HOUSE BUILDING FINANCE COMPANY LIMITED
ANNUAL REPORT 2018
ANNUAL REPORT
2018
HOUSE BUILDING FINANCE COMPANY LIMITED
ANNUAL REPORT 2018
CONTENTS
Vision, Mission and Core Values
01
About us
• Introduction
• People We Serve
04
Message from the CEO
06
Corporate Information
07
Board of Directors
Board Committees
08
Organogram
09
Management
10
Financial Highlights (6 Years at a Glance)
12
Directors’ Report (Performance Review)
20
Review Report to the Members on Statement of
Compliance with the Public Sector Companies
(Corporate Governance) Rules, 2013
23
Statement of Compliance with the Public Sector
Companies (Corporate Governance) Rules, 2013
(For the year ended December 31, 2018)
24
Statement of Internal Control System
29
Other Information
• Risk Management Framework
• Credit Rating
• Statement of Provident and Pension Fund
investments
• Customer Complaint Handling
30
Independent Auditor’s Report
31
Financial Statements
• Statement of Financial Position
• Profit and Loss Account
• Statement of Comprehensive Income
• Statement of Changes in Equity
• Cash Flow Statement
• Notes to the Financial Statements
34
Annexure-I
85
Branch Network
86
HOUSE BUILDING FINANCE COMPANY LIMITED
VISION
To be the prime housing finance institution in the country, providing
affordable housing solutions to low and low-middle income groups
of population by encouraging new construction in affordable housing
sector.
MISSION
To be a socially responsible and financially viable housing finance
institution.
1
ANNUAL REPORT 2018
CORE VALUES
n
n
n
Integrity
Customer Focus
Commitment to Excellence and Innovation
2
HOUSE BUILDING FINANCE COMPANY LIMITED
3
ANNUAL REPORT 2018
ABOUT US
Introduction
People We Serve
House Building Finance Company Limited (HBFC) is the only
housing finance institution in Pakistan, established in 1952 by
the Government of Pakistan.
As a matter of our mandate, HBFC is focused on providing finance
for the housing needs of lower and middle income citizens.
It was corporatized in 2007 and is now an unlisted public limited
company. State Bank of Pakistan (SBP) and Government of
Pakistan (GoP) jointly hold the capital of HBFC with 90.31% and
9.69% shareholding respectively.
HBFC provides financing facilities for construction and purchase
of houses through its deep rooted and national footprint of 51
Branches, 7 Area offices, 3 Regional offices and the Head Office
based in Karachi.
HBFC has developed various products to serve the needs of such
segments of population. Ghar Aasan Flexi is the major housing
finance product catering to the needs of masses. Further, keeping
in view the deteriorating affordability of low income citizens,
HBFC has launched Ghar Pakistan which is the first fixed-rate
housing finance product in the history of Pakistan. Currently, this
product is being offered at the lowest rate in the industry. Ghar
Pakistan is a milestone towards providing affordable housing to
low and low-middle income population of Pakistan.
Going forward, we are gearing ourselves towards enhancing
mortgages rapidly so as to reduce the huge demand and supply
gap of housing units in the country.
4
HOUSE BUILDING FINANCE COMPANY LIMITED
5
ANNUAL REPORT 2018
Message from the CEO/MD
Housing is not only a universally recognized basic social need1
but also a productive sector of economy. In Pakistan, housing
sector can have significant implications for the development of
the country’s financial markets and can be very instrumental
in poverty reduction, job creation and economic growth as it is
labour intensive and has forward and backward linkages with
more than forty industries. Housing sector also influences and
is influenced by fiscal policy. On the financing side, the recent
policy and regulatory measures address a number of issues like
the availability of long-term funding, revision in the regulatory
requirements to increase the number of qualifying borrowers
etc. Other major issues confronting the housing sector in Pakistan
include high costs of construction and acquisition of land, lack of
standardization in land titling and availability of low cost housing,
and weak enforcement of foreclosure laws.
During the year 2018, House Building Finance Company Limited
(HBFC) continued with its turnaround started in 2017 while
fulfilling its commitment to meet housing finance needs of the
society particularly the middle and lower income segments of
the society. During 2018, HBFC has introduced major structural
changes in order to put it in a better position to meet its objectives.
The change strategy is three pronged: Aligning HR function with
the objectives of the Company; digitization of the processes; and
business development to respond to today’s market demands.
HR has revised its policies accordingly and filled in the gaps by
hiring relevant professionals from open market. Moreover, the
procurement of relevant IT solutions was started in the end of
year 2018 under PPRA rules and is expected to be complete in
2019. HBFC is aggressively working on business development by
introducing sales culture in the organization and diversifying its
available products.
HBFC earned a profit of PKR 1.04 billion in the year 2018 as against
a profit of PKR 1.62 billion in 2017 and a loss of PKR 866 million
in 2016. Total loan disbursement of HBFC during 2018 stood at
PKR 2.039 billion against a total of 1046 new loans. In 2017 HBFC
made a reversal of provision against advances amounting to PKR
655 million and continued with this trend in 2018 as well and
made a reversal of provision against advances amounting to PKR
331 million as opposed to an expense of PKR 869 million in 2016.
HBFC made a cash collection of principal and mark-up amounting
to PKR 3.9 billion in 2018 wherein reduction in NPL stock was PKR
2.1 billion as against the target of PKR 1.8 billion for the year.
Other major initiatives taken during the year 2018 are as follows:
Affordable Fixed Rate Mortgage Product – Ghar Pakistan
For the first time in the history of Pakistan, HBFC is going to
introduce an affordable fixed rate mortgage product (Ghar
Pakistan) for low and low-middle income segments of the
society. Ghar Pakistan being a fixed rate mortgage @ 12 %, upon
its launch, will not only protect customers against rising trend of
KIBOR but also provide them with the desired level of certainty
in payment terms.
1
Hiring of MTOs and Senior Executives
During 2018, focus has been on long term planning and capacity
building of the Company. HBFC inducted 45 MTOs and 05 Key
Executives in 2018 through an open and transparent process of
recruitment. The gaps at middle and senior management levels
are filled by inducting relevant professionals from open market
whereas batch of MTOs was hired to meet the HR needs of the
Company in the long term.
Revitalization of Corporate Sales Activities
HBFC has revitalized the corporate sales activities in the Company
with an aim to creating synergies with the corporate entities in
order to meet housing needs of the general public as well as the
employees of these corporate entities. Some of the initiatives
taken in this regard are expected to materialize in first half of
2019.
Partnership with Pakistan Mortgage Refinance Company
(PMRC)
In order to increase mortgage liquidity for the Company as well
as hedging its risk against fluctuation in KIBOR, HBFC is actively
engaged with PMRC for provision of a fixed rate refinance facility
catering for low and low-middle income segments of the society.
Way Forward
In line with the government’s initiative to build 5 million new
housing units, HBFC will continue to address the housing finance
needs of all particularly middle, low-middle and low income
segments of the society by extending financial facilities directly
to the general public and through tripartite arrangements with
the relevant government organizations and corporate entities.
We plan to increase mortgage penetration by introducing more
products for catering varying needs of different segments of
the society in a more responsive manner. We also intend to
continue our efforts towards improving HBFC’s image as a
customer oriented organization by training our employees,
