indicators of potential operational risks. Ops Loss data collection is governed by Banks TID Policy which has been developed and implemented to collate operational losses and near misses in a systematic and organized way. Moreover, the Bank has put in place comprehensive IT Security Policy which addresses enterprise wide risk drivers inclusive of technology infrastructure, software hardware and IT security. The Banks Business Continuity Policy (BCP) includes risk management strategies to mitigate inherent risk and prevent interruption of mission critical services caused by disaster event.

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195

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012

43. RECLASSIFICATIONS Comparative figures have been reclassified to conform to the current years presentation. 44. DATE OF AUTHORISATION FOR ISSUE

These consolidated financial statements were authorized for issue by the Board of Directors as on March 04, 2013. 45. GENERAL The figures in the consolidated financial statements have been rounded off to the nearest thousand.

Jahangir Siddiqui Chairman

Kalim-ur-Rahman President/Chief Executive Officer

Rafique R. Bhimjee Director

Adil Matcheswala Director

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Annual Report / JS Bank

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2012
Annexure A

Annual Report / JS Bank

197

Pattern of Shareholding
Pattern of holding of the shares held by the shareholders as at December 31, 2012

Number of shareholders 331 985 1142 2405 830 1199 168 17 5 2 2 1 1 1 1 1 1 1 1 1 1 1 7,097

Shareholdings slab Shareholding From 1 To 100 Shareholding From 101 To 500 Shareholding From 501 To 1000 Shareholding From 1001 To 5000 Shareholding From 5001 To 10000 Shareholding From 10001 To 100000 Shareholding From 100001 To 1000000 Shareholding From 1000001To 2000000 Shareholding From 2000001 To 3000000 Shareholding From 3000001 To 4000000 Shareholding From 4000001 To 5000000 Shareholding From 6000001 To 7000000 Shareholding From 7000001 To 8000000 Shareholding From 8000001 To 9000000 Shareholding From 12000001 To 13000000 Shareholding From 13000001 To 14000000 Shareholding From 15000001 To 16000000 Shareholding From 19000001 To 20000000 Shareholding From 23000001 To 24000000 Shareholding From 27000001 To 28000000 Shareholding From 30000001 To 31000000 Shareholding From 755000001 To 756000000

Total Shares held 9,887 403,607 1,091,058 7,184,360 6,738,866 38,111,700 46,720,686 24,308,367 12,016,570 7,054,000 8,769,214 6,600,000 7,343,000 8,456,597 12,197,380 13,288,204 15,496,904 20,000,000 23,125,694 27,380,000 30,923,161 755,245,007 1,072,464,262

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Annual Report / JS Bank

Pattern of Shareholding
Pattern of holding of the shares held by the shareholders as at December 31, 2012

Categories of Shareholders Banks, Development Financial Institutions, Non-Banking Financial Institutions Insurance Companies Directors, Chief Executive Officer and Their Spouse and Minor Children Jahangir Siddiqui Mazharul Haq Siddiqui Akhter Jabeen Maqbool Ahmed Soomro Ashraf Nawabi Rafique R. Bhimjee Shahab Anwar Khawaja Adil Matcheswala Associated Companies, Undertaking and Related Parties Jahangir Siddiqui & Co. Limited Modarabas and Mutual Funds NIT and ICP IDBP (ICP Unit) National Bank of Pakistan Trustee Department Investment Corp. of Pakistan Foreign Investors Others Local Individuals

Shares Held 17,806,357 23,143,194

Percentage % 1.66 2.16

1,588,542 1,000,001 218,700 16 1 130,891 1 150,000 Sub-Total: 3,088,152 755,245,007 7,810,232

0.29 70.42 0.73

5,467 30,923,161 972 Sub-Total:30,929,600 52,716,265 33,432,264 148,293,191 G-Totals :1,072,464,262

2.88 4.92 3.12 13.83 100.00

Details of the transactions carried out by the Directors, Chief Executive Officer, Chief Financial Officer, Company Secretary and their spouse and minor children during the period from January 01, 2012 to December 31, 2012. None of the Directors, Chief Executive Officer, Chief Financial Officer, Company Secretary and their spouse and minor children during the period from January 01, 2012 to December 31, 2012 carried out transactions in the shares of the Bank except the following: Mr. Mazharul Haq Siddiqui purchased 198,087 shares of JS Bank. Mr. Adil Matcheswala sold 25,000 shares and purchased 50,000 shares of JS Bank.

