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Moving ahead with focusNIB Bank Limited Annual Report 2011

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Contents

Annual Report 2011

19 UnconsolidatedStatement of Comprehensive Income

02 Company Information

Notice of AnnualGeneral Meeting03

Directors Report to theShareholders05

Statements of Compliance andInternal Controls09

Auditors Review Report onStatement of Compliance14

Auditors Report to the Memberson Unconsolidated FinancialStatements

15

UnconsolidatedStatement of Financial Position17

UnconsolidatedProfit and Loss Account18

20UnconsolidatedStatement of Changes in Equity

21UnconsolidatedCash Flow Statement

Proxy Form

23Notes to theUnconsolidated Financial Statements

Auditors Report to the Memberson Consolidated FinancialStatements

103

ConsolidatedStatement of Financial Position104

ConsolidatedProfit and Loss Account105

106 ConsolidatedStatement of Comprehensive Income

Consolidated

Statement of Changes in Equity107

ConsolidatedCash Flow Statement108

Notes to theConsolidated Financial Statements110

187 Pattern of Shareholding

1

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Company Information

2 Annual Report 2011

Board of Directors Teo Cheng San, Roland ChairmanSyed Aamir Zahidi Director

Tejpal Singh Hora DirectorAsif Jooma Director

Chia Yew Hock Wilson Director

Najmus Saquib Hameed Director

Muhammad Abdullah Yusuf Director

Khawaja Iqbal Hassan Director

Badar Kazmi President/CEO

Board Audit Committee Muhammad Abdullah Yusuf ChairmanSyed Aamir Zahidi Member

Najmus Saquib Hameed Member

Company Secretary Ather Ali Khan

Chief Financial Officer Yameen Kerai

Registered Office First Floor, Post MallF-7 Markaz, Islamabad

Head Office Muhammadi House

I.I. Chundrigar Road

Karachi-74000.

UAN: (021) 111 333 111

Email & URL Email: [email protected]: www.nibpk.com

Share Registrar Office THK Associates (Pvt.) Limited

Ground Floor, State Life Building No. 3

Dr. Ziauddin Ahmed Road

Karachi-75530.

UAN: (021) 111 000 322

Auditors M/s. KPMG Taseer Hadi & Co.Chartered Accountants

Legal Advisor M/s. Mandviwalla & ZafarAdvocates

Credit Rating Long Term: AA-

Short Term: A1+

Rating Agency: PACRA

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Notice of Annual General Meeting

3Annual Report 2011

Notice is hereby given that Ninth Annual General Meeting of NIB Bank Limited (the Bank) shall be held at 10:00 amon Friday the 30th March 2012, at ICAP Auditorium, Institute of Chartered Accountants of Pakistan (ICAP) Building,

G-10/4 Mauve Area, Islamabad to transact the following business:

ORDINARY BUSINESS

1. To confirm the minutes of the 8th Annual General Meeting held on 30th March 2011.

2. To receive, consider and adopt the Audited Accounts of the Bank for the year ended 31st December 2011 togetherwith Directors' and Auditors' Reports thereon.

3. To appoint auditors and fix their remuneration. M/s. KPMG Taseer Hadi & Co., Chartered Accountants have offeredthemselves for the re-appointment.

SPECIAL BUSINESS

4. To grant post facto approval to the payment of remuneration fixed by the Board for the non-executive directors,in terms of State Bank of Pakistan Prudential Regulations # G-1(C)(2) for Corporate / Commercial Banking and to

pass the following resolution.

RESOLVED that post facto approval for payment of remuneration fixed by the Board for non-executive directorsin terms of State Bank of Pakistan's Prudential Regulation # G-1(C)(2) for Corporate / Commercial Banking is herebygranted.

5. Any other business with the permission of the Chair.

A statement as required under section 160(1)(b) of the Companies Ordinance, 1984 is being sent to the shareholderswith this notice.

By Order of the Board

Karachi Ather Ali Khan9th March 2012 Company Secretary

Notes:

1. Share Transfer Books of the Bank will remain closed from 22nd March to 30th March 2012 (both days inclusive).

2. A shareholder entitled to attend and vote at this meeting may appoint another shareholder as his / her proxy toattend and vote. Proxies, in order to be effective, must be received at the Head Office of the Bank situated atMuhammadi House, I.I. Chundrigar Road, Karachi (Pakistan) not later than 48 (forty eight) hours before the timeof meeting, and must be duly stamped, signed and witnessed.

3. Shareholders are requested to notify any change in their addresses immediately to the Bank or Share Registrar,M/s. THK Associates (Pvt.) Limited, Ground Floor, State Life Building No. 3, Dr. Ziauddin Ahmed Road, Karachi (Pakistan).

4. CDC Account Holders will further have to follow the under mentioned guidelines as laid down in Circular 1 datedthe 26th January 2000 issued by the Securities and Exchange Commission of Pakistan:

For attending the meeting:

In case of individuals, the account holder or sub-account holder or investor account holder shall authenticateidentity by showing his / her original computerized national identity card (CNIC) or original passport at the time ofattending the meeting.

In case of corporate entity, the Board of Directors' resolution / power of attorney with specimen signature of thenominee shall be produced (unless it has been provided earlier) at the time of the meeting.

For appointing proxies:

In case of individuals, the account holder or sub-account holder or investor account holder shall submit the proxyform as per the above requirement.

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Notice of Annual General Meeting


The proxy form shall be witnessed by two persons whose names, addresses and CNIC Numbers shall be mentionedon the form.

Attested copy of CNIC or the Passport, of the account holder or sub-account holder or investor account holdershall 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 Board of Directors' resolution / power of attorney with specimen signature shall besubmitted (unless it has been provided earlier) along with proxy form to the Bank.

STATEMENT UNDER SECTION 160(1) (B) OF THE COMPANIES ORDINANCE, 1984

NIB Bank Limited (NIB) was incorporated as a public limited company under the Companies Ordinance, 1984, to carry

on the business of a banking company under the Banking Companies Ordinance, 1962.

1) REMUNERATION TO NON EXECUTIVE DIRECTORS AND CHAIRMAN

As per State Bank of Pakistan's Prudential Regulation G-1(C)(2), the Banks / DFIs during a calendar year may paya reasonable and appropriate remuneration for attending the Board or its Committee(s) meeting(s) to the

non-executive directors and chairman, which should be linked to the actual number of Board / Committee meetings

attended by an individual director / chairman. Furthermore, the scale of remuneration to be paid to the non-executive

directors / chairman for attending the Board and / or Committee meetings shall be approved by the shareholders

on a pre or post facto basis in the Annual General Meeting. During 2011 an amount of Rs. 6.792 million has been

paid to non-executive directors.

For the purpose aforesaid it is proposed that the resolution set out in the notice convening the Annual General

Meeting of the Bank be passed as and by way of a Special Resolution.

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Directors Report to the Shareholders

5Annual Report 2011

THE ECONOMY

In 2011, Pakistan's economy suffered from the double impact of the global crisis and a drop in prices of its exports suchas cotton. This had an adverse impact on the current account which went from a surplus of USD 841 mn in the first halfof the calendar year to a deficit of USD 2,140 mn in the second half. Since there were also limited external flows, foreignexchange reserves reduced sharply from USD18.24 bn at mid year to USD 16.96 bn at year end which led the rupeeto depreciate against the USD by 4.25% between June and December 2011.

Recognizing the need to increase revenues, the Federal Board of Revenue took some significant steps in March 2011to enhance tax revenue by withdrawing GST exemptions on some items, bringing sale of five zero rated sectors into theGST net and collecting flood surcharge on income from the corporate sector. These measures helped in increasing taxrevenue by 27% in the second half of CY 2011 compared to the same period the previous year thus helping to reducethe fiscal deficit. At the same time the Government took steps to resolve the circular debt problem in the energy chainby converting power sector debt held by commercial banks into PIBs and T-bills. While this step provided respite to thepower sector, it aggravated the fiscal deficit which was already high due to flood related expenditure and subsidies tothe energy sector.

The State Bank of Pakistan (SBP) taking comfort from declining inflation and lower borrowing by the Government from

the SBP, reduced the policy discount rate by a cumulative 200 basis points in the second half of CY 2011 in order tospur growth of the private sector.

Although inflation has declined from 17% to 9.75% between January and December 2011, risks to the economy remainon account of a deteriorating external account position due to a rising trade deficit and repayment of external borrowings,especially to the IMF. This will likely lead to a depreciation of the rupee, a widening of the fiscal deficit, and increasedGovernment borrowing from commercial banks and the SBP.

BANKING SECTOR

Earnings of the banking sector showed robust growth in the 9 months ending September 2011 with profit after tax inaggregate growing by 59% in the period year on year. However, the stock of non-performing loans increased byRs 66 bn during the first 9 months of the calendar year reaching Rs 613 bn as of September 2011. Banks generallyadopted a cautious stance in extending credit in CY 2011 as witnessed by ADR dropping from 68% in December 2010to 59% in December 2011. While this reduction has reducted the risk from credit defaults in a weak credit environment,it has made banks susceptible to lower earnings if interest rates decline. SBP's cutting of the policy rate by 200 bps in

2H 2011 will compress net margins going forward unless there is a substantial increase in lending. Liquidity position isexpected to remain tight because of the Government's heavy reliance on commercial banks to finance the fiscal deficit.