relocating existing branches to appropriate locations and
opening of customer facilitation centers. In order to ensure
quality of portfolio, proper risk assessment of each loan and
risk management of the whole portfolio shall be continued.
HBFC shall continue with its focused efforts towards reduction
in NPLs by actively pursuing the customers and effective follow
up of recovery litigation. Digital transformation of the Company
is expected to be complete in 2019 that will be greatly helpful
in further improving overall working as well as outlook of the
Company.
Article 25 of the Universal Declaration of Human Rights (1948).
6
HOUSE BUILDING FINANCE COMPANY LIMITED
CORPORATE INFORMATION
Head Office
Bankers
3rd Floor, Finance and Trade Centre, Shahrah-e-Faial,
Karachi, Pakistan.
Habib Bank Limited
MCB Bank Limited
United Bank Limited
Phones:
(+92 21) 35641711-15
Toll Free:
0800-42325
Fax:
(+92 21) 35641752
Website:
www.hbfc.com.pk
Regional Offices
South Region
Front Right Wing of Civic Centre, Hassan Square,
Main University Road, Karachi.
Central Region
HBFC House, 1-Lake Road, Chburji, Lahore.
North Region
Plot No. 81, Street No. 54, Sector G-9/4, I&T Centre, Islamabad.
External Auditors
Deloitte Yousuf Adil Chartered Accountants
www.deloitte.com
7
Legal Advisors
Muhammad Zunoon Khan
Advocate High Court
Federal Shariat Court
ANNUAL REPORT 2018
BOARD OF DIRECTORS*
1
Mr. Mansur-ur-Rehman Khan
Chairman
5
Mr. Munir Ahmed
Director
2
Mr. Azhar Iqbal Kureshi
Director
6
Syed Basit Aly
Director
3
Mr. Arfa Waheed Malik
Director
4
Mr. Ali Mehdi
Director
Mr. Kazim Raza Bhayani
Secretary to the Board of Directors
BOARD COMMITTEES*
1. Audit Committee
3. IT Committee
S. No. Name
Status
S. No. Name
Status
1.
Mr. Azhar Iqbal Kureshi
Chairman/Member
1.
Mr. Azhar Iqbal Kureshi
Chairman/Member
2.
Mr. Arfa Waheed Malik
Member
2.
Mr. Ali Mehdi
Member
3.
Mr. Ali Mehdi
Member
3.
Managing Director
Member
4.
Head of Internal Audit
Secretary
4.
Head of IT
Secretary
4. Risk Management, Compliance &
Corporate Governance Committee
2. HR and Nomination Committee
S. No. Name
Status
1.
Mr. Mansur Ur Rehman Khan
Chairman/Member
2.
Mr. Azhar Iqbal Kureshi
Member
3.
Mr. Ali Mehdi
Member
4.
Managing Director
Member
5.
Head of Human Resource
Secretary
S. No. Name
Status
1.
Mr. Arfa Waheed Malik
Chairman/Member
2.
Mr. Ali Mehdi
Member
3.
Mr. Munir Ahmed
Member
4.
Managing Director
Member
5.
Head of Risk Management
Secretary
5. Credit/Operations and Procurement Committee
S. No. Name
Status
1.
Mr. Azhar Iqbal Kureshi
Chairman/Member
2.
Mr. Mansur Ur Rehman Khan
Member
3.
Mr. Arfa Waheed Malik
Member
4.
Mr. Ali Mehdi
Member
5.
Managing Director
Member
6.
Head of Business & Operations
Secretary
* As of March 31, 2019
8
HOUSE BUILDING FINANCE COMPANY LIMITED
9
ANNUAL REPORT 2018
MANAGEMENT
Syed Basit Aly
Managing Director
Abdul Waheed
Executive Vice President/
Group Head-Internal Audit
Khawaja Ehrar ul Hassan
Ashraf Ali Velji
Executive Vice President/
Chief Financial Officer & Group
Head-Credit Management
Faisal Murad
Tariq Rahman
Executive Vice President/
Group Head Human Resource
Ayaz Ahmed
Executive Vice President/
Group Head Compliance
& Risk Management
Executive Vice President/
Group Head-Business & Operations
Senior Vice President/
Chief Digital Officer
Amjad Masood
Malik Muhammad Nasir Ayyaz
Syed Asad Ali Jafri
Senior Vice President/
Group Head-Treasury &
Fund Management
Senior Vice President/
Group Head-Legal Services
Acting Vice President/
Group Head-SAM & Recovery
10
HOUSE BUILDING FINANCE COMPANY LIMITED
11
ANNUAL REPORT 2018
FINANCIAL HIGHLIGHTS
(6 Years at a Glance)
12
HOUSE BUILDING FINANCE COMPANY LIMITED
13
ANNUAL REPORT 2018
FINANCIAL HIGHLIGHTS
(6 Years at a Glance)
Rs. In millions
Key Performance Indicators
2018
2017
2016
2015
Restated
Restated
2014
2013
Restated
Restated
Paid-up Capital
19,365
19,365
3,001
3,001
3,001
3,001
Shareholder's Equity
16,905
16,713
(366)
(1,075)
833
1,492
-
-
-
11,242
11,242
11,392
8,664
8,166
8,013
7,920
9,467
10,780
11,681
11,512
11,817
11,513
10,206
9,593
32%
45%
42%
33%
45%
-
20,878
20,330
20,906
20,682
20,584
21,133
2,241
2,282
2,607
2,510
2,645
2,778
-
-
1,068
1,068
1,074
1,102
Operating Expenses
1,440
1,026
1,800
1,718
1,653
1,349
Profit/(Loss) before taxation
1,254
2,019
(836)
(729)
156
487
Profit/(Loss) after taxation
1,041
1,625
(866)
(852)
3
382
0.54
1.16
(2.89)
(2.84)
0.01
1.27
Disbursement
2,039
1,230
3,097
3,862
2,292
1,560
Collections
3,937
4,010
4,031
3,813
3,416
3,707
51
51
51
56
56
56
499
458
670
749
746
764
Borrowings
Investments and Cash & Bank Balances
Advances - Net
Non Performing Loans
Total Assets
Rental/Mark-up/Return/Interest earned
Rental/Mark-up/Return/Interest expensed
Earning per share (Rs.)
Branches
Number of Employees
14
HOUSE BUILDING FINANCE COMPANY LIMITED
FINANCIAL HIGHLIGHTS
(6 Years at a Glance)
15
ANNUAL REPORT 2018
FINANCIAL HIGHLIGHTS
(6 Years at a Glance)
16
HOUSE BUILDING FINANCE COMPANY LIMITED
FINANCIAL HIGHLIGHTS
(6 Years at a Glance)
17
ANNUAL REPORT 2018
FINANCIAL HIGHLIGHTS
(6 Years at a Glance)
18
HOUSE BUILDING FINANCE COMPANY LIMITED
19
ANNUAL REPORT 2018
DIRECTORS’ REPORT
Performance Review
20
HOUSE BUILDING FINANCE COMPANY LIMITED
DIRECTORS’ REPORT
Preamble
The year 2018 may well be considered a turning point in HBFC’s
context as a wide range of initiatives were taken by the Board
and Management to address an array of challenges affecting
the organization’s ability to function competitively in its market
segment. While the organization had been traditionally exposed
to considerable credit, market and reputational risks, its
internal capabilities for mitigation of such risks in a sustained
and systematic manner, going into the future, needed focused
attention. This involved steps taken at all levels to initiate a
transformation to organization wide culture of accountability
and professionalism.
Going forward, the Board and Management are confident that
the hands on approach down the line and measures taken
have provided sound grounds to progressively transform the
organization and the people who represent it, to converge to the
expected operational and professional standards. Results have
started to emerge not only in respect of the internal workings of
the company but also in progress made toward tangible reflection
in the market place by way of market share, profitability, quality
of asset portfolio and company’s image and reputation.
The Board has noted with satisfaction the progress made so
far, which could have been accelerated, had there not been
peculiarities stemming out of the history and nature of the
organization over the past several decades. Nevertheless, the
Board has confidence that the foundations laid during the year
coupled with Management’s ability and resolve would cause a
turnaround in company’s fortunes, positive signs of which are
being seen in substantial improvement in the assets portfolio,
induction of qualified and dedicated staff at key positions,
streamlining of internal processes and controls as well as a
planned approach in respect of right person for the right job. The
Board has throughout placed emphasis on instilling a system’s
approach to governance and has caused revision and upgradation
of essential policies and manuals with related ownership
down to the operational levels. While the Board is cognizant
of the longer term nature of transformation of organizational
culture, significant improvements have materialized toward a
performance based approach in running the organization in
several areas of consequence. It is expected that the confidence
reposed by the shareholders in the Board and Management
would be vindicated as HBFC increasingly converges to industry
norms of operational standards.
million as at December 31, 2018, a YoY fall of 1%. The decrease in
advances showcase economic downturn, high inflation eroding
the purchasing power and major recovery drive. Due to the
Company’s strategy to pro-actively monitor the recovery position
and regularization/ rescheduling of the existing accounts, the YoY
decrease in specific provision is 10% as at December 31, 2018.
Return on assets was 4.99% at December 31, 2018 as compared
to 7.99% in December 31, 2017.