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199

Branch Network
Sindh Karachi

Shaheen Complex Branch Tel: 111 572 265 & 3227 2569 80 Karachi Stock Exchange Branch Tel: 021 3246 2851 4 S.I.T.E. Branch Tel: 021 3255 0080 4 Khayaban-e-Ittehad, DHA Branch Tel: 021 3531 3811 4 Park Towers Branch Tel: 021 3583 2011 9 Teen Talwar Clifton Branch Tel: 021 3583 4127 / 3583 6974 Gulshan-e-Iqbal Branch Tel: 021 3482 9055 60 Shahrah-e-Faisal Branch Tel: 021 3437 3240 4 North Nazimabad Branch Tel: 021 3672 1010 2 Gulistan-e-Jauhar Branch Tel: 021 3466 2002 5 Safoora Goth Branch Tel: 021 3466 1805 9 Jheel Park Branch Tel: 021 3454 4831 5 Nazimabad Branch Tel: 021 3661 2325 / 3661 2319 /3661 2236 Korangi Industrial Area Branch Tel: 021 3505 5826 & 3505 2773 Zamzama Branch Tel: 021 35295224-5 Federal B Area Branch Tel: 021 3631 6229 / 3631 6244 / 3631 6324 Khayaban-e-Shahbaz, DHA Branch Tel: 021 3524 3415 9 Gulshan Chowrangi Branch Tel: 021 3483 3290 3

Dhoraji Branch Tel: 021 3494 6280 2 Shah Faisal Colony Branch Tel: 021 3468 6191 4 Islamia College Branch Tel: 021 3492 4021 4 M.A. Jinnah Road Branch Tel: 021 3274 2006 8 Lucky Star Branch Tel: 021 3562 2431 9 Gulshan-e-Hadeed Branch Tel: 021 3471 5201 - 3 & 3471 5205 7 Cloth Market Branch Tel: 021 3246 4042 8 Mauripur Branch Tel: 021 3235 4060 3 Garden Branch Tel: 021 3224 0093 7 Timber Market Branch Tel: 021 3276 3079 / 3276 3095 / 3276 0820 Abul Hasan Isphahani Road Branch Tel: 021 3469 3540 9 Jodia Bazar Branch Tel: 021 3243 5304 -6 & 3246 3456 New Chali Branch Tel: 021 3260 2100 3 New Sabzimandi Branch Tel: 021 36870272-74 North Napier Road Tel: 021 32467791 /93 Bahadarabad Urdu Bazar Marriott Road Landhi Saddar

Hyderabad

Saddar Branch Tel: 022 273 0925 -7 Latifabad Branch Tel: 022 381 7971 4 Cloth Market Branch Tel: 0222 618270 - 1 3 4 Qasimabad Branch Tel: 0222652191 Citizen Colony Branch Tel: 022 2100892 -95 Jamshoro Branch Tel: 022 387 8101 4 Sanghar Branch Tel: 0235 800162 5 Al Abbas Sugar Mill Branch Mirwah Gorchani. Tel: 023 38962355 Mirpurkhas Branch Tel: 0233 876 001 4

Sukkur

Shaheed Gunj Branch Tel: 071 562 7481-2 IBA Campus Branch Tel: 071 563 3826 Larkana Branch Tel: 074 405 8603 5 Khairpur Branch Tel: 0243715316-8 Maatli Branch Badin Tel: 029 7841514 Nawabshah Branch Tel: 024 4330 561- 4 Sultanabad Branch Tel: 0233 500498 Tando Allahyar Branch Tel: 022 3892001-4 Chambar Branch Tel: 022 3897033 -35

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Annual Report / JS Bank

Branch Network

Moro Branch Tel: 024 2413200 3 Kunri Branch Tel: 0238 558 163 6 Tando Mohammad Khan Branch Tel: 022 3340617 - 8 Digri Branch Tel: 023 3870 305 7 Sehwan Sharif Branch Tel: 025 4620305-7 Pano Aqil Branch Tel: 071 5690403 Ghotki Tel: 0723 600484- 85 Kandh Kot Branch Tel: 072 2573048 Shahdad Kot Branch Tel: 074 4013160 Shahdadpur Tel: 0235-843174 /75 Mithi Tel: 0232-261651 & 53 Tando Adam Mehar Dadu Jacobabad