OPERATING RESULTS

The Bank continued with its strategy of lending prudently and selectively, especially to the Consumer and SME segmentsuntil these segments show stability. The Bank restricted its incremental lending mainly to top tier Corporates and toGovernment entities for commodity finance. The Bank also took a number of steps to increase its low cost deposit baseby developing customized transactional banking products, improving its service standards, cross-selling its productsmore effectively, and better leveraging its distribution network.

Since repayment of instalment-based Consumer and SME loans exceeded new loan bookings, there was an overallreduction in the average loan outstanding in the year. Consequently this has led to Mark-up interest earned being reducedby Rs 2,236 mn between 2010 and 2011.

Total deposits also declined as a result of a deliberate effort to reduce high cost deposits. The savings from lower level

of high cost deposits coupled with the increase in current and savings accounts lowered the Bank's cost of fundsto 6.83% in December 2011 from 8.13% in December 2010. Lower cost of funds reduced Mark-up expenses byRs 1,366 mn between the two years. Net Mark-up income reduced by Rs 870 mn between 2010 and 2011.

Lower Net Mark-up income was partially offset by higher Non Mark-up income which was higher by Rs 437 mn comparedto 2010. This was contributed by an increase in fees, commissions and income from dealing in foreign currencies aswell as dividends from the Bank's asset management subsidiary and the funds managed by it.

Administrative expenses in 2010 were higher because of one-off restructuring costs. However, taking out theseone-off costs, the recurring administrative expenses actually reduced by Rs 1,216 mn (20%) between 2010 and 2011.

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This was achieved by re-engineering of processes, and cost rationalization and limiting the rise in infrastructure expenses

despite a high inflation environment.

The Bank continued to make very good progress in managing its credits portfolio and NPLs. Credit provisioning reduced

to Rs 2,355 mn in 2011 compared to Rs 9,873 mn in 2010.

On an unconsolidated basis the Bank made a loss after tax of Rs 2,044 mn for the year ended 2011 against a loss ofRs 10,112 mn in 2010. On a consolidated basis the loss after tax was Rs 2,067 mn for the year ended 2011 against a

loss of Rs 9,707 mn in 2010.

NIB's rights issue was successfully closed in the third quarter of 2011 taking the paid up capital to Rs 103,029 mn.Net of share discount, goodwill adjustment and accumulated losses, net equity of the Bank at the end of the year is

Rs. 13,584 mn with a Capital Adequacy Ratio higher than the SBP requirement.

FUTURE OUTLOOK

While the economic environment continues to be challenging, we are confident that by adopting a disciplined andfocused approach we can continue to grow the Bank by leveraging the inherent strength of our franchise, extensive

network, committed people and loyal customers. The Bank is aware that future growth and profitability is dependent onheadline revenue growth. To this end the Bank is taking various steps like increased focus on Balance Sheet management,

strengthening Risk management and investing in human resources to provide a strong foundation for growth. With these

enablers we expect to execute a focused business strategy that should lead to sustained growth in our revenuesand profitability.

CREDIT RATING

The Pakistan Credit Rating Agency (PACRA) has maintained NIB's long term rating at AA- (Double A minus) andshort term rating at A1+ (A one plus) in June 2011, which denote very low expectation of credit risk emanating from

a very strong capacity for timely payment of financial commitments. The rating on NIB's term finance certificates issued

in March 2008 was also maintained at A+ (A plus).

CORPORATE GOVERNANCE

During the year under review, the Bank is compliant with the provisions of the Code of Corporate Governance. Beingaware of their responsibilities under the Code of Corporate Governance, the Board of Directors state that:

The Financial Statements prepared by the management of the Bank, present fairly its state of affairs, the results ofits operations, cash flows and changes in equity.

Proper books of accounts of the Bank have been maintained.

Appropriate accounting policies, except hereinafter mentioned, have been consistently applied in preparation offinancial statements and accounting estimates are based on reasonable and prudent judgment.

International Accounting Standards, as applicable in Pakistan, have been followed in preparation of financialstatements and any departure there from has been adequately disclosed.

The system of internal control is sound in design and has been effectively implemented and monitored.

There are no significant doubts upon the Bank's ability to continue as a going concern.

There has been no material departure from the best practices of Corporate Governance, as detailed in the listingregulations of Stock Exchanges and the Bank is following these meticulously.

As of 31st December 2011, the value of investments of the Provident Fund (un-audited) was Rs 681.226 mn.

No trading during the year in the shares of the Bank was carried out by the Directors, CEO, CFO, Company Secretaryand their spouses and minor children.

Dividend has not been declared for the year due to lack of earnings.

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7Annual Report 2011

INTERNAL CONTROL AND RISK MANAGEMENT FRAMEWORK

The Board is pleased to endorse the statements made by the management relating to internal control and the riskassessment framework to meet the requirement of the State Bank of Pakistan (SBP) BSD Circular No. 7 of 2004, BSDCircular letter No. 2 of 2005 and Code of Corporate Governance issued by the Securities & Exchange Commission ofPakistan (SECP). The management's statements are included in the annual report.

CORPORATE SOCIAL RESPONSIBILITY

When our country was hit by the most devastating floods in 2011, NIB Bank had proactively organized free medicalcamps in the worst flood affected district areas of Badin, Tando Adam, Sanghar and other rural areas of Sind district.As was done in 2010, several NIB staff participated in this initiative with exemplary zeal and dedication that brought ateam of doctors, paramedics, and volunteers along with medical supplies to the affected population. The 30 memberrelief team commonly found diseases of gastroenteritis, skin infections, typhoid, hypertension, and malaria during theirvisits, in partnership with the Serving Hands Organization (SHO).

SIX YEARS FINANCIAL DATA

Advances 60,844 74,566 84,021 80,344 81,932 31,052

Deposits and other accounts 85,488 99,169 93,920 104,586 116,671 30,566

Total Assets 154,794 164,350 208,119 178,909 176,872 46,423

Net Assets 13,677 13,663 41,528 39,699 36,453 4,327

Share capital 103,029 40,437 40,437 28,437 22,018 3,362

Net Mark-up / Interest Income 2,079 2,949 5,400 4,402 2,004 1,021

Total Non Mark-up / Interest income 2,152 1,715 1,682 2,421 927 495

Total Non Mark-up / Interest expense 4,945 7,235 5,243 8,164 2,146 1,224

Profit / (Loss) before taxation (3,480) (12,622) 644 (10,998) (710) 22

Profit / (Loss) after taxation (2,044) (10,112) 691 (7,475) (490) 118

Basic / diluted earnings / (loss) per share (Rupees) (0.34) (2.50) 0.17 (2.63) (0.44) 0.21

Rs mn 2011 2010 2009 2008 2007 2006

During 2011 seven Board meetings were held and were attended by the Directors as follows:

Total Meetings Total MeetingsName of Directors Eligible to Attend Attended Percentage

Mr. Francis Andrew Rozario

(resigned w.e.f. 31st July 2011) 3 3 100%

Syed Aamir Zahidi 7 6 86%

Mr. Tejpal Singh Hora 7 7 100%

Mr. Teo Cheng San, Roland 7 7 100%

Mr. Asif Jooma 7 7 100%

Mr. Muhammad Abdullah Yusuf 7 7 100%

Mr. Najmus Saquib Hameed 7 6 86%

Khawaja Iqbal Hassan 7 7 100%

Mr. Chia Yew Hock Wilson

(appointed w.e.f. 10th November 2011) 2 2 100%

Leave of absence was granted in case the directors were not able to attend the Board Meeting.

Six years financial data for NIB unconsolidated is provided hereunder:

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These relief efforts were made possible with the funds contributed by NIB staff, its majority shareholder and customerdonations along with assistance received from a dedicated group of doctors and volunteers.

NIB is committed to fulfilling its role towards corporate social responsibility and will continue to respond in every possiblemanner to alleviate the adversity being faced by over 8 million displaced people of Pakistan.

AUDITORS

The present auditors M/s. KPMG Taseer Hadi & Co., Chartered Accountants retire and, being eligible have offeredthemselves for re-appointment in the forthcoming Annual General Meeting. The Board of Directors on the suggestionof the Audit Committee recommends their appointment for the next term.

PATTERN OF SHAREHOLDING

The pattern of shareholding as at 31st December 2011 is included in the annual report.

ACKNOWLEDGEMENT

NIB Bank is grateful to its majority shareholder, Fullerton Financial Holdings, a subsidiary of Temasek Holdings ofSingapore, who have repeatedly demonstrated their commitment to the Bank. NIB Bank is also very grateful to itscustomers who continue to demonstrate very strong loyalty to NIB. The SBP, SECP and other regulatory bodies have,as always guided the Bank well and have given their full support which is highly appreciated. The employees also deservespecial thanks for persevering and supporting the Bank.