Profit and Loss Account
The Company posted post-tax profit of PKR 1,041 million
during 2018 compared to post-tax profit of PKR 1,625 million
in previous year. Resultantly, the EPS of the Company was PKR
0.54 during 2018 as compared to EPS of PKR 1.16 during 2017.
The profitability ratios measured in terms of ROA and ROE were
4.99% and 6.16%, respectively, in 2018 as compared to 7.99%
and 9.72% in 2017.
Gross Mark-up/Interest Income of the Company decreased by
1.78% to reach PKR 2,241 million; comprising house finance
income of PKR 1,631 million, investment income of PKR 599
million and income on employee loans of about PKR 11 million.
Non-Markup/Interest Income decreased by PKR 29 million to
reach 6.60% of the Gross Income in 2018 as compared to 7.77%
in 2017, mainly, due to decrease in profit commission from
insurance company.
Operating expenses of the Company increased by 42.6% i.e. PKR
420 million to PKR 1,404 million in 2018 as compared to 985
million in 2017. The increase is mainly due to the increase in total
compensation expense.
Corporate and Financial Reporting Framework
HBFC has complied with the requirements of the Public Sector
Companies (Corporate Governance) Rules 2013 as practicably
possible. In this connection, the compliance of relevant clauses
of the Code is stated below.
n
PERFORMANCE REVIEW
n
Balance Sheet
The balance sheet size registered a YoY increase of PKR 548
million and reached PKR 20,878 million as at December 31, 2018.
Core equity of the Company increased to PKR 16,905 million due
to total comprehensive income of PKR 192 million. Meanwhile,
the gross advances of the Company decreased to PKR 14,808
21
n
The Board has complied with the relevant principles of Public
Sector Companies (Corporate Governance) Rules 2013, and
has identified the rules that have not been complied with, the
period in which such non-compliance continued, and reasons
for such non-compliance
The financial statements have been drawn up in conformity
with the requirements of the Companies Act 2017 and
present fairly state of its affairs, operating results, cash flow
and changes in equity;
Proper books of accounts have been maintained in the
manner required under Companies Act, 2017;
ANNUAL REPORT 2018
Appropriate accounting policies have been consistently
applied in preparation of financial statements and accounting
estimates are based on rationale and prudent judgment;
n
International Financial Reporting Standards, as applicable in
Pakistan have been followed in preparation of the Financial
Statements;
n
The system of internal control is sound in design and has been
effectively implemented and monitored. The controls which
are in place have been continually reviewed by internal audit
department;
n
All liabilities as regards to the payments on account of taxes,
duties, levies and charges have been fully provided and will
be paid in due course or where claim was not acknowledged
as liability the same is disclosed as contingent liability in the
notes to the accounts;
n
There is no doubts about the Company’s ability to continue as
a going concern;
n
There has been no material departure from the best practices
of corporate governance;
n
The key operating and financial data of the past 6 years is
annexed to this report
n
The directors and key executives of the Company have signed
a “Statement of Ethics and Business Practices”.
n
Pattern of Shareholder
No. of Shareholders
Total Shares Held
6
6
2*
1,936,500,000
Total
1,936,500,006
*Note: GoP holds 9.69% shares and SBP holds 90.31%
Board Meetings
During the year 2018, 7 (seven) meetings of the Board of
Directors were held. The details of attendance by each director
at the meetings are given below:
Name of Directors
Meetings
Attended
1
Mr. Mansur-Ur-Rehman Khan
7 of 7
2
Mr. Ali Mehdi
7 of 7
3
Mr. Arfa Waheed Malik
7 of 7
4
Mr. Azhar Iqbal Kureshi
7 of 7
5
Mr. Munir Ahmad
5 of 7
6
Mian Asif Said
7 of 7
7
Syed Shabbar Zaidi
1 of 7
8
Syed Basit Aly
6 of 7
S.No.
Audit Committee Meetings
During 2018, 5 (five) meetings of Audit Committee were held.
The details of attendance by each director at the meetings are
given below:
Meetings
Attended
S.No.
Name of Directors
1
Syed Shabbar Zaidi
3 of 5
2
Mr. Ali Mehdi
2 of 2
3
Mr. Arfa Waheed Malik
3 of 3
4
Mr. Mansur-Ur-Rehman Khan
2 of 2
5
Mian Asif Said
3 of 3
Summarized Operating and Financial Data of Last Six Years
Details
Paid up capital
Reserves
Total Assets
Profit / (loss)
before tax
Profit / (loss)
after tax
2013
2014
2015
2016
(Restated)
2017
2018
(Restated)
3,001
3,001
3,001
3,001
19,365
19,365
713
714
714
714
1,039
1,247
21,132
20,583
20,682
20,906
20,330
20,878
487
108
(729)
(836)
2,019
1,254
382
3
(852)
(866)
1,625
1,041
Sd/___________________
Chief Executive Officer
Karachi
Date: March 21, 2019
22
HOUSE BUILDING FINANCE COMPANY LIMITED
REVIEW REPORT TO THE MEMBERS ON STATEMENT OF COMPLIANCE WITH THE PUBLIC SECTOR COMPANIES
(CORPORATE GOVERNANCE) RULES, 2013
We have reviewed the enclosed Statement of Compliance with
the best practices contained in the Public Sector Companies
(Corporate Governance) Rules, 2013 (the Rules) prepared by
the Board of Directors of the House Building Finance Company
Limited (the Company) for the year ended December 31, 2018.
The responsibility for compliance with the Rules is that of the
Board of Directors of the Company. Our responsibility is to
review, to the extent where such compliance can be objectively
verified, whether the Statement of Compliance reflects the status
of the Company’s compliance with the provisions of the Rules,
and report if it does not and to highlight any non-compliance
with the requirements of the Rules. A review is limited primarily
to inquiries of the Company’s personnel and review of various
documents prepared by the Company to comply with the Rules.
As part of audit of the financial statements, we are required to
obtain an understanding of the accounting and internal control
system sufficient to plan the audit and develop an effective audit
approach. We are not required to consider whether the Board’s
statement on internal control covers all risks and controls, or to
form an opinion on the effectiveness of such internal controls,
the Company’s corporate governance procedures and risks.
The Rules require the Company to place before the Audit
Committee, and upon recommendation of the Audit Committee,
place before the Board of Directors for their review and approval
of the Company’s related party transactions distinguishing
23
between transactions carried out on terms equivalent to those
that prevail in arm’s length transactions and transactions which
are not executed at arm’s length price and recording proper
justification for using such alternate pricing mechanism. We are
only required and have ensured compliance of this requirement
to the extent of the approval of the related party transactions
by the Board of directors upon recommendation of the Audit
Committee. We have not carried out any procedures to determine
whether the related party transactions were undertaken at arm’s
length price or not.
Based on our review, nothing has come to our attention, which
causes us to believe that the Statement of Compliance does not
appropriately reflect the Company’s compliance, in all material
aspects with the Rules, as applicable to the Company for the year
ended December 31, 2018.
Sd/___________________
Chartered Accountant
Engagement Partner:
Nadeem Yousuf Adil
Dated: March 25, 2019
Place: Karachi
ANNUAL REPORT 2018
STATEMENT OF COMPLIANCE WITH THE PUBLIC SECTOR COMPANIES (CORPORATE GOVERNANCE)
RULES, 2013 (FOR THE YEAR ENDED DECEMBER 31, 2018)
I.
This statement presents the overview of the compliance with the Public Sector Companies (Corporate Governance) Rules, 2013
(hereinafter called “the Rules”) issued for the purpose of establishing a framework of good governance, whereby a public sector
company is managed in compliance with the best practices of public sector governance.
II.
The company has complied with the provisions of the Rules in the following manner:
Y
S. No.
Provision of the Rules
Rule No.
1.
The independent directors meet the criteria of independence, as defined under
the Rules.
2(d)

