"To provide Shariah-compliant products and services as a feasible and valuable alternative to conventional interest based finance" and "To continue exploring, developing and delivering new products and services that fulfil all banking needs of the Pakistani market".
These are the first two Objectives of Riba-free Banking by Meezan Bank Limited, the pioneer of Islamic Banking in Pakistan. Islamic Banking is gaining ground in the country as would be evident from the growth in operations of Meezan Bank and the number of Islamic Banks now operating in the country. Besides, the number of "Islamic Windows" of conventional banks is also on the increase.
Meezan Bank was incorporated in Pakistan on January 27, 1997 as a public limited company under the Companies Ordinance, 1984 and its shares are quoted on the Karachi Stock Exchange. The bank was registered as an 'Investment Finance Company' on August 8, 1997 and carried on the business of Investment Banking as permitted under SRO 585 (1)/87 dated July 13, 1987 in accordance and in conformity with the principles of Islamic Shariah. A 'Certificate of Commencement of Business' was issued to the bank on September 29, 1997.
The bank was granted a 'Scheduled Islamic Commercial Bank' license on January 31, 2002 and formally commenced operations as a scheduled commercial Islamic bank with effect from March 20, 2002 on receiving notification in this regard from the State Bank of Pakistan under section 37 of the State Bank of Pakistan Act, 1956. Currently, the bank is engaged in commercial, consumer, investment and related banking activities, through 62 branches in 21 cities as at December 31, 2006 (2005: 28 branches).
Total staff strength as on December 31, 2006 was 1,389 including 449 on contractual basis and 161 outsourced persons (2005: 786 employees including 239 on contractual basis and 105 outsourced persons). The directors' report that based on the results for the year ended December 31, 2005, JCR-VIS has graded the bank's long term entity rating at "A+" (Single A Plus) with stable outlook, while the short term rating has been graded at "A1" (A One).
On December 31, 2006 the authorised capital of Meezan Bank stood at Rs 8 billion, comprising 800 million shares of Rs 10/- each. As on December 31, 2006 the paid up capital of Rs 3.780 billion was held by 2,659 shareholders, of which 2,531 individuals (general public) held about 10% shares. Shareholders with more than 10% shareholding include Pak Kuwait Investment Co (30%), Shamil Bank of Bahrain (25.9%) and Noor Financial Investment Co, Kuwait (15.55%0. The directors, CEO, their spouse and minor children and executive together held nearly 6% voting interest. The rest of the shares are distributed among a number of corporate entities including banks and DFIs. According to notes to the financial statements, the bank intends to issue 9.9 million ordinary shares of Rs 10/- each having a face value of Rs 99 million under an employee stock option plan.
Meezan Bank saw over 51% increase in its Total Assets to Rs 46 billion as on December 31, 2006 compared to Rs 31 billion on December 31, 2005. During the period under review, Financings increased by 37% to Rs 27 billion (December 31, 2005: Rs 20 billion) whereas Investments saw 79% increase to Rs 2.9 billion (December 31, 2005: Rs 1.6 billion). Investments as on December 31, 2006 as percentage of Total Assets are only 6% (2005: 5% of TA). The large increase in Total Assets has been financed largely through increase in Deposits and issue of additional paid up capital. Deposits increased by 51% to Rs 34 billion (2005: Rs 23 billion).
Major exposure of the bank on December 31, 2006 was in Textile (35%), Chemicals and Pharmaceutical (4%), Sugar (3%), Footwear and Leather Garments (5.5%) and Others including Individuals (38%). Meezan Bank's Financing as on December 31, 2006 at Rs 27 billion against which gross NPLs were Rs 409 million (2005: Rs 183 million). In percentage terms gross NPLs on December 31, 2006 were 1.5% of gross Advances (2005: 0.9% of GA). Provision has been made as required. However, as some doubtful financing have the tendency to stay under cover for sometime due to different reasons, a prudent policy for Meezan Bank would be that the management remains extra vigilant in the appraisal and monitoring of all financing.