On behalf of the Board,

Teo Cheng San, Roland Badar Kazmi

Chairman President & CEO

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Statement of Compliance withCode of Corporate GovernanceFor the year ended December 31, 2011

9Annual Report 2011

This statement is being presented to comply with Code of Corporate Governance contained in Listing Regulations of

stock exchanges where the Bank's shares are listed and Regulation G-1 of SBP's Prudential Regulations.

The Bank has applied the principles contained in the Code of Corporate Governance (CCG) in the following manner:

1. The Bank encourages representation of independent non-executive directors on its Board including those representing

minority interests. At present all the directors are non-executive (as defined under CCG) except for the Chief

Executive Officer.

2. The directors have confirmed that none of them is serving as a director in more than ten listed companies, including

the Bank.

3. All the resident directors of the Bank are registered as taxpayers and none of them has defaulted in payment of

any loan to a banking company, a Development Financial Institution or Non Banking Finance Company. None of

the directors of the Bank are members of any Stock Exchange.

4. A casual vacancy occurred during 2011 which was filled in as per regulatory requirements.

5. The Bank has prepared a Statement of Ethics and Business Practices', which has been signed by all the directorsand employees of the Bank.

6. The Board has developed a vision/mission statement and an overall corporate strategy. Significant policies of the

Bank have been prepared and approved by the Board. A complete record of particulars of significant policies

along with the dates on which these were approved is being maintained.

7. All the powers of the Board have been duly exercised and decisions on material transactions, including appointment

and determination of remuneration and terms and conditions of employment of the CEO have been taken by the

Board at the appropriate time.

8. The meetings of the Board were presided over by the Chairman. The Board held seven meetings during the year.

Written notices of Board meetings, along with agenda, were circulated at least seven days before the meetings.

The minutes of the meetings were appropriately recorded and circulated. The CFO and Company Secretary

attended all the meetings of the Board of Directors during the year.

9. The Directors of the Bank have given a declaration that they are aware of their duties, powers and responsibilities.An orientation program was arranged for directors during 2011 on the subject of corporate governance in order

to apprise themselves of their duties and responsibilities.

10. The Board has approved the appointment of the Chief Financial Officer, Company Secretary and Head of Internal

Audit and the terms and conditions of their employment, determined by the CEO, are duly authorized by the Board

of Directors.

11. The Directors' report has been prepared in compliance with the requirements of the code and fully describes the

salient matters required to be disclosed.

12. The financial statements of the Bank were duly endorsed by the CEO and CFO before approval of the Board.

13. The directors, CEO and executives do not hold any interest in the shares of the Bank other than that disclosed in

the pattern of shareholding.

14. The Bank has complied with all the corporate and financial reporting requirements of the code.

15. The Audit Committee comprises of three members, all of whom are non-executive directors (as defined under CCG).

16. The meetings of the Audit Committee were held at least once every quarter prior to approval of interim and final

results of the Bank as required by the Code. The terms of reference of the Committee have been formed and

advised to the Committee for compliance.

17. The Bank has an effective Internal Audit department. An Internal Audit Manual is approved by the Board. The

Internal Audit department has conducted audit of branches and various departments of the Bank during the year.

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Statement of Compliance withCode of Corporate GovernanceFor the year ended December 31, 2011


18. The statutory auditors of the Bank have confirmed that they have been given a satisfactory rating under the quality

control review program of the Institute of Chartered Accountants of Pakistan, that they or any of the partners of the

firms, their spouses and minor children do not hold shares of the Bank and that the firm and all its partners are incompliance with International Federation of Accountants (IFAC) guidelines on code of ethics as adopted by the

Institute of Chartered Accountants of Pakistan.

19. The statutory auditors or the persons associated with them have not been appointed to provide other services

except in accordance with the listing regulations and the auditors have confirmed that they have observed IFAC

guidelines in this regard.

20. During the year, the Risk Management sub-committee of the Board comprising of 3 members met 4 times, whereas

the HR sub-committee of the Board comprising of 3 members met 2 times.

21. We confirm that all the material principles contained in the code have been complied with.

On behalf of the Board,

Badar Kazmi

President & CEO

Date: 22 February 2012

Karachi

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Statement on Internal ControlsFor the year ended December 31, 2011

11Annual Report 2011

Internal Control System

Management acknowledges its responsibility for establishing and maintaining a system of internal control directly relatedto and designed to provide reasonable assurance to achieve the following objectives:

Efficiency and effectiveness of operations

Compliance with applicable laws and regulations

Reliability of financial reporting

The bank is continuously adding to its internal control systems by enhancing the quality of processes, staff and ITinfrastructure and will continue to do so to strengthen internal controls as it grows its business volumes and activities.

The Bank is pleased to make the following disclosures on the components of internal control system:

Control Environment

1. The Bank has written and implemented policies and procedures for most of the areas of the Bank's business, which

have been approved by the Board of Directors.

2. The Bank has adopted a mission/vision statement and corporate strategy, duly approved by the Board.

3. A clear organizational structure exists which supports clear lines of communication.

4. The management has defined roles and responsibilities of key management personnel.

5. The Audit Committee, which comprises of non-executive directors, has written terms of reference and reports tothe Board. It reviews the approach adopted by the Bank's internal audit department and the scope of, and therelationship with, the external auditors. It also regularly receives summary of reports from the internal audit departmentand the external auditors on the system of internal control and any material control weaknesses that have beenidentified and discusses the actions to be taken in areas of concern with the executive management.

6. An effective internal audit system exists which is responsible for evaluation of internal control system on a continuousbasis and reports directly to the Audit Committee.

7. The Bank has adopted a statement of ethics and business practices that is signed by all employees. Furthermorethis statement is annually signed by all Directors.

8. Management has set up an effective compliance function to ensure ongoing monitoring of the Bank's adherencewith all laws and regulations.

9. The Bank has also developed a regulatory matrix that allows mapping applicable regulations with specific controls.The underlying controls are periodically tested by means of a process of self assessment.

Risk Assessment

10. The Bank is largely compliant with the risk management guidelines issued by the SBP and has given a separatestatement on the same.

Control Activities

11. In 2011 all branches of NIB operated on the core banking platform leading to greater consistency in businessprocesses and enhancing controls across the network. The Bank has also developed a Business Continuity Planand has also successfully tested the operation of its Disaster Recovery site.

12. The Bank has strict Know Your Customer / Anti Money Laundering policies and has anti-fraud training programsand controls in place. The Bank continues to use an e-KYC form to further strengthen its KYC/AML regime. Givenits importance the Bank continue to focus on further strengthening process and controls in this area.

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Auditors Report to the Members


We have audited the annexed unconsolidated statement of financial position of NIB Bank Limited (the

Bank) as at 31 December 2011 and the related unconsolidated profit and loss account, unconsolidated

statement of comprehensive income, unconsolidated cash flow statement and unconsolidated statement

of changes in equity together with the notes forming part thereof (here-in-after referred to as the 'financial

statements') for the year then ended, in which are incorporated the unaudited certified returns from the

branches except for 28 branches which have been audited by us and we state that we have obtained all

the information and explanations which, to the best of our knowledge and belief, were necessary for the

purposes of our audit.

It is the responsibility of the Bank's Board of Directors to establish and maintain a system of internal control,

and prepare and present the financial statements in conformity with approved accounting standards and

the requirements of the Banking Companies Ordinance, 1962 (LVII of 1962), and the Companies Ordinance,

1984 (XLVII of 1984). Our responsibility is to express an opinion on these statements based on our audit.

We conducted our audit in accordance with the International Standards on Auditing as applicable in

Pakistan. These standards require that we plan and perform the audit to obtain reasonable assurance

about whether the financial statements are free of any material misstatement. An audit includes examining,

on a test basis, evidence supporting amounts and disclosures in the financial statements. An audit also

includes assessing accounting policies and significant estimates made by management, as well as,

evaluating the overall presentation of the financial statements. We believe that our audit provides a

reasonable basis for our opinion and after due verification, which in the case of loans and advances covered

more than 60% of the total loans and advances of the bank, we report that:

a) in our opinion, proper books of accounts have been kept by the Bank as required by the Companies

Ordinance, 1984 (XLVII of 1984), and the returns referred to above received from the branches have

been found adequate for the purposes of our audit;

b) in our opinion:

i) the statement of financial position and profit and loss account together with the notes thereon

have been drawn up in conformity with the Banking Companies Ordinance, 1962 (LVII of 1962),

and the Companies Ordinance, 1984 (XLVII of 1984), and are in agreement with the books of

account and are further in accordance with accounting policies consistently applied;

ii) the expenditure incurred during the year was for the purpose of the Bank's business; and

iii) the business conducted, investments made and the expenditure incurred during the year were

in accordance with the objects of the Bank and the transactions of the Bank which have cometo our notice have been within the powers of the Bank;

c) in our opinion and to the best of our information and according to the explanations given to us, the

unconsolidated statement of financial position, unconsolidated profit and loss account, unconsolidated

statement of comprehensive income, unconsolidated cash flow statement, and unconsolidated

statement of changes in equity together with the notes forming part thereof conform with approved

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Auditors Report to the Members


accounting standards as applicable in Pakistan, and give the information required by the Banking

Companies Ordinance, 1962 (LVII of 1962), and the Companies Ordinance, 1984 (XLVII of 1984),

in the manner so required and give a true and fair view of the state of the Bank's affairs as at 31

December 2011 and its true balance of the loss, its cash flows and changes in equity for the year

then ended; and

d) in our opinion Zakat deductible at source under the Zakat and Ushr Ordinance, 1980 (XVIII of 1980),

was deducted by the Bank and deposited in the Central Zakat Fund established under section 7

of that Ordinance.