3(2)

N
Tick the relevant box
The Board has at least one-third of its total members as independent
Directors. At present the Board includes:
Category
2.
Names
Date of
appointment
Independent
Directors
1. Mr. Mansur-Ur-Rehman Khan
Chairman
2. Mr. Azhar Iqbal Kureshi
3. Mr. Ali Mehdi
4. Mr. Arfa Waheed Malik
Executive
1. Syed Basit Aly
Chief Executive Officer
31 Oct 2017
Non-Executive
directors
1. Mr. Munir Ahmad
28 Mar 2016
4 Jan 2018
27 Nov 2017
27 Nov 2017
27 Nov 2017
3.
The directors have confirmed that none of them is serving as a director on more
than five public sector companies and listed companies simultaneously,
except their subsidiaries.
3(5)

4.
The appointing authorities have applied the fit and proper criteria given in the
Annexure to the Rules in making nominations of the persons for election as
Board members under the provisions of the Act.
3(7)

5.
The chairman of the Board is working separately from the chief Executive of the
Company.
4(1)

6.
The chairman has been elected by the Board of directors except where Chairman of the Board has been appointed by the Government
4(4)

7.
The Board has evaluated the candidates for the position of the chief executive
on the basis of the fit and proper criteria as well as the Guidelines specified by
the Commission.
(Not applicable where the chief executive has been nominated by the
Government)
5(2)

24
HOUSE BUILDING FINANCE COMPANY LIMITED
S. No.
Provision of the Rules
Rule No.
Y
Tick the relevant box
(a) The company has prepared a “Code of Conduct” to ensure that Professional
standards and corporate values are in place.
(b) The Board has ensured that appropriate steps have been taken to disseminate
it throughout the company along with its supporting policies and procedures,
including posting the same on the company’s website i.e. www.hbfc.com.pk
5(4)

9.
The Board has established a system of sound internal control, to ensure
compliance with the fundamental principles of probity and propriety; objectivity,
integrity and honesty; and relationship with the Stakeholders, in the manner
prescribed in the Rules.
5(5)

10.
The Board has developed and enforced an appropriate conflict of interest policy
to lay down circumstances or considerations when a person may be deemed to
have actual or potential conflict of interests, and the procedure for disclosing
such interest.
5(5)(b) (ii)

11.
The Board has developed and implemented a policy on anti-corruption to
minimize actual or perceived corruption in the Company.
5(5)(b) (vi)

12.
The Board has ensured equality of opportunity by establishing open and fair procedures for making appointments and for determining terms and conditions of
service.
5(5)(c) (ii)

13.
The Board has ensured compliance with the law as well as the company’s internal
rules and procedures relating to public procurement, tender regulations,
and purchasing and technical standards, when dealing with suppliers of goods
and services.
5(5)(c) (iii)

14.
The Board has developed a vision or mission statement and corporate strategy
of the company.
5(6)

15.
The Board has developed significant policies of the company. A complete record
of particulars of significant policies along with the dates on which they were
approved or amended, has been maintained.
5(7)

16.
The Board has quantified the outlay of any action in respect of any service
delivered or goods sold by the Company as a public service obligation, and has
submitted its request for appropriate compensation to the Government for
consideration.
5(8)

17.
The Board has ensured compliance with policy
received from the Government.
5(11)

8.
(c) The Board has set in place adequate systems and controls for the identification
and redress of grievances arising from unethical practices.
25
directions requirements
N
ANNUAL REPORT 2018
S. No.
Provision of the Rules
Rule No.
Y
Tick the relevant box
(a) The Board has met at least four times during the year.
6(1)

(b) Written notices of the Board meetings, along with agenda and working
papers, were circulated at least seven days before the meetings.
6(2)

(c) The minutes of the meetings were appropriately recorded and circulated.
6(3)

19.
The Board has monitored and assessed the performance of senior management
on annual/half-yearly/quarterly basis* and held them accountable for
accomplishing objectives, goals and key performance indicators set for this
purpose.
8 (2)
20.
The Board has reviewed and approved the related party transactions placed
before it after recommendations of the audit committee. A party wise record
of transactions entered into with the related parties during the year has been
maintained.
9

10

11

18.
N

(a) The Board has approved the profit and loss account for, and balance sheet
as at the end of, the first, second and third quarter of the year as well as the
financial year end.
21.
(b) In case of listed PSCs, the Board has prepared half yearly accounts and
undertaken limited scope review by the auditors.
(c) The Board has placed the annual financial statements on the company’s
website.
22.
All the Board members underwent an orientation course arranged by the company to apprise them of the material developments and information as specified
in the Rules.
(a) The Board has formed the requisite committees, as specified in the Rules.
23.
(b) The committees were provided with written term of reference defining their
duties, authority and composition.
(c) The minutes of the meetings of the committees were circulated to all the
Board members.
(d) The committees were chaired by the following non-executive directors:
Committee
Number of
members