According to note 41 to the financial statements, Capital Adequacy Ratio of the bank as on December 31, 2006 was 12.80% (2005: 10.67%) as against prescribed minimum equivalent to 8% of the risk weighted assets of the banking company.
Total Profit/Return on financing of Meezan Bank for the year ended December 31, 2006 increased by 85% to Rs 2,704 million compared to Rs 1,459 million for the previous year. However, return on deposits for the period increased by 112% to Rs 1,464 million (2005: Rs 690 million). Moreover higher provision was made this year for doubtful loans. Therefore, net spread income (after return expensed and provisions) for the year under review decreased by 53% to Rs 1,117 million (2005: Rs 730 million). The year 2006 was closed with After-tax Profit at Rs 604 million (2005: Rs 419 million). ROE for the year 2006 is 12.7% (2005: 13.9%). During the year the bank declared 10% stock dividend (2005: 16%). Performance statistics are given below.
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Performance Statistics (Audited)
(Rs Million)
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Balance Sheet (As on Dec. 31,) 2006 2005
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Total Assets: 46,439 30,676
Cash, balances with banks: 10,032 6,813
Investments-Net: 2,878 1,606
Advances-Net: 27,031 19,741
Due to Fin. Institutions: 4,285 2,982
Deposits, other accounts: 34,450 22,769
Total Liabilities: 41,675 27,651
Net Assets: 4,764 3,025
Share Capital: 3,780 2,037
Reserves & Un-app. Profit: 977 934
Equity: 4,757 2,971
Surplus on Revalue, Assets: 7 54
Equity incl. Revalue Surplus: 4,764 3,025
Financing-Gross: 27,269 19,858
Gross NPLs: 409 183
Total Provision: 238 117
Conting. & Commitments: 39,716 32,837
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Ratios:
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Cash & bank/Total Assets: 22% 22%
Investments/Total Assets: 6% 5%
Financing-Net/Total Assets: 58% 64%
NPLs/Financing-Gross: 1.5% 0.9%
Provisions/Financing-Gross: 0.9% 0.6%
Deposits/Total Assets: 74% 74%
Total Liabilities/Total Assets: 90% 90%
Total Liabilities/Total Equity-X: 8.7 9.1
Total Equity/Total Assets: 10.3% 9.9%
Deposits/Equity-Times: 7.2 7.5
Financing/Deposits: 78% 87%
Investments/Deposits: 8% 7%
Conting. & Comm./Equity-Times: 8.34 10.86
Book Value Per Share: 12.60 14.85
Quoted share price (9-05-07) - Rs: 21.65 -
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Income Statement 2006 2005
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Profit/Return earned: 2,704 1,459
Return on Deposits: 1,464 690
Net Spread income: 1,240 769
Provisions and write offs: 123 39
Net Spread income (aft. Prov.): 1,117 730
Total Other income: 691 622
Income bef. Admn. Exp.: 1,808 1,352
Admin Expenses, etc: 1,028 719
Profit before Taxation: 780 633
Current & deferred tax: 176 214
Profit after taxation: 604 419
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Ratios: (Annual Basis)
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Profit earned/Total Assets: 5.8% 4.8%
Net Spread Income/TA: 2.7% 2.5%
Net Spread (aft. Prov.)/TA: 2.4% 2.4%
Other Income/TA: 1.5% 2.0%
Income before Admn. Exp./TA: 3.9% 4.4%
Admin Expenses/TA: 2.2% 2.3%
Profit before Taxation/TA: 1.7% 2.1%
Profit after Taxation/TA: 1.3% 1.4%
Profit after Tax/Total Equity: 12.7% 13.9%
EPS- (year-end paid up) - Rs: 1.60 2.06
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Cash flow Summary 2006 2005
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Net Cash flow, Operations: 3,485 2,050
Net Cash flow, Investing: -1,447 -110
Net Cash flow, financing: 1,181 498
Change in Net Liquidity: 3,219 2,438
Net Liquidity at beginning: 6,813 4,375
Net Liquidity at end: 10,032 6,813
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