Date: 22 February 2012

Karachi

KPMG Taseer Hadi & Co.

Chartered Accountants

Amir Jamil Abbasi

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NIB Bank LimitedUnconsolidated Statement of Financial PositionAs at December 31, 2011


The annexed notes from 1 to 42 and annexure - 1 form an integral part of these unconsolidated financial statements.

ASSETS

Cash and balances with treasury banks 7 7,969,044 8,836,449Balances with other banks 8 1,486,830 2,951,479Lendings to financial institutions 9 14,666,918 6,429,166Investments 10 49,598,830 51,789,035Advances 11 60,844,380 74,566,015Operating fixed assets 12 2,693,795 2,718,975Intangible assets 13 2,054,426 2,419,148Deferred tax assets - net 14 11,017,000 9,480,983Other assets 15 4,462,407 5,158,789

154,793,630 164,350,039

LIABILITIES

Bills payable 16 1,738,422 1,335,493Borrowings 17 47,382,031 42,361,934Deposits and other accounts 18 85,488,268 99,169,373Sub-ordinated loans 19 3,994,400 3,996,000Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities 20 2,514,005 3,824,474

141,117,126 150,687,274

NET ASSETS 13,676,504 13,662,765

REPRESENTED BY:

Share capital 21 103,028,512 40,437,271Reserves 218,276 8,464,894Discount on issue of shares (45,769,623) Accumulated loss (43,893,095) (41,592,479)

Shareholders equity 13,584,070 7,309,686Advance against proposed rights issue 6,352,360

13,584,070 13,662,046Surplus on revaluation of assets - net 22 92,434 719

13,676,504 13,662,765

CONTINGENCIES AND COMMITMENTS 23

Note 2011 2010

(Rupees '000')

Teo Cheng San, Roland

Chairman / Director

Tejpal Singh HoraDirector

Muhammad Abdullah YusufDirector

Badar KazmiPresident / Chief Executive

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NIB Bank LimitedUnconsolidated Profit and Loss AccountFor the year ended December 31, 2011



Mark-up / Return / Interest earned 24 14,245,677 16,482,080Mark-up / Return / Interest expensed 25 12,166,781 13,533,160

Net Mark-up / Interest Income 2,078,896 2,948,920

Provision against non-performing loans and advances 11.5 2,355,074 9,872,524Provision for diminution in the value of investments 10.13 395,267 124,521Bad debts written off directly 15,802 53,359

2,766,143 10,050,404

Net Mark-up / Interest income after provisions (687,247) (7,101,484)

NON MARK-UP / INTEREST INCOME

Fee, commission and brokerage income 756,650 715,279

Dividend income 573,184 177,229Income from dealing in foreign currencies 526,577 469,449Gain on sale of securities 26 274,512 328,920Unrealized gain on revaluation of

investments classified as held-for-trading Other income 27 21,157 24,475

Total Non Mark-up / Interest income 2,152,080 1,715,352

1,464,833 (5,386,132)

NON MARK-UP / INTEREST EXPENSES

Administrative expenses 28 4,714,974 6,955,148Other provisions / write offs 200,912 158,359Other charges 29 42,365 121,918Workers welfare fund (13,000)

Total Non Mark-up / Interest expense 4,945,251 7,235,425Extraordinary / Unusual items

PROFIT / (LOSS) BEFORE TAXATION (3,480,418) (12,621,557)

Taxation - Current 30 163,978 181,974- Prior years 30 30,658 327,748- Deferred 30 (1,630,964) (3,019,165)

(1,436,328) (2,509,443)

PROFIT / (LOSS) AFTER TAXATION (2,044,090) (10,112,114)

Accumulated loss brought forward (41,592,479) (7,258,893)

ACCUMULATED LOSS CARRIED FORWARD (43,636,569) (17,371,007)

Basic / diluted Loss per share (Rupees) 31 (0.34) (2.50)

Note 2011 2010

(Rupees '000')


Chairman / Director




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NIB Bank LimitedUnconsolidated Statement of Comprehensive IncomeFor the year ended December 31, 2011


Profit / (Loss) after taxation for the year (2,044,090) (10,112,114)

Other comprehensive income

Total comprehensive income for the year (2,044,090) (10,112,114)

2011 2010

(Rupees '000')

Surplus / deficit on revaluation of "Available for Sale" securities is presented under a separate head below equity as "Surplus

/ deficit on revaluation of assets" in accordance with the requirements specified by the Companies Ordinance, 1984, and

the State Bank of Pakistan vide its BSD Circular 20 dated August 4, 2000 and BSD Circular 10 dated July 13, 2004.



Chairman / Director




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NIB Bank LimitedUnconsolidated Statement of Changes in EquityFor the year ended December 31, 2011


Balance as at December 31, 2009 40,437,271 8,246,618 212,804 5,472 (7,258,893) 41,643,272

Total comprehensive income / (loss)

for the year

Loss after taxation for the year (10,112,114) (10,112,114)

Goodwill adjustment 13.2 (24,221,472) (24,221,472)

Balance as at December 31, 2010 40,437,271 8,246,618 212,804 5,472 (41,592,479) 7,309,686

Total comprehensive income /

(loss) for the year

Loss after taxation for the year (2,044,090) (2,044,090)

Transaction with owners,

recorded directly in equity

Is sue o f r ight shares during the y ea r 62,591 ,241 62 ,591 ,241

Discount on issue of right shares (54,016,241) (54,016,241)

Share premium adjusted against share

discount 8,246,618 (8,246,618)

Right shares issue cost (256,526) (256,526)

62,591,241 (45,769,623) (8,246,618) (256,526) 8,318,474

Balance as at December 31, 2011 103,028,512 (45,769,623) 212,804 5,472 (43,893,095) 13,584,070

The annexed notes from 1 to 42 and ann exure - 1 form an integral part of these unconsolidated financial statements.

Reserves

Capital Revenue

Share Discount on Share Statutory General Accumulated

capital issue of premium reserve reserve (loss) Total

shares (a)(Rupees '000')

Note

(a) This represents reserve created under sect ion 21(1)(a) of the Banking Companies Ordinance 1962.


Chairman / Director




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NIB Bank LimitedUnconsolidated Statement of Cash FlowsFor the year ended December 31, 2011


CASH FLOWS FROM OPERATING ACTIVITIES

Loss before taxation (3,480,418) (12,621,557)Dividend income (573,184) (177,229)

(4,053,602) (12,798,786)

Adjustments for non-cash itemsDepreciation 273,601 386,964Amortization 368,608 371,225Workers welfare fund (13,000) Gain on sale of securities (274,512) (328,920)Gain on sale of operating fixed assets (2,522) 732Provision against non-performing loans and advances 2,355,074 9,872,524

Bad debts written off directly 15,802 53,359Fixed assets written off 159,680Provision for diminution in the value of investments 395,267 124,521Other provisions / write offs 200,912 158,359

3,319,230 10,798,444

(734,372) (2,000,342)(Increase) / decrease in operating assetsLendings to financial institutions (8,237,752) (747,279)Advances 11,350,759 (470,492)Other assets (excluding advance taxation) 565,110 1,781,836

Increase / (decrease) in operating liabilitiesBills payable 402,929 (238,714)Borrowings 5,020,097 (20,161,431)Deposits and other accounts (13,681,105) 5,249,568Other liabilities (excluding current taxation) (1,297,383) (754,759)

(6,611,717) (17,341,613)Income tax paid (264,276) (676,360)

Net cash from / (used in) operating activities (6,875,993) (18,017,973)

CASH FLOWS FROM INVESTING ACTIVITIES

Net Investments in available-for-sale securities 2,278,201 10,731,652Net Investments in held-to-maturity securities (22,089) (35,501)Net Investments in associates 284,134Dividend received 573,184 177,229Payments for capital work in progress (191,617) (126,035)Acquisition of property and equipment (58,334) (93,286)Acquisition of intangible assets (3,886) (4,050)

Sale proceeds of property and equipment disposed of 4,052 3,078

Net cash (used in) / from investing activities 2,579,511 10,937,221

2011 2010

(Rupees '000')

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Notes to the Unconsolidated Financial StatementsFor the year ended December 31, 2011


- IAS 27 Separate Financial Statements (2011) - (effective for annual periods beginning on or after 1 January2013). IAS 27 (2011) supersedes IAS 27 (2008). Three new standards IFRS 10 - Consolidated Financial

Statements, IFRS 11- Joint Arrangements and IFRS 12- Disclosure of Interest in Other Entities dealing withaccounting for subsidiaries and associates would be applicable effective 1 January 2013. IAS 27 (2011)carries forward the existing accounting and disclosure requirements for separate financial statements, withsome minor clarifications. The amendments have no impact on financial statements of the Bank.