12


Name of chairman
Audit Committee
Three
Mr. Azhar Iqbal
Kureshi
HR & Nomination Committee
Four
Mr. Mansur-UrRehman Khan
Risk Management, Compliance &
Corporate Governance Committee
Four
Mr. Arfa Waheed
Malik
Credit/Operations and Procurement
Committee
Five
Mr. Azhar Iqbal
Kureshi
26
HOUSE BUILDING FINANCE COMPANY LIMITED
Y
S. No.
Provision of the Rules
Rule No.
24.
The Board has approved appointment of Chief Financial Officer, Company
Secretary and Chief Internal Auditor, by whatever name called, with their
remuneration and terms and conditions of employment.
13

25.
The Chief Financial Officer and the Company Secretary have requisite qualification
prescribed in the Rules.
14

26.
The company has adopted International Financial Reporting Standards notified
by the Commission in terms of sub-section (1) of section 225 of the Act.
16

27.
The directors’ report for this year has been prepared in compliance with the
requirements of the Act and the Rules and fully describes the salient matters
required to be disclosed.
17

28.
The directors, CEO and executives, or their relatives, are not, directly or indirectly,
concerned or interested in any contract or arrangement entered into by or on
behalf of the company except those disclosed to the company.
18

19

20

21 (1)
and
21(2)

21(3)

(a) A formal and transparent procedure for fixing the remuneration packages
of individual directors has been set in place and no director is involved in
deciding his own remuneration.
29.
Tick the relevant box
(b) The annual report of the company contains criteria and details of remuneration
of each director.
The financial statements of the company were duly endorsed by the chief
executive and chief financial officer before consideration and approval of the
audit committee and the Board.
30.
The Board has formed an audit committee, with defined and written terms of
reference, and having the following members:
31.
The chief executive and chairman of the Board are not members of the audit
committee.
(a) The Chief Financial Officer, the chief internal auditor, and a representative
of the external auditors attended all meetings of the audit committee at
which issues relating to accounts and audit were discussed.
(b) The audit committee met the external auditors, at least once a year, without
the presence of the chief financial officer, the chief internal auditor and other
executives.
32.
(c) The audit committee met the chief internal auditor and other members of
the internal audit function, at least once a year, without the presence of chief
financial officer and the external auditors.
27
N
ANNUAL REPORT 2018
S. No.
Provision of the Rules
Rule No.
Y
N
Tick the relevant box
(a) The Board has set up an effective internal audit function, which has an audit
charter, duly approved by the audit committee.
33.
(b) The chief internal auditor has requisite qualification and experience
prescribed in the Rules.
22

(c) The internal audit reports have been provided to the external auditors for
their review.
34.
The external auditors of the company have confirmed that the firm and all its
partners are in compliance with International Federation of Accountants (IFAC)
guidelines on Code of Ethics as applicable in Pakistan.
23(4)

35.
The auditors have confirmed that they have observed applicable guidelines
issued by IFAC with regard to provision of non-audit services.
23(5)

