Banks: RUPALI BANK LIMITED (Incorporated in Bangladesh) - Year Ended December 31, 2004

Rupali Bank Limited the foreign banking company incorporated in Bangladesh, commenced business operations of its Pakistan Branch in 1976. The overview covers only the banking operations of Rupali Bank's Pakistan Branch located in Karachi. Its business in Pakistan is said to be carried out under non-interest based mode of financing, employing 28 personnel (2003:29). It may be mentioned that Rupali Bank Limited was constituted in Bangladesh with the merger of three commercial banks under the Bangladesh Banks (Nationalisation) Order 1972 and worked as a nationalised commercial bank till December13, 1986.
It emerged as the largest Public Limited Banking Company of Bangladesh on December 14, 1986 and operates through more than 500 local branches and one overseas branch in Karachi.
The Auditors, in their Report to the Directors, have drawn attention to a number of matters discussed particularly in notes 1.2, 10.2, 17.1 and 20.2 to the financial statements for the year ending December 31, 2004. They refer to the Pakistan Branch recognising deferred tax assets of Rs 39.731 million, which if not realised, would to this extent lower current year profit.
They have also, without qualifying their opinion, drawn attention to the going concern assumption used in preparing the accounts in case the bank is not able to raise the minimum paid up capital to Rs 1,500 million as required by the State Bank of Pakistan.
The above-referred notes, about Pakistan Branch matters to which the Auditors have drawn attention, are reproduced below.
1.2- The minimum paid up capital of the bank is Rs 92.192 million as at the balance sheet date which reflects a shortfall of Rs1,407.81 million as per the requirement of minimum paid up capital of Rs 1,500 million prescribed by the State Bank of Pakistan vide BSD Circular No 12, dated August 25, 2004.
As such the bank shall stand de-scheduled and converted into non-scheduled bank with effect from January 01, 2006, if it fails to meet the requirement of minimum paid up capital.
During the year Rupali Bank Limited, Dhaka has signed a Memorandum of Understanding with M/s Arif Habib Securities Limited, Karachi for setting up a joint venture bank with the formation of a new banking company in Pakistan and induction of capital as per the requirements of the State Bank of Pakistan vide BSD Circular No 12, dated August 25, 2004.
The merging process is expected to be completed by June 30, 2005 and shall commence as soon as approval is occurred of the draft Master Agreement which is made considerations of the competent authority in Bangladesh. State Bank of Pakistan has extended the time period for compliance with the minimum paid up capital requirement or to complete the process of sale / transfer of assets and liabilities of the branch / formulation of joint venture bank up to June 30, 2005.
In view of the above, these financial statements have been prepared on going concern basis.10.2- Included in advances is an amount of Rs 104.279 million on account of outstanding balance and mark up due from Kohinoor Group. The branch recovered an amount of Rs 35.634 million during the year from the sale of shares pledged by the group.
The outstanding amount represents unadjusted export refinance granted to the group in the year 2001 under Part- I and Part- II. The branch has made full provision against the above outstanding as per Prudential Regulations.
17.1- The DCIT completed the assessment of the branch for the assessment year 2001-2002 and 2002-2003 by disallowing provision claimed against non performing advances of Rs 30.880 million and Rs 86.024 million. The branch has already filed appeal with the CIT (Appeals) against the disallowance's made in the assessment for the assessment years 2001-2002 and 2002-2003 and in the process of filing appeal for the assessment year.
In view of the advice of its tax consultant, these provisions are admissible under the tax law and as such the branch has recorded deferred tax assets as per IAS-12 against the said allowances @41 % amounting to Rs39.731 million in the current year.
20.2- Subsequent to the balance sheet date, bank's appeal against the order of the Additional Commissioner Tax Officer (LTU) that was passed under section 122 A by reopening completed assessment for the assessment year 1997-98 and 1998-99 creating tax demand of Rs34.025 million and Rs 33.829 million.
The CIT Appeal set aside the impugned order but upheld the action taken under section 122 (5A) and ordered fresh assessment for the two years. The bank appealed against the order of CIT (Appeals) before the Appellate Tribunal which has since been heard.
The bank has not made any provision in this respect in the light of the opinion of its tax consultant that the order of the learned CIT (Appeals) is not lawful and is expected to be set aside on legal grounds.
Rupali Bank, Pakistan Branch is relatively a small outfit and so are its operations. Total Assets of the branch experienced a decline from Rs 620.471 million at end 2003 to Rs 562.310 million at end of the year under review. The branch closed 2004 with modest profit after tax of Rs 7.578 million as against a loss of nearly Rs 23 million in the previous year. Other Performance Statistics are given below.

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Performance Statistics                (Million Rupees)

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Balance Sheet (As on December 31)    2004         2003

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Total Assets:                     562,310      620,471

Cash, Balances with Banks:        118,457      164,770

Investments-Net:                  359,172      350,795

Advances-Net:                      11,047       24,726

Deposits, Other Accounts:         178,322      207,495

Total Liabilities:                470,118      510,362

Share Capital:                     34,000       34,000

Reserves and un-remitted Profits:  58,192       50,605

Surplus on Revaluation of Assets:       0       25,504

Total Equity:                      92,192      110,109

Subordinated Loan:                      0            0

Equity and Sub. Loans:             92,192      110,109

Contingencies and Commitments:    172,953      285,953

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Ratios:

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Cash and Bank/Total Assets:            21%         27%

Investments-Net/Total Assets:          64%         57%

Advance-Net/Total Assets:               2%          4%

NPLs/Advances (Gross):                 93%         87%

Provisions/Advances (Gross):           93%         87%

Deposits/Total Assets:                 32%         33%

Total Liabilities/Total Assets:        84%         82%

Total Equity/Total Assets:           16.4%       17.7%

Equity and Sub. Loans/Total Assets:  16.4%       17.7%

Deposits/(Equity + Sub Loans)-X:      1.9          1.9

Advances/Deposits:                      6%         12%

Investments/Deposits:                 201%        169%

Conting.& Comm./(Equity +SL)-X:      1.88         2.60

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Share Price Rs ' - Not listed in Pakistan

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Book Value Per Share:               27.12        32.39

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Price/Book Value Ratio Not listed in Pakistan

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Income Statement (Y end December 31) 2004         2003

Markup/Interest Earned:            32,826       32,448

Markup/Interest Expensed:           6,842        5,893

Net Markup/Interest Income:        25,984       26,555

Total Non-Markup Income:            3,857        3,314

Admin Expenses:                    17,707       13,980

Profit Before Taxation:            31,671      -34,741

Profit After Taxation:              7,587      -22,996

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Ratios:

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Net Markup Income/Total Assets:      4.6%         4.3%

Non-Markup Income/Total Assets:      0.7%         0.5%

Admin Expenses/Total Assets:         3.1%         2.3%

Profit Before Taxation/Total Assets: 5.6%         Loss

Profit After Taxation/Total Assets:  1.3%         Loss

Profit After Tax/Total Equity:       8.2%         Loss

EPS-after Tax-year-end Paid-up Rs:  2.23          Loss

Price/Earning Ratio Not listed in Pakistan

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