- IAS 28 Investments in Associates and Joint Ventures (2011) - (effective for annual periods beginning on orafter 1 January 2013). IAS 28 (2011) supersedes IAS 28 (2008). IAS 28 (2011) makes the amendments toapply IFRS 5 to an investment, or a portion of an investment, in an associate or a joint venture that meets thecriteria to be classified as held for sale; and on cessation of significant influence or joint control, even if aninvestment in an associate becomes an investment in a joint venture. The amendments have no impact onfinancial statements of the Bank.

- IAS 19 Employee Benefits (amended 2011) - (effective for annual periods beginning on or after 1 January2013). The amended IAS 19 includes the amendments that require actuarial gains and losses to be recognisedimmediately in other comprehensive income; this change will remove the corridor method and eliminate theability for entities to recognise all changes in the defined benefit obligation and in plan assets in profit or loss,which currently is allowed under IAS 19; and that the expected return on plan assets recognised in profit orloss is calculated based on the rate used to discount the defined benefit obligation. The impact of these havenot been quantified.

- Presentation of Items of Other Comprehensive Income (Amendments to IAS 1) - (effective for annual periodsbeginning on or after 1 July 2012). The amendments require that an entity present separately the items ofother comprehensive income that would be reclassified to profit or loss in the future if certain conditions aremet from those that would never be reclassified to profit or loss. The amendments do not address which itemsare presented in other comprehensive income or which items need to be reclassified. The requirements of otherIFRSs continue to apply in this regard. The amendments have no impact on financial statements of the Bank.

- Disclosures Transfers of Financial Assets (Amendments to IFRS 7) - (effective for annual periods beginningon or after 1 July 2011). The amendments introduce new disclosure requirements about transfers of financialassets, including disclosures for financial assets that are not derecognised in their entirety; and financial assetsthat are derecognised in their entirety but for which the entity retains continuing involvement. The amendments

have no impact on financial statements of the Bank.

- Offsetting Financial Assets and Financial Liabilities (Amendments to IAS 32) (effective for annual periodsbeginning on or after 1 January 2014). The amendments address inconsistencies in current practice whenapplying the offsetting criteria in IAS 32 Financial Instruments: Presentation. The amendments clarify themeaning of currently has a legally enforceable right of set-off; and that some gross settlement systems maybe considered equivalent to net settlement.

- Offsetting Financial Assets and Financial Liabilities (Amendments to IFRS 7) (effective for annual periodsbeginning on or after 1 January 2013). The amendments to IFRS 7 contain new disclosure requirements forfinancial assets and liabilities that are offset in the statement of financial position or subject to master nettingagreement or similar arrangement. The amendments have no impact on financial statements of the Bank.

4. BASIS OF MEASUREMENT

These unconsolidated financial statements have been prepared under the historical cost convention, except for

the measurement of certain investments and commitments in respect of forward foreign exchange contracts thatare stated at revalued amounts / fair values, staff retirement benefits (Gratuity) which are stated at present valueand certain financial assets that are stated net of provisions.

5. CRITICAL ACCOUNTING JUDGMENTS ANDKEY SOURCES OF ESTIMATION UNCERTAINTY

The preparation of unconsolidated financial statements in conformity with approved accounting standards requiresthe use of certain critical accounting estimates that affect the reported amounts of assets, liabilities, income andexpenses. It also requires the management to exercise its judgment in the process of applying the Bank's

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2011 2010

(Rupees '000')

10.13 Particulars of provision for diminution in value of investments

Opening balance 948,772 1,053,969

Charge for the year 416,505 284,915

Reversals for the year

- Term Finance Certificates (21,238) (3,015)

- Associates (157,379)

395,267 124,521

Reversal due to sale / change in category (89,488) (229,718)

Closing balance 1,254,551 948,772

10.14 Particulars of Provision in respect of Type and Segment

Available-for-sale securities

- Listed shares / Certificates / Units 432,836 407,436

- Unlisted shares 49,845 15,837

- Term Finance Certificates 80,561 50,544

563,242 473,817

Associates

- Listed shares / Certificates / Units 690,585 474,231

Subsidiaries

- Unlisted shares 724 724

1,254,551 948,772

10.15 Quality of Available-for-Sale

Securities - at Market Value

Federal Government Securities

Market Treasury Bills 26,634,300 Unrated 30,956,373 Unrated

Pakistan Investment Bonds 9,038,705 Unrated 3,389,587 Unrated

Defense Savings Certificates 2,730 Unrated 8,501 Unrated

Sukuk Bonds 528,774 Unrated 505,126 Unrated

Cumulative Preference sharesPak Elektron Limited 25,000 BBB/A3 25,000 A/A1

Fazal Cloth Mills Limited 25,000 A-/A2 25,000 A-/A2

Galaxy Textile Mills Limited 30,178 *

Ordinary shares of Listed Companies

Abbott Laboratories Pakistan Limited 71,977 * 80,998 *

Adamjee Insurance Company Limited 71,315 AA 134,166 AA

Agriauto Industries Limited 23,742 *

2011 2010

(Rupees '000') Rating (Rupees '000') Rating

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Bank AL Habib Limited 11,140 AA+/A1+ 26,906 AA+/A1+

Bank Alfalah Limited 11,210 AA / A1+

Dewan Farooq Motors Limited 2,153 *

Fatima Fertilizer Company Limited 2,204 A/A1

First National Bank Modaraba 4,160 A+/A-1 4,604 A+/A-1

GlaxoSmithKline Pakistan Limited 38,167 * 50,820 *

Habib Insurance Company Limited 15,894 A+ 21,545 A+

Karam Ceramics Limited 2,189 * 3,355 *

K.S.B. Pumps Limited 2,699 * 6,899 *

Millat Tractors Limited 149,222 * 206,705 *

Security Papers Limited 6,798 AAA / A-1+

Sitara Chemicals Industries Limited 7,590 A+/A-1 13,524 AA-/A-1Tariq Glass Limited 52,063 * 43,429 *

The Hub Power Company Limited 249,299 AA+/A1+ 311,048 AA+/A1+

Ordinary shares of Unlisted Companies

Central Depository Company of Pakistan Limited 5,000 * 5,000 *

Crescent Capital Management (Private) Limited 1,000 * 1,000 *

Equity Participation Fund Limited 509 * 509 *

National Investment Trust Limited 100 AM2 100 AM2

Pakistan Export Finance Guarantee Agency Limited 5,680 * 5,680 *

Pakistan Textile City (Private) Limited 50,000 * 50,000 *

Sun Biz (Private) Limited 1,000 * 1,000 *

SWIFT 2,803 * 2,760 *

Units / Certificates of Mutual FundsAtlas Money Market Fund 50,777 AA+(f)

Faysal Saving Growth Fund 100,000 A(f)

First Dawood Mutual Fund 1,530 FR 2-STAR / 1,800 FR 2-STAR /

2-STAR 3-STAR

JS Growth Fund 1,069 * 1,262 FR 3-STAR

JS Large Capital Fund 2,462 * 2,509 *

NAFA Government Securities Liquid Fund 15,467 AAA(f)

NAFA Savings Plus Fund 15,424 AA-(f)

Pakistan Strategic Allocation Fund 70,308 FR 4-STAR

Term Finance Certificates

Askari Bank Limited 271,226 AA- 188,735 AA-

Avari Hotels Limited 129,070 A-(SO) 129,070 A-

Azgard Nine Limited 18,785 D 18,110 CCC(RW)Bank Alfalah Limited 308,454 AA- 294,916 AA-

Engro Fertilizer Limited

(formerly Engro Corporation Limited) 1,104,900 AA 982,381 AA

Escorts Investment Bank Limited 2,228 BB 4,996 A

New Khan Transport Company (Private) Limited 29,306 * 50,544 *

Orix Leasing Pakistan Limited 61,586 AA+ 176,941 AA+

PACE Pakistan Limited 29,964 D 29,096 A+(-)

2011 2010

(Rupees '000') Rating (Rupees '000') Rating

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CO

S

T

DEPRECIATION

Asat

Asat

Accumulated

Forthe

Accumulated

valueasat

Depreciation

Particulars

Note

January

Additions/

December

asatJanuary

year/

asatDecember

December

%

01,2010

(Deletions)

Transfers

(W

rite-offs)