Explanation for Non-Compliance with the Public Sector Companies (Corporate Governance) Rules, 2013
S. No.
1.
2.
Rule/subrule no.
Nature of non-Compliance
Future course of action
8(1)
The performance evaluation of members of
the Board including the Chairman and Chief
Executive shall be undertaken annually by
the Government for which the Government
shall enter into performance contract with
each member of the Board at the time of his
appointment.
The requirement was not considered applicable to HBFC in the
past. However, on pointation by the external auditors, supporting clarification is sought from State Bank of Pakistan/Ministry
of Finance.
The Board shall monitor and assess the
performance of senior management on
a periodic basis, at least once a year and
hold them accountable for accomplishing
objectives, goals and key performance
indicators set for this purpose.
Although a structured and documented evaluation was not
made during the year as key personnel were being recruited
and inducted in the organization, throughout the year, all key
personnel as and when they came on Board were required by
the Board to formulate and share their respective milestones
and targets with regular presentations to the Board, of progress
made and impeding issues as well as actions taken / to be taken
for addressing them. In the coming year, yearly reviews by the
Board in structured and documented format shall be carried
out.
8(2)
Sd/_________________________
Sd/______________________________
CEO
SYED BASIT ALY
CHAIRMAN
MR. MANSUR-UR-REHMAN KHAN
28
HOUSE BUILDING FINANCE COMPANY LIMITED
STATEMENT OF INTERNAL CONTROL SYSTEM
The Internal Control System comprised policies and procedures
designed to identify and mitigate the risk in processes and
operations to achieve the overall objective of the Company.
The board is responsible to oversee the overall policies of
the company on internal controls and the management is
responsible for implementing strategies and policies approved
by the board to maintain an adequate and effective Internal
Control Environment. The company’s system of internal
control is designed to provide reasonable assurance regarding
achievement of the following objectives:
1.
2.
3.
Effectiveness and efficiency of operations;
Reliability of financial data and report; and
Compliance with laws and regulations.
The Company’s Internal Control System has been designed to
provide reasonable assurance to the shareholders and Board of
Directors however, these systems may not entirely eliminate the
risk of misreporting against material misstatement and failure of
certain controls under a changing environment.
The internal audit department independently evaluates the
effectiveness of control system and contributes to ongoing
effectiveness of control systems by giving recommendations for
the improvement in systems and procedures. The internal audit
independently reports all significant and material findings of the
internal & external auditors and regulators on a priority basis
29
with current resolution status to the Board Audit Committee,
who ensured that management has taken appropriate corrective
actions and has put in place a system to minimize repetition to
ensure strengthening of the control environment.
Sd/__________________
Chief Internal Auditor
Sd/__________________
Chief Financial Officer
Sd/____________________
Group Head Compliance
& Risk Management
Dated: December 31, 2018
Place: Karachi
ANNUAL REPORT 2018
OTHER INFORMATION
Risk Management Framework
The responsibility of risk management stems down from the Board
of Directors to the management for operational assessment /
mitigation. HBFC’s risk management framework provides principles
for identifying, assessing and monitoring risks within the Company.
These principals are stringent but adaptable to keep up with the
changing risk requirement by being innovative and proactive
and helping in making improved and informed decision making
throughout the company’s operations. The Company is fully
compliant with SBP’s guidelines on BASEL and risk management.
The objective of Operational Risk includes the safeguarding of
assets from inappropriate use or from loss and fraud.
Risk analytics
To ensure a prudent distribution of asset portfolio, the Company
manages its lending and investment activities within a framework
of Borrower, Product, Geographical and Sector exposure limits.
Regular Monitoring
Regular monitoring of the advances portfolio is carried out which
focuses on early problem recognition and influences the front
office to carry out an assessment of the borrower’s ability to
rectify the identified problem / weakness within a reasonable
time-frame, consider tighter structuring of facilities, confirm that
there are no critical deficiencies in the existing security position
and, if possible, arrange for strengthening of the same through
obtaining additional collateral.
The Board of Directors approves a policy framework and oversees
the Risk Management function of the Company through the Risk
Management Committee. The Committee of the Board has been
constituted to facilitate focused oversight of various risks. The
main goals of Risk Management are to oversee the enterprisewide risk policies and guidelines under the guidance of the Board
of Directors and its Risk Management Committee, to establish
and monitor limits, to set and manage decision processes and
to implement risk assessment methods. Credit Committee
overview the credit risk while market and liquidity risk oversees
by Assests Liability Committee.
Credit Rating
Credit Risk
Statement of Provident and Pension Fund Statements
Credit Risk is the potential for financial loss arising from
borrower’s or counter party inability to meet its obligations.
Exposures to credit risk for the company arise primarily from
advances to customers, lending to financial institutions and
investment activities. Credit risk is the major risk faced by HBFC.
Market Risk
Market risk is the risk that the value of on and off-balance
sheet items of a financial institution will be adversely affected
by movements in market rates or prices such as interest rates,
foreign exchange rates and equity prices. The Board of Directors is
responsible for reviewing all market risk policies.
Dealing activities of HBFC include investment in T-Bills, TDRs,
LOPs, TFCs, PIBs, Shares, Reverse Repo and Sukuk etc.
The market risk management framework of the Company
comprises of business unit actually undertaking the risk, middle
office and the Assests Liability Committee.
JCR-VIS Credit Rating Company Limited vide its report dated May
18, 2018 has assigned the entity rating of House Building Finance
Company Limited (HBFC) at ‘A/A1’ (Single A/A-One). Outlook on
the assigned rating is ‘stable’.
Investment of Provident Fund and Pension Fund as on December
31, 2018 were PKR 901 million and PKR 4,189 million respectively.
Customer Complaint Handling
Customer Grievances Handling Mechanism (CGHM) in House Building
Finance Company Limited encompasses institution’s philosophy
about customer complaints, the hierarchy system and procedures
to deal with the complaints. Since the mechanism serves as first line
of defense against the grievance of Company’s customers, it is more
important that it should be fair, transparent, accessible and efficient.
A CGHM oriented to achieve customer satisfaction not only reduces
operational and reputational risk of the Company but also provides
valuable information that helps to promote a customer oriented
culture in the company. This mechanism consistently improves the
customer handling procedures and processes. During the year 2018,
total 84 complaints were received, on average 8 days were taken to
resolve the complaints.
The complete picture of complaints handling for the year 2018
is as follows.
Operational Risk
Operational risk is the risk of loss resulting from inadequate or
failure of internal processes, people and system or from external
events. Operational risk is inherent in the HBFC business and
operational activities.
The HBFC has instituted sound internal controls through policies,
plans and processes affected by the Board of Directors for controlling
and mitigating potential operational risk.
Complaints
Received/Lodged
No. of
Complaints
Complaints
Disposed-off as of
December 31, 2018
Lodged directly with
HBFC
69
68
Received from SBP
14
13
Received from MoF
01
01
Total
84
82
30
HOUSE BUILDING FINANCE COMPANY LIMITED
INDEPENDENT AUDITOR’S REPORT
To the members of House Building Finance Company Limited
Report on the Audit of the Financial Statements
Opinion
We have audited the annexed financial statements of House
Building Finance Company Limited (the Company), which
comprise the statement of financial positon as at December 31,
2018 and the statement of profit and loss account, statement
of comprehensive income, the statement of changes in equity,
the cash flow statement for the year then ended, and notes
to the financial statements, including a summary of significant
accounting policies and other explanatory information, 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 the audit.
In our opinion and to the best of our information and according to
the explanations given to us, the statement of financial position,
profit and loss account, statement of comprehensive Income,
the statement of changes in equity and the cash flow statement
together with the notes forming part thereof conform with the
accounting and reporting standards as applicable in Pakistan and
give the information required by the Companies Act, 2017 (XIX of
2017), in the manner so required and respectively give a true and
fair view of the state of the Company’s affairs as at December
31, 2018 and of the profit, other comprehensive income, the
changes in equity and its cash flows for the year then ended.
Basis for Opinion
We conducted our audit in accordance with International
Standards on Auditing (ISAs) as applicable in Pakistan. Our