DHA Branch Tel: 042 3569 2953 61 Allama Iqbal Town Branch Tel: 042 3543 4253 - 5 Azam Cloth Tel: 042-37671195-6 Shadman Town Branch Tel: 042 3750 3701 8 Faisal Town Branch Tel: 042 3521 9301 8 Chowburji Branch Tel: 042 3736 2981 8 Wapda Town Branch Tel: 042 3521 1557 64 M.M. Alam Road, Gulberg Branch Tel: 042 3577 8721 30 Model Town Branch Tel: 042 3591 5614 8 Circular Road Branch Tel: 042 3737 9325 8 Brandreth Road Branch Tel: 042 3738 1316 9 DHA Phase II Branch Tel: 042 3570 7651 9 Shah Alam Market Branch Tel: 042 3737 5734 7 Airport Road Branch Tel: 042 357 00081 90 Cavalry Ground Branch Tel: 042 366 10282 4 Raiwand Road Branch Tel: 042 529 1247 8 Urdu bazaar Branch Tel: 042 37115918 Baghbanpura Tel: 042-36858873-4 Muridke Branch Tel: 042 3795 1054 7

Agrow Warburton Branch Nankana Tel: 056 279 4068 G.T. Road Branch Gujranwala Tel: 055 325 7363 / 055 325 7365 / 055 325 7617 Bank Square Branch Gujranwala Tel: 055 4234401-3 Liaquat Road Branch Faisalabad Tel: 041-2541284-6 Grain Market Faisalabad Rabwa Branch Tel: 047 621 4042 5 Abdali Road Branch Multan Tel: 061 457 4496 / 061 457 4469 / 061 457 4364 Dipalpur Branch Tel: 044 454 2246 9 Agrow Ellahabad Theengmorr Branch Tel: 049 201 6310 & 049 201 6312 Cantt Branch Sialkot Tel: 052 427 2351 4 Shahab Pura Branch Sialkot Tel: 052 4242681 Daska Branch Tel: 052 661 0461 4 Rahim Yar Khan Branch Tel: 068 587 9511 4 Chandni Chowk Branch Kasur Tel: 049 276 1581 4 Agrow Kasur Branch Tel: 049-2771308 9

Balochistan Quetta
M.A. Jinnah Road Branch Tel: 081 286 5501 4 Chamman Branch Tel: 0826-618066-9

Punjab Lahore

Upper Mall Branch Tel: 042 111 572 265, 3577 6515-30

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201

Branch Network

Sheikhupura Branch Tel: 056 3810273 6 Agrow Sheikhupura Branch Tel: 056 3035790 Gujrat Branch Tel: 053 353 8091 4 Sahiwal Branch Tel: 040 422 2733 5 Chichawatni Branch Sahiwal Tel: 040 5481792 Okara Branch Tel: 044 252 8728 30 Mandi Bahauddin Branch Tel: 0546 509452 -3 Sargodha Branch Tel: 048 3768286 90 Bhawalpur Branch Tel: 062-2889176 -78 DG Khan Tel: 064 2470954 D.I.Khan Arifwala Branch Tel: 0457 835 477 81 Vehari Branch Tel: 067 336 0715 8 Pak Pattan Branch Tel: 0457 352591-4 & 0457 352001-5 Agrow Pak Pattan Branch Tel: 0457419629 Khanewal Branch Tel: 065 255 7491 3 Dina Branch Tel: 054 4634273-5 Jehlum Branch Tel: 0544 611840 3 Agrow Chishtian Branch

Tel: 063 2023490 Kharian Branch Tel: 053 7534211 Toba Tek Singh Branch Tel: 046 2512052 5 Burewala Branch Tel: 067 3351359 Lalamusa Branch Tel: 0537 519656-8 Hafizabad Branch Tel: 0547 526 407 10 Sambrial Branch Tel: 052 6524105 Muzaffargarh Branch Tel: 066 2424691-2 / 066 2424695 & 066 2424687 Attock Branch Tel: 057 261 0500 / 261 0480 / 261 0780 / 270 3050 Wazirabad Branch Tel: 055 6605841-4 Gojra Branch Tel: 046 3513637 Pirmahal Branch Tel: 046 3367406-7 Chakwal Branch Tel: 054 3554317 Hasilpur Branch Tel: 0622 441305-8 Leiah Branch Tel: 0606 415045 Mian Chunnoo Branch Tel: 065 2661282 / 85 Jauharabad Jhang Narowal

Bhakkar Sadiqabad Haroonabad

Rawalpindi

Satellite Town Branch Tel: 051 484 2984 6 Bank Road Branch Tel: 051 512 0731 5 Raja Bazar Branch Tel: 051 5778 560 -3 Bahria Town Branch Tel: 051 573 1351 4 Bahria Phase VII Peshawar Road Branch Tel: 051 549 2873 - 4 & 549 287 Taxila Branch Tel: 051 4535315 Jinnah Road Tel: 051-5778560-3 Saidpur Road