31,2010

01,2010

(ondeletion

s)

Transfers

(W

rite-offs)

31,2010

31,2010

perannum

2010

Freeholdland

336,6

17

336,6

17

336,6

17

Leaseholdland

12.2.3

1,0

64,4

56

1,0

64,4

56

15,6

34

15,6

34

1,0

48,8

22

Buildingsonfreeholdland

584,3

30

584,3

30

161,5

63

27,4

42

189,0

05

395,3

25

5%

Buildingsonleaseholdlan

d

158,0

73

158,0

73

25,5

51

7,6

39

33,1

90

124,8

83

5%

Furnitureandfixtures

241,6

68

3,6

98

825

(16,2

78)

224,4

54

98,8

52

22,3

71

1,5

71

(9,0

29)

111,0

48

113,4

06

10%

(5,4

59)

(2,7

17)

Electrical,officeand

computerequipment

1,3

58,3

50

111,8

91

(5,8

06)

(113,1

71)

1,3

45,8

18

841,7

32

227,5

79

(1,5

60)

(109,3

61)

953,7

08

392,1

10

10%t

o33%

(5,4

46)

(4,6

82)

Vehicles

35,4

72

39

(2,3

32)

32,6

42

18,1

90

5,5

15

(2,3

32)

20,8

42

11,8

00

20%

(537)

(531)

LeaseholdImprovements

957,1

51

54,7

62

7,2

52

(261,2

52)

756,8

10

624,3

43

96,4

18

1,9

20

(201,4

00)

520,4

76

236,3

34

10%

(1,1

03)

(805)

4,7

36,1

17

170,3

90

2,2

71

(393,0

33)

4,5

03,2

00

1,7

85,8

65

386,9

64

1,9

31

(322,1

22)

1,8

43,9

03

2,6

59,2

97

(12,5

45)

(8,7

35)

PropertyandEquipment

(Rupees'000')

NetBook

Rateof

12.2.4

Detailofdisposalofpropertyandequipmentduringtheyear

Vehicles

835

835

493

EX-PICICS

ERVICESRULES

TAHSIN

AHMED

MAHMUD

I

Itemsindividuallyhaving

costless

thanRs.

1millionorne

tbookvalue

notexceedingRs.

0.2

5

million

-ComputerEquipment

1,8

99

1,8

79

20

239

-Furnitureandfixtures

2,8

66

1,5

87

1,2

79

1,8

57

-Leaseholdimprovements

243

191

52

639

-Officeequipment

3,2

89

3,1

10

179

824

SubTotal

8,2

97

6,7

67

1,5

30

3,5

59

2011

9,1

32

7,6

02

1,5

30

4,0

52

2010

12,5

45

8,7

35

3,8

10

3,0

78

Cost

Accumulated

depreciation

Book

value

Sales

proceeds

Description

Mode

ofdisposal

Particularsofbuyer

(Rupees

'000')

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18. DEPOSITS AND OTHER ACCOUNTS

Customers

Fixed deposits 32,769,500 39,939,138

Savings deposits 26,112,772 29,087,951

Current accounts - Non remunerative 25,169,484 24,120,456

Margin accounts 568,088 532,237

Financial institutions

Remunerative deposits 622,053 5,162,128

Non-remunerative deposits 246,371 327,463

85,488,268 99,169,373

18.1 Particulars of deposits

In local currency 80,484,737 93,179,816

In foreign currencies 5,003,531 5,989,557

85,488,268 99,169,373

19. SUB-ORDINATED LOANS

Term Finance Certificates - Quoted, Unsecured 3,994,400 3,996,000

2011 2010

(Rupees '000')

Mark-up Floating (no floor, no cap) rate of return at Base Rate +1.15% [The Base Rate is defined as theaverage Ask Side rate of the six month Karachi Interbank Offered Rate (KIBOR)]

Subordination The TFCs are subordinated to all other indebtedness of the Bank including deposits

Issue Date March 5, 2008

Issue Amount Rs. 4,000 million

Rating A+ (A plus)

Tenor 8 years from the Issue Date

Redemption Ten equal semi-annual instalments of 0.02% of the Issue Amount for the first sixty monthsfollowed by six equal semi-annual instalments of 16.63% of the Issue Amount from the

sixty-sixth month onwards

Maturity March 5, 2016

Call Option The Bank can also exercise a Call Option or a Partial Call Option after obtaining written approvalfrom the State Bank of Pakistan at any time after a period of sixty months from the Issue Date

interest is payable to the GoP only when recovered from the related sub-borrowers, who have availed the German

credit. This also includes unrealized exchange loss of Rs. 96.011 million (2010: Rs. 96.011 million) which has been

netted off against unrealized exchange gain (note 15) as it is payable when recovered from sub-borrowers, whohave availed the related German credit.

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28. ADMINISTRATIVE EXPENSES

Salaries, allowances, etc. 2,083,603 3,715,562

Charge for defined benefit plan 34.4 23,194 24,727

Contribution to defined contribution plan 83,338 121,204

Non-executive directors' fees, allowances and other expenses 6,792 5,709

Brokerage and commission 48,386 44,530

Rent, taxes, insurance, electricity, etc. 880,603 967,484

Legal and professional charges 65,152 196,743

Communication 158,369 207,399

Repairs and maintenance 278,253 284,665Stationery and printing 68,324 81,377

Advertisement and publicity 69,710 20,816

Fees and subscriptions 80,719 74,706

Auditors remuneration 28.1 8,578 8,201

Depreciation 12.2 273,601 386,964

Amortization 13 368,608 371,225

Travelling, conveyance and vehicles running 31,427 30,153

Security services 120,188 137,628

Fixed assets written off 159,680

Others 66,129 116,375

4,714,974 6,955,148

26. GAIN ON SALE OF SECURITIES

Market Treasury Bills 163,928 (5,359)Pakistan Investment Bonds 29,846 (8,185)Term Finance Certificates 6,378 15,088Ordinary Shares of Listed and Unlisted Companies 8,786 292,514Units of Mutual Funds 45,118 26,794Others 20,456 8,068

274,512 328,920

27. OTHER INCOME

Gain / (loss) on disposal of property and equipment 2,522 (732)Service charges 7,007 7,977Rent 1,631 3,262Gain on trading liabilities 3,417Income from non-banking assets and profit from

sale of / or dealing with such assets 10,551Others 9,997

21,157 24,475

28.1 Auditors' remuneration

Audit fee including fee for branch audit 4,300 4,300

Audit fee of consolidated financial statements 750 750

Review fee 1,100 1,100

Special certifications and sundry advisory services 1,752 1,375

Out-of-pocket expenses 676 676

8,578 8,201

Note 2011 2010

(Rupees '000')

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38. SEGMENT DETAILS WITH RESPECT TO BUSINESS ACTIVITIES

The Bank is organised into reportable segments as disclosed in note 6.20.1. These segments are managed byrespective segment heads and the results of these segments are regularly reviewed by the Bank's President / ChiefExecutive. Segment performance is reviewed on the basis of various factors including profit before taxation.

Transactions between reportable segments are carried out on an arms length basis.

The segment analysis with respect to business activity is as follows:

Net Interest Income (198,579) (215,919) 3,771,921 (248,521) (159,982)

Non Funded Income 320,382 183,957 306,493 673,585 230,935

Ne t In te re st an d n on m ark-u p In co me 1 21,8 03 (3 1,96 2) 4 ,0 78 ,4 14 4 25 ,06 4 7 0,95 3

Total expense s including provisions(excluding Im pairm ent) 2,738,512 5,080,278 7,648,615 166,708 1,527,195

Impairment against Investment 115,134 9,387 Total expenses including provisions 2,738,512 5,080,278 7,648,615 281,842 1,536,582

Segment Net income / (loss) before tax (2,616,709) (5,112,240) (3,570,201) 143,222 (1,465,629)

Segment Return on net assets (ROA) (%) (3.36%) (13.35%) (2.80%) 0.22% N/A

Segment Cost of funds (%) 11.50% 6.64% 6.24% 12.47% N/A

Corporate andInvestment

Banking

Smal l & MediumEnterpr ises and

C o m m e r c i a lR e tail Trea sury H ead O ffic e /

Other

For the Year ended December 31, 2011

*Adjustments

Net Interest Income (605,465) (621,777) 3,515,414 (387,463) 178,187

Non Funded Income 374,158 135,492 350,450 839,833 452,147

Net Interest and non m ark-up Income (231,307) (486,285) 3,865,864 452,370 630,334

Total expense s including provisions(excluding Impairment) 799,676 886,360 5,405,275 173,981 50,835

Impairment against Investment 52,703 118,721 223,843

To ta l expenses inc luding p rovisions 852 ,379 886 ,360 5 ,405 ,275 292 ,702 274 ,678

Segment Net incom e / (loss) before tax (1,083,686) (1,372,645) (1,539,411) 159,668 355,656