responsibilities under those standards are further described
in the Auditor’s Responsibilities for the Audit of the Financial
Statements section of our report. We are independent of the
Company in accordance with the International Ethics Standards
Board for Accountants’ Code of Ethics for Professional Accountants
as adopted by the Institute of Chartered Accountants of Pakistan
(the Code) and we have fulfilled our other ethical responsibilities
in accordance with the Code. We believe that the audit evidence
we have obtained is sufficient and appropriate to provide a basis
for our opinion.
Emphasis of Matter
We draw attention to the following matters, in respect of which
our opinion is not qualified;
I)
II)
Note 4.1.1 and 13.2 to the financial statements, which
explains the impact of change in accounting policy
of demand charges as income that were previously
recognized as deferred credit; and
Note 16.3 to the financial statements, which explains
31
contingency relating to a pending case in respect of pay
increase of certain Company employees. The ultimate
outcome of the matter cannot presently be determined.
Information Other than the Financial Statements and
Auditor’s Report Thereon
Management is responsible for the other information. The other
information comprises the information Included in the Director’s
report. Other Information does not include the financial
statements and our auditor’s report thereon.
Our opinion to the financial statements does not cover the other
information and we do not and will not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information identified above
and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our
knowledge obtained in the audit, or otherwise appears to be
materially misstated. If based on the work we have performed,
we conclude that there is a material misstatement of this other
information, we are required to report that fact. However, we
have nothing to report in this regard.
Responsibilities of Management and Board of Directors
for the financial statements
Management is responsible for the preparation and fair
presentation of the financial statements in accordance with the
accounting and reporting standards as applicable in Pakistan and
the requirements of Companies Act, 2017 (XIX of 2017) and for
such internal control as management determines is necessary to
enable the preparation of financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the financial statements, management is
responsible for assessing the Company’s ability to continue as
a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting
unless management either intends to liquidate the Company or
to cease operations, or has no realistic alternative but to do so.
Board of directors are responsible for overseeing the Company’s
financial reporting process.
ANNUAL REPORT 2018
Auditor’s Responsibilities for the Audit of the financial
statements
Our objectives are to obtain reasonable assurance about whether
the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinion. Reasonable assurance
is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with ISAs as applicable in Pakistan
will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably
be expected be expected to influence the economic decisions of
users taken on the basis of these financial statements.
We communicate with the board of directors regarding, among
other matters, the planned scope and timing of the audit and
significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
Report on Other Legal and Regulatory Requirements
We further report that in our opinion:
a)
Proper books of account have been kept by the Company
as required by the Companies Act, 2017 (XIX of 2017);
b)
The statement of financial positon, profit and loss
account, statement of comprehensive income, the
statement of changes in equity and the statement of cash
flows together with the notes thereon have been drawn
up in conformity with the Companies Act, 2017 (XIX of
2017) and are in agreement with the books of account
and returns;
c)
Investments made, expenditure incurred and guarantees
extended during the year were for the purpose of the
Company’s business; and
d)
No zakat was deductible at source under the Zakat and
Ushr Ordinance, 1980 (XVIII of 1980).
As part of an audit in accordance with ISAs as applicable in
Pakistan, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:
•
Identify and assess the risks of material misstatement of
the financial statements, whether due to fraud or error,
design and perform audit procedures responsive to those
risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinion. The risk
of not detecting a material misstatement resulting from
fraud is higher than for one resulting from error, as fraud
may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
•
Obtain an understanding of internal control relevant to
the audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose
of expressing an opinion on the effectiveness of the
Company’s internal control.
•
Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and
related disclosures made by management.
•
Conclude on the appropriateness of management’s use of
the going concern basis of accounting and, based on the
audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast
significant doubt on the Company’s ability to continue
as a going concern. If we conclude that a material
uncertainty exists, we are required to draw attention
in our auditor’s report to the related disclosures in the
financial statements or, if such disclosures are inadequate,
to modify our opinion. Our conclusions are based on the
audit evidence obtained up to the date of our auditor’s
report. However, future events or condition may cause
the Company to cease to continue as a going concern.
•
Evaluate the overall presentation, structure and content
of the financial statements, including the disclosures,
and whether the financial statements represent the
underlying transactions and events in a manner that
achieves fair presentation.
The engagement partner on the audit resulting in this
independent auditor’s report is Nadeem Yousuf Adil.
Sd/____________________
Chartered Accountants
Date: March 25, 2019
Place: Karachi
32
HOUSE BUILDING FINANCE COMPANY LIMITED
33
ANNUAL REPORT 2018
FINANCIAL STATEMENTS OF
HOUSE BUILDING FINANCE COMPANY LIMITED
FOR THE YEAR ENDED DECEMBER 31, 2018
34
HOUSE BUILDING FINANCE COMPANY LIMITED
STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2018
Note
2018
2017
----------- Rupees in ‘000 -----------
ASSETS
Cash and balances with treasury banks
Balances with other banks
Lendings to financial institutions
Investments
Advances
Fixed assets
Intangible assets
Deferred tax assets
Other assets
5
6
7
8
9
10
11
12
13
34,387
412,020
4,206,891
4,010,448
11,681,180
312,517
1,503
218,934
20,877,881
53,531
771,582
851,542
6,489,513
11,512,363
292,028
687
358,828
20,330,074
3,972,657
3,972,657
16,905,224
3,616,650
3,616,650
16,713,424
19,365,000
1,246,974
(20,845)
(3,685,905)
16,905,224
19,365,000
1,038,728
2,174
(3,692,477)
16,713,424
LIABILITIES
Bills payable
Borrowings
Deposits and other accounts
Liabilities against assets subject to finance lease
Subordinated debt
Deferred tax liabilities
Other liabilities
14
NET ASSETS
REPRESENTED BY
Share capital
Reserves
(Deficit) / surplus on revaluation of assets
Conversion of liabilities into share capital
Accumulated loss
15
16
CONTINGENCIES AND COMMITMENTS
17
The annexed notes 1 to 38 and Annexure I form an integral part of these
financial statements.
Sd/_______________________
Sd/___________________
Sd/_____________
Sd/_____________
Sd/___________
President/Chief Executive
Chief Financial Officer
Director
Director
Director
35
ANNUAL REPORT 2018
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED DECEMBER 31, 2018
Note
Mark-up/return/interest earned
Mark-up/return/interest expensed
Net mark-up/interest income
2018
2017
----------- Rupees in ‘000 -----------
18
2,241,405
2,241,405
2,281,936
2,281,936
671
(1,838)
149,009
147,842
(487)
177,697
177,210
2,389,247
2,459,146
(1,404,297)
(25,602)
(9,878)
(1,439,777)
(984,643)
(41,016)
(230)
(1,025,889)
949,470
348,193
(39,310)
(3,860)
1,433,257
678,374
(93,947)
1,430
1,254,493
2,019,114
(213,263)
(393,786)
1,041,230
1,625,328
NON MARK-UP/INTEREST INCOME
Fee and commission income
Dividend income
Foreign exchange income
Income / (loss) from derivatives
(Loss) / gain on securities
Other income
Total non-markup / interest income
19
20
Total income
NON MARK-UP/INTEREST EXPENSES
Operating expenses
Workers' Welfare Fund
Other charges
Total non-markup / interest expenses
21
22
Profit before provisions
Reversal of provision and write offs - net
Relief package and reprocessing charges
Share of profit from associate
23
24
8.6.1
PROFIT BEFORE TAXATION
Taxation
25
PROFIT AFTER TAXATION
----------- Rupees -----------
Earnings per share - basic and diluted
26
0.54
1.16
The annexed notes 1 to 38 and Annexure I form an integral part of these
financial statements.
Sd/_______________________
Sd/___________________
Sd/_____________
Sd/_____________
Sd/___________
President/Chief Executive
Chief Financial Officer
Director
Director
Director
36
HOUSE BUILDING FINANCE COMPANY LIMITED
STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2018
Note
Profit after taxation for the year
2018
2017
-------- Rupees in ‘000 -------1,041,230
1,625,328
(23,018)
3,860
(826,412)
(913,890)
191,800
715,298
Other comprehensive income Items that may be reclassified
to profit and loss account in subsequent periods:
Movement in (deficit) / surplus on revaluation of
available for sale securities
Items that will not be reclassified to profit and loss account in
subsequent periods:
Remeasurement loss on defined benefit obligations
29.7.2
Total comprehensive income for the year
The annexed notes 1 to 38 and Annexure I form an integral
part of these financial statements.