Islamabad

Blue Area Branch Tel: 051 111 572 265 & 051 2810121-4 I-9 Markaz Branch Tel: 051 443 1296 8 F-8 Markaz Branch Tel: 051 281 8296 8 F-7 Markaz Branch Tel: 051 260 8402 -5 F-10 I-8 Markaz Branch Tel: 051 486 4523 6 Islamabad Stock Exchange Branch Tel: 051 2894407-10 DHA Phase II Branch Tel: 051 4358882

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Annual Report / JS Bank

Branch Network

Khanna pul

Azad Jammu & Kashmir (Ajk)

Chaksawari Branch Tel: 058 27 454 790 Mirpur Branch Tel: 058 27 437281 4 Jatlan Branch Tel: 058 27 404 388 Dadyal Branch Tel: 058 630 44668 - 70 & 058 27465668 70 Muzaffarabad Branch Tel: 058 22 929 765 -7 Kotli Branch Tel: 058 26 448228 -30 Khui Ratta Branch Tel: 058 26 414906 -7 Narr Tel: 05826-420781 / 5 Sehnsa Rawalakot

Khyber-Pakhtoonkhwa Peshawar
Cantt Branch Tel: 091 527 9981 - 4 & 091 528 7455 6 University Road Branch Tel: 091 571 1572 - 5 Karkhano Bazar Branch Tel: 091 5893134-7& 51 -54 Peshawer City Hayatabad Branch Tel: 091 5893134 Abbottabad Branch Tel: 099 233 1491 4 Mardan Branch Tel: 0937 873445 873452 Mingora Tel: 0946-711740 / 3 Topi

Form of Proxy
7th Annual General Meeting The Company Secretary JS Bank Limited Shaheen Commercial Complex Dr. Ziauddin Ahmed Road P.O. Box 4847 Karachi 74200 Pakistan I/We __________________________ of ____________ being member(s) of JS Bank Limited holding ___________________ ordinary shares as per Register Folio No./CDC /A/c No. (for members who have shares in CDS) _____________________________ hereby appoint Mr./ Ms.___________________________ of (full address) _______________________________ or failing him / her Mr./Ms. ______________________________________________ of (full address)__________________________________________ as my / our proxy to attend, act and vote for me / us and on my / our behalf at the 7th Annual General Meeting of the Bank to be held on March 29, 2013 and / or any adjournment thereof. As witness my / our hand / seal this ____ day of ____________ 2013 signed by _________________________ in the presence of (name & address). Witnesses: 1. Name Address Signature 2. Name Address Signature Important: 1. 2. A member of the Bank entitled to attend and vote may appoint another member as his / her proxy to attend and vote instead of him / her. The proxy form, duly completed and signed, must be received at the Office of the Bank situated at Shaheen Commercial Complex Dr. Ziauddin Ahmed Road, Karachi 74200 not less than 48 hours before the time of holding the meeting. No person shall act as proxy unless he / she himself is a member of the Bank, except that a corporation may appoint a person who is not a member. If a member appoints more than one proxy and / or more than one instruments of proxy are deposited by a member with the Bank, all such instruments of proxy shall be rendered invalid. Beneficial Owner of the physical shares and the shares registered in the name of Central Depositary Company of Pakistan Ltd (CDC) and / or their proxies are required to produce their original Computerized National Identity Card (CNIC) or Passport for identification purposes at the time of attending meeting. The Form proxy must be submitted with the Bank within the stipulated time, duly witnessed by two persons whose names, address and CNIC numbers must be mentioned on the form, along with attested copies of CNIC or the Passport of the beneficial owner and the proxy. In case of a corporate entity, the Board of Directors Resolution / Power of Attorney along with the specimen signature shall be submitted (unless it has been provided earlier along with the proxy form to the Bank). : : : : : : Signature on Rs. 5/Revenue Stamp The signature should agree with the specimen registered with the Bank

CNIC / Passport No. :

CNIC / Passport No. :

3. 4. 5.

The Company Secretary JS Bank Limited Shaheen Commercial Complex Dr. Ziauddin Ahmed Road P.O. Box 4847 Karachi - 74200 Pakistan

Head Office, Shaheen Commercial Complex, Dr. Ziauddin Ahmed Road, P.O. Box 4847 Karachi-74200, Pakistan. UAN: +92 21 111 JS Bank (572-265) 0800 - 011-22 www.jsbl.com 185 Branches in 100 Cities

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