Segment Return on net assets (ROA) (%) (1.69%) (3.84%) (1.22%) 0.19% N/A

Segment Cost of funds (%) 11.97% 6.76% 6.62% 13.44% N/A

For the Year ended December 31, 2010

As at December 31, 2011

Se gm ent Ass ets (G ro ss ) 5 6,63 7,59 2 3 0,1 16 ,9 78 83 ,8 09 ,1 68 5 3,5 07,1 48 1 0,3 69,3 53 ( 56,0 18,9 11)

S eg me nt N on Per fo rm in g L oa ns 1 8,00 6,71 3 1 2,23 4,82 2 3 ,7 25 ,5 23 2 27 ,5 24

Segment Provision (includinggeneral provisions) 14,965,673 6,876,818 1,589,256 195,951

Segm ent Assets (Net) 41,671,919 23,240,160 82,219,912 53,507,148 10,173,402 ( 56,018,911)

Segment Liabilities 40,802,879 22,740,530 80,501,374 53,091,254 (56,018,911)

As at December 31, 2010

Segment Assets (Gross) 65,288,984 31,301,155 85,301,088 42,382,391 7,019,972 (43,165,012)

Segment Non Performing Loans 18,814,492 10,795,340 4,904,273 197,363

Segment Provision (includinggeneral provisions) 14,712,848 6,415,309 2,524,598 125,784

Segment Assets (Net) 50,576,136 24,885,846 82,776,490 42,382,391 6,894,188 (43,165,012)

Segment Liabilities 46,112,224 23,016,713 79,530,605 41,401,559 3,791,185 (43,165,012)

* The respective segment assets and liabilities incorporate intersegment lending and borrowing, with appropriatetransfer pricing. The adjustments column eliminates intersegment lending and borrowing.

(Rupees '000 ' )

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41. RISK MANAGEMENT

While the overall responsibility of risk management rests with the Board of Directors, the Banks senior managementhas implemented a risk management framework with well defined policies and procedures, duly approved by the

Board, for mitigating, monitoring and controlling risks.

The Board of Directors of the Bank has approved the risk management strategy of the Bank and entrusted the

monitoring to the Boards Risk Management Committee (BRMC).

The Integrated Risk Management Committee (IRMC) is responsible for reviewing and highlighting key risk issues

that require senior managements attention. IRMC comprises of members from business units and the risk functions.

An enterprise level assessment of risk composition is made at this platform and where necessary, recommendations

are made to improve upon processes and procedures to further strengthen the risk framework.

Risk management heads for the business segments report to the Chief Risk Officer (CRO). The risk management

heads are responsible for ensuring the implementation of the Banks risk framework in their respective domains

in line with the business model of the Bank and also in compliance with SBP guidelines.

The Bank also conducts stress testing analysis across portfolios, by anticipating changes and applying shocksof different intensity values, thereby evaluating their effects on the value of the portfolios.

41.1 Credit Risk

Credit risk is the risk of failure by a client or counterparty to meet its contractual obligations. It is inherent in loans,

commitments to lend and contingent liabilities, such as letters of credit, repurchase agreements (repos and reverse

repos) and securities borrowing and lending transactions.

The objective of credit risk management by the Bank is to ensure that the risk of default by a client or counterparty

is reduced to a minimum, keeping in view the risk management policies of the Bank.

The Bank has established an appropriate credit risk environment which is operating under a sound credit-granting

process, maintaining an appropriate credit administration, measurement and monitoring process and ensuring

adequate controls.

There is a proper credit delegation matrix for review and approving credit applications. Businesses have no credit

approving authority. All credit approvals are accorded by the Credit Officers/ Senior Credit Officers in the Risk

Management Group.

The concept of three initial system is very much in existence in NIB. Based upon regional considerations and

availability of Credit Talent, any initiating unit has to have formal recommendation by the Relationship Manager,

his/ her Team Leader and Regional Head/ Corporate Banking Head/ Group Head. The essence here is that the

credit proposal must not be left to the sole judgement of one person rather, the application of minds must be

diverse and independent of each other.

Following are the basic guiding principles of credit risk management that are embedded in the Bank and across

business segments:

- Clearly defined risk management policies and procedures covering risk identification, acceptance, measurement,

monitoring, reporting and control.

- A well constituted organizational structure clearly defining roles and responsibilities of individuals involved in

taking as well as managing risk.

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2010

ExposedtoYield/Interestraterisk

Effective

Over

1

Over3

Over6

Over1

Over2

Over3

Over5

No

n-interest

Yield/

Total

Upto1

to3

to6

Monthsto1

to2

to3

to5

to10

Over

bearingfinancial

Interest

Month

Month

s

Months

Year

Years

Years

Years

Years

10Years

instruments

rate

(Rupees'000')

On-balancesheetfinancialinstr

uments

Assets

Cashandbalanceswithtreasurybanks

0.00%

8,836,449

8,

836,449

Balanceswithotherbanks

0.00%

2,951,479

2,641,522

309,957

Lendingstofinancialinstitutions

12.11%

6,429,166

5,650,258

778,9

08

Investments

10.10%

51,789,035

1,261,164

24,445,2

15

6,438,990

6,227,196

889,674

3,235,181

1,704,227

289,342

306,563

6,

991,483

Advances

12.31%

74,566,015

10,893,113

49,442,7

12

4,327,109

1,696,181

2,876,093

2,209,288

1,899,236

708,186

514,097

Otherassets

_

3,449,633

_

3,

449,633

148,021,777

20,446,057

74,666,8

35

10,766,099

7,923,377

3,765,767

5,444,469

3,603,463

997,528

820,660

19,

587,522

Liabilities

Billspayable

1,335,493

1,

335,493

Borrowings

11.46%

42,361,934

28,563,313

7,513,2

57

4,468,556

200,912

376,794

329,268

656,699

253,135

Depositsandotheraccounts

7.58%

99,169,373

10,937,759

16,839,2

85

36,699,048

9,172,595

305,670

215,272

18,589

134

24,

981,021

Sub-ordinatedloans

13.72%

3,996,000

3,996,0

00

Otherliabilities

3,582,055

3,

582,055

150,444,855

39,501,072

28,348,5

42

41,167,604

9,373,507

682,464

544,540

675,288

253,269

29,

898,569

On-balancesheetgap

(2,423,078)

(19,055,015)

46,318,2

93

(30,401,505)

(1,450,130)

3,083,303

4,899,929

2,928,175

744,259

820,660

(10,311,047)

NonFinancialNetAssets

16,085,843

TotalNetAssets

13,662,765

Off-balancesheetfinancialinstr

uments

Foreignexchangecontracts-purchase

66,004,625

24,112,287

22,501,9

15

17,536,494

1,853,929

Foreignexchangecontracts-sale

67,312,030

28,820,121

24,938,0

63

13,553,846

Off-balancesheetgap

(1,307,405)

(4,707,834)

(2,436,1

48)

3,982,648

1,853,929

TotalYield/InterestRateRiskS

ensitivityGap

(23,762,849)

43,882,1

45

(26,418,857)

403,799

3,083,303

4,899,929

2,928,175

744,259

820,660

(10,311,047)

CumulativeYield/InterestRateRiskSensitivityGap

(23,762,849)

20,119,2

96

(6,299,561)

(5,895,762)

(2,812,459)

2,087,470

5,015,645

5,759,904

6,580,564

(3,730,483)

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Over1

Over3

Over6

Over1

Over2

Over3

Over5

Total

Upto1

to3

to6

Monthsto1

to2

to3

to5

to10

Over

Month

Months

Months

Year

Years

Years

Years

Years

10Years

41.3.2

MaturitiesofAssetsandLiabilities-BasedonhistoricalpatternoftheAssetsan

dLiabilitiesoftheBank

Assets


7,969,044

7,969,044


1,486,830

1,486,830


14,666,918

14,666,918

Investments

49,598,830

230,353

693,58

6

852,374

27,585,819

5,974,198

3,080,127

3,399,644

2,315,463

5

,467,266

Advances

60,844,380

11,900,829

9,917,07

4

5,533,386

24,090,484

2,798,065

2,419,698

2,436,187

1,073,867

674,790

Operatingfixedassets

2,693,795

20,969

197,70

0

59,760

104,462

170,630

140,201

182,139

262,771

1

,555,163

Intangibleassets

2,054,426

30,604

61,18

8

91,782

163,085

325,419

313,781

575,072

493,495

Deferredtaxassets

11,017,000

(57,921)

(64,576)

(16,418)

242,370

915,391

1,526,863

3,552,319

4,918,972

Otherassets

4,462,407

138,134

2,192,48

9

79,624

1,309,389

665,381

28,011

48,555

824

154,793,630

36,385,760

12,997,46

1

6,600,508

53,495,609

10,849,084

7,508,681

10,193,916

9,065,392

7

,697,219

Liabilities

Billspayable

1,738,422

1,738,422

Borrowings

47,382,031

37,762,783

4,720,05

2

3,130,866

52,996

480,371

822,527

412,436


85,488,268

22,346,311

11,059,56

9

16,407,362

11,601,627

4,950,229

4,791,056

4,782,219

4,772,392

4

,777,503

Sub-ordinatedloans

3,994,400

80

0

800

666,136

1,330,672

1,995,992

Otherliabilities

2,514,005

1,065,981

925,26

2

174,293

253,873

14,947

2,370

77,279

141,117,126

62,913,497

16,705,68

3

19,712,521

11,856,300

5,684,308

6,604,469

7,600,738

5,262,107

4

,777,503

Netassets

13,676,504

(26,527,737)

(3,708,222)

(13,112,013)

41,639,309

5,164,776

904,212

2,593,178

3,803,285

2

,919,716

Sharecapital

103,028,512

Reserves

218,276

Discountonissueofshares

(45,769,623)

AccumulatedLoss

(43,893,095)

Shareholdersequity

13,584,070

Surplusonrevaluationofass

ets-net

92,434

13,676,504

2011

Theabovematurityprofileha

sbeenpreparedinaccordancewiththehistoricalpatter

nofcontractualmaturities.

(Rupees'000')

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Over1

Over3

Over6

Over1

Over2

Over3

Over5

Total

Upto1

to3

to6

Monthsto1

to2

to3

to5

to10

Over

Month

Months

Months

Year

Years

Years

Years

Years

10Years

Assets


8,836,449

8,836,449


2,951,479

2,951,479


6,429,166

5,650,258

778,90

8

Investments

51,789,035

1,261,163

25,167,34

5

1,539,302

6,362,527

1,122,503

4,309,570

4,368,873

1,642,224

6

,015,528

Advances

74,566,015

5,918,283

8,880,33

4

24,760,474

22,511,461

4,034,919

3,435,273

3,346,101

1,016,741

662,429

Operatingfixedassets

2,718,975

22,924

96,01

0

72,175

122,037

197,288

147,295

207,813

264,604

1

,588,829

Intangibleassets

2,419,148

30,818

61,63

4

92,291

183,606

345,735

324,494

600,033

780,537

_

Deferredtaxassets

9,480,983

42,219

84,43

2

126,648

253,806

374,940

501,292

2,512,240

6,188,468

(603,062)

Otherassets

5,158,789

419,205

3,320,89

4

181,170

21,827

323,368

297,119

583,235

11,971

164,350,039

25,132,798

38,389,55

7

26,772,060

29,455,264

6,398,753

9,015,043

11,618,295

9,904,545

7

,663,724

Liabilities

Billspayable

1,335,493

1,335,493

Borrowings

42,361,934

28,563,313

7,513,25

7

4,468,556

200,912

376,794

329,268

656,699

253,135


99,169,373

26,075,388

19,185,24

1

14,189,247

14,058,978

5,104,370

5,101,656

5,030,233

5,137,040

5

,287,220

Sub-ordinatedloans

3,996,000

80

0

800

1,600

666,200

2,661,300

665,300

Otherliabilities

3,824,474

1,192,664

1,528,18

6

401,424

579,639

28,664

15,412

2,370

76,115

150,687,274

57,166,858

28,227,48

4

19,059,227

14,840,329

5,511,428

6,112,536

8,350,602

6,131,590

5

,287,220

Netassets

13,662,765

(32,034,060)

10,162,07

3

7,712,833

14,614,935

887,325

2,902,507

3,267,693

3,772,955

2

,376,504

Sharecapital

40,437,271

Reserves

8,464,894

AccumulatedLoss

(41,592,479)

Shareholdersequity

7,309,686

Advanceagainstproposed

rightsissue

6,352,360

13,662,046

Surplusonrevaluationofass

ets-net

719

13,662,765

2010

Theabovematurityprofileha

sbeenpreparedinaccordancewiththehistoricalpatter

nofcontractualmaturities.

(Rupees'000')

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41.4 Operational Risk Management

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems orfrom external events. The Bank seeks to ensure that key operational risks are managed in a timely and effective

manner through a framework of policies, procedures and tools to identify, assess, monitor, control and report

such risks.

The key objectives of Operational Risk measurement and management include:

Ensuring continued solvency of the Bank through capital adequacy and enhanced understanding and

management of significant operational risk exposures.

Ensuring that customer impact is minimized through proactive and focused risk management practices.

Ensuring senior management attention on significant operational risk exposure areas and that risk mitigation

is given prioritized focus.

The IRMC has the responsibility to supervise and direct the management of operational risks and key operational

risk exposures. The IRMC is also responsible for ensuring that adequate and appropriate policies and proceduresare in place for the identification, assessment, monitoring, control and reporting of operational risks.

The Bank has undertaken the following high-level strategic initiatives for the effective implementation of Operational

Risk Management:

Developing policies, procedures and defining end to end information flow to establish a vigorous governance

infrastructure.

Putting in place risk and control self assessment framework across the bank.

Collection of Operational Loss data across the bank and take remedial / corrective action as required.

42. DATE OF AUTHORIZATION FOR ISSUE

These unconsolidated financial statements were authorized for issue on February 22, 2012 by the Board of Directors

of the Bank.


Chairman / Director




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Annexure - 1


280

DAWOODSPINNING

MILLSLIMITED

MUHAMMADIMRANDAWOOD

352

01-4903314-3

SHEIKHDAWOODAHMAD

59,549

4,205

-

63,754

-

4,205

-

4,205

46BRANDRETHROAD,

SHEIKHAHMADDAWOOD

2

74-88-305116

SHEIKHDAWOODAHMAD

LAHORE.

281

GRACESHOES

SHAHIDRAZA

346

03-7839428-5

GHULMANRASOOL

-

1,161

-

1,161

-

1,161

-

1,161

RAILWAYROAD,

CHOWKALLAMAIQBAL,

SIALKOT.

282

ISLAMABADPHOTO

SERVICE&KOD

AKEXPRESSLAB

MUHAMMADILYAS

611

01-5615049-9

ADBULAZIZ

334

41

280

655

334

41

280

655

SHOPNO.24-B,

BLOCK12-C,

JINNA

HSUPERMARKET,

F-7MARKAZ,

ISLAMABAD.

283

MAHRABPIPEINDUSTRIES

MUSTANSARHAFEEZ

352

01-1681739-1

HAFEEZULLAHKHAN

-

2,271

-

2,271

-

2,196

-

2,196

KALAKHATAIROADJAVEEDPARK,

OPPMADRAS-TUL-BINAT,

SHAHDA

RA,

LAHORE.

284

MANZOOR&SONS

SYEDETHESHAMH

AIDERZAIDI

352

02-4627086-3

SYEDHAMEEDASGHARZAIDI

518

-

873

1,391

518

-

873

1,391

252/A-II,BLOCK-5,

TOWNSHIP,

LAHORE.

285

SABRIINDUSTRIES

SYEDAZIZANWAR

363

02-8884357-1

SYEDANWARALIBUKHARI

10,000

537

-

10,537

-

537

-

537

144CFATIMAJINNAHS.I.E,

NADEEMA

KHTAR

363

02-7868986-5

SYEDANWARALIBUKHARI

DISTRICTSIALKOT.

286

SAMISONSWEAVING

FACTORY

ABDULSAMI

331

00-0595318-7

MUHAMMADSHARIF

-

3,928

-

3,928

-

3,928

-

3,928

P-2NEWC

IVILLINES,

GORAYAROA

D,

FAISALABAD.

287

SHAFYSPORTSWEAR

NARGISMUSTAFA

346

03-1624780-0

GHULAMM

USTAFACH

45,000

2,305

-

47,305

-

2,243

-

2,243

HOUSENO

31/5,

ZAFARALIROAD,

NAZIAALI

346

03-9457984-2

ZULFIQARALICH

SIALKOTCANTT

288

SHAHEENPETROLEUMS

ERVICE

SIRAJUDDIN

413

06-3875860-3

KHANGUL

21,300

6,634

-

27,934

3,300

6,634

-

9,934

MAINSHAHMAKKIROAD,

QACHAQ

ILA,

HYDERABAD

289

T.P

CORPORATION

TARIQ

HAMEEDPURI

331

00-2210978-7

ABDULHAMEEDPURI

12,500

2,681

-

15,181

-

2,158

-

2,158

P-15,

MONGOMRYBAZAR,

FAISALABAD

290

SHAIKHINTERNATIONAL

SHEIKHSOHAILIBRAHIM

420

00-5183618-7

SHEIKHMUHAMMADIBRAHIM

1,012

346

-

1,358

497

346

-

843

MR7/1,

VIRJEESTREET,

JODIABAZAR,

KARACHI.

Statementshowingwritten

-offloansoranyotherfinancialreliefof

fivehundredthou

sandrupeesoraboveprovided

duringtheyea

rendedDecember31,2011

(R

upees'000')

NameofIndividual/partners/

directors

OutstandingLiabilitiesBeforeAdjustments

S.No.

Name&Addressofborrower

Name

NICNo.

Fathers/HusbandsName

Principal

nib d2011.pdf

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