‘The annexed notes 1 to 38 and Annexure I form an integral part of these financial
statements.
Sd/_______________________
Sd/___________________
Sd/_____________
Sd/_____________
Sd/___________
President/Chief Executive
Chief Financial Officer
Director
Director
Director
37
ANNUAL REPORT 2018
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2018
(Deficit) /
Surplus on
Accumulated
Share capital
Total
revaluation of
losses
investments
---------------------------------------- Rupees in ‘000 ---------------------------------------Statutory
reserve
Opening balance (January 1, 2017) - as
previously reported
3,001,000
713,662
(1,686)
(5,757,934)
(2,044,958)
-
-
-
1,679,085
1,679,085
3,001,000
713,662
(1,686)
(4,078,849)
(365,873)
Profit after taxation for the year 2017 - as
restated
-
-
-
1,625,328
1,625,328
Other comprehensive income - as restated
-
-
3,860
(913,890)
(910,030)
Transfer to statutory reserve - as restated
-
325,066
-
(325,066)
-
Conversion of liability into share capital
16,364,000
-
-
-
16,364,000
Opening balance - January 01, 2018 as restated
19,365,000
1,038,728
2,174
(3,692,477)
16,713,424
Profit after taxation for the year 2018
-
-
-
1,041,230
1,041,230
Other comprehensive income - net of tax
-
-
(23,018)
(826,412)
(849,430)
Transfer to statutory reserve *
-
208,246
-
(208,246)
-
19,365,000
1,246,974
(20,844)
(3,685,905)
16,905,224
Recognition of deferred credit - note 4.1.1
Opening balance (January 1, 2017) - as
restated
Transactions with owners recorded
directly in equity
Closing balance - December 31, 2018
* This represents reserve created under BPD circular No. 15 of 2004 which requires the Company to credit to its reserve an amount not
less than 20% of its after tax profit till such time the reserve equals the amount of paid-up capital. Thereafter, a sum not less than 5% of
its after tax profit shall be credited to the said reserve.
‘The annexed notes 1 to 38 and Annexure I form an integral part of these financial statements.
Sd/_______________________
Sd/___________________
Sd/_____________
Sd/_____________
Sd/___________
President/Chief Executive
Chief Financial Officer
Director
Director
Director
38
HOUSE BUILDING FINANCE COMPANY LIMITED
CASH FLOW STATEMENT FOR THE YEAR ENDED DECEMBER 31, 2018
Note
2018
2017
---------- (Rupees in '000) ----------
CASH FLOW FROM OPERATING ACTIVITIES
1,254,493
(671)
1,253,822
2,019,114
2,019,114
32,970
450
(331,943)
(1,566)
(9,230)
919
25,602
3,860
(278,938)
974,884
31,361
331
(681,460)
(33)
7,480
41,016
(1,430)
(602,735)
1,416,379
(3,355,349)
155,714
43,446
(3,156,189)
(451,354)
1,015,554
9,388
573,588
Other liabilities (excluding current taxation)
(490,663)
(2,671,967)
(2,246,602)
(256,635)
Income tax paid
Net cash flow used in operating activities
(116,815)
(2,788,782)
(63,135)
(319,770)
2,461,416
671
(56,318)
4,307
2,410,076
382,109
(9,135)
221
373,195
(378,706)
53,425
825,113
446,407
771,688
825,113
Profit before taxation
Less: Dividend income
Adjustments:
Depreciation
Amortization
Reversal of provision and write-offs
Gain on sale of fixed assets
Gain on sale of investment in associate
Reconciliation adjustments
Provision of SWWF
Share of loss/(profit) from an associate
10.2
11
23
20
24
8.6.1
(Increase)/ decrease in operating assets
Lendings to financial institutions
Advances
Others assets (excluding advance taxation)
(Decrease) in operating liabilities
CASH FLOW FROM INVESTING ACTIVITIES
Net investments
Dividends received
Investments in operating fixed assets
Proceeds from sale of fixed assets
Net cash flow from investing activities
(Decrease) / increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
26
26
‘The annexed notes 1 to 38 and Annexure I form an integral part of these
financial statements.
Sd/_______________________
Sd/___________________
Sd/_____________
Sd/_____________
Sd/___________
President/Chief Executive
Chief Financial Officer
Director
Director
Director
39
ANNUAL REPORT 2018
HOUSE BUILDING FINANCE COMPANY LIMITED
NOTES TO THE ACCOUNTS FOR THE YEAR ENDED DECEMBER 31, 2018
1.
STATUS AND NATURE OF BUSINESS
House Building Finance Company Limited (the Company) is an unlisted public limited company incorporated in Pakistan on June 13, 2006
under the Companies Ordinance, 1984 (now the Companies Act 2017). The registered office of the Company is situated at Finance and
Trade Centre Building, Sharah-e-Faisal, Karachi, in the province of Sindh. Pursuant to a vesting order SRO.I/2007 dated July 25, 2007
issued by Finance Division - Government of Pakistan effective from January 1, 2007, the Company had taken over all assets, running
business, contracts, liabilities and proceedings of the House Building Finance Corporation established in 1952 under the House Building
Finance Corporation Act, 1952 (XVIII of 1952) by the Government of Pakistan from closing of the business on December 31, 2006 and
has also changed its name from House Building Finance Corporation Limited to House Building Finance Company Limited in 2010.
The Company is designated as a financial institution by the Federal Government and is providing financing facilities for the purchase,
construction and renovation of houses through a network of 50 branch offices and 3 regional offices throughout Pakistan including
Azad Jammu and Kashmir. According to credit rating report dated May 18, 2018 of JCR-VIS Credit Rating Company Limited, the long
term and short term ratings of the Company are “A” and “A-1”.
2.
BASIS OF PRESENTATION
These financial statements have been prepared in accordance with the requirement of the annual financial statements issued by
State Bank of Pakistan through BPRD circular no. 02 of 2018.
2.1
Statement of Compliance
These financial statements have been prepared in accordance with approved accounting and reporting standards as applicable in
Pakistan. Approved accounting and reporting standards comprise of:
-
International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as are
notified under the Companies Act, 2017;
-
Provisions of and directives issued under the Banking Companies Ordinance, 1962 and the Companies Act, 2017; and
-
Directives issued by the State Bank of Pakistan (SBP) and the Securities and Exchange Commission of Pakistan (SECP).
Whenever the requirements of the Banking Companies Ordinance 1962, the Companies Act, 2017 or the directives issued by
the SBP and the SECP differ with the requirements of IFRS, the requirements of the Banking Companies Ordinance, 1962, the
Companies Act, 2017 and the said directives shall prevail.
The SBP through its BSD Circular no. 10 dated August 26, 2002 has deferred the applicability of International Accounting Standard
(IAS) 39, ‘Financial Instruments: Recognition and Measurement’ and International Accounting Standard (IAS) 40, ‘Investment
Property’ till further instructions. Further, according to the notification of the SECP dated April 28, 2008, International Financial
Reporting Standard (IFRS) 7, ‘Financial Instruments: Disclosures’ has not been made applicable for companies engaged in housing
finance services. Accordingly, the requirements of these standards have not been considered in the preparation of these financial
statements. However, investments have been classified and valued in accordance with the requirements prescribed by the SBP
through various circulars.
2.2
Amendments to published approved accounting standards that are effective for the year ended December 31,
2018
The following amendments to existing standards have been published that are applicable to the Company’s financial statements
covering annual periods, beginning on or after the following dates:
2.2.1 New accounting standards / amendments and IFRS interpretations that are effective for the year ended
December 31, 2018
The following standards, amendments and interpretations are effective for the year ended December 31, 2018. These standards,
interpretations and amendments are either not relevant to the Company’s operations or are not expected to have significant
impact on the Company’s financial statements other than certain additional disclosures:
40
HOUSE BUILDING FINANCE COMPANY LIMITED
-
Amendments to IAS 7 ‘Statement of Cash Flows’ - Amendments as a result of the disclosure initiative
-
Amendments to IAS 12 ‘Income Taxes’ - Recognition of deferred tax assets for unrealised losses
-
IFRIC 22 ‘Foreign Currency Transactions and Advance Consideration’. Provides guidance on transactions where consideration
against non-monetary prepaid asset / deferred income is denominated in foreign currency.
The State Bank of Pakistan (SBP) through its BPRD Circular No.02 of 2018 dated January 25, 2018 has amended the format of
annual financial statements of banks. All banks are directed to prepare their annual financial statements on the revised format
effective from the accounting year ending December 31, 2018. Accordingly, the Bank has prepared these financial statements on
the new format prescribed by the State Bank of Pakistan. The adoption of new format required certain recognition requirements,
reclassification of comparative information and also introduced additional disclosure requirements. Accordingly a third statement
of financial position has been presented at the beginning of the preceding period (i.e. December 31, 2016) in accordance with the
requirement of International Accounting Standard 1 – Presentation of Financial Statements.
2.2.2 New accounting standards and IFRS interpretations that are 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 amendments are either not relevant to the Company’s
operations or are not expected to have significant impact on the Company’s financial statements other than certain additional
disclosures:
Effective from accounting period
beginning on or after
-
IFRS 15 ‘Revenue from Contracts with Customers’
July 1, 2018
-
IFRS 16 ‘Leases’
January 1, 2019
-
Amendments to IAS 28 ‘Investments in Associates and Joint Ventures’ Longterm interests in Associates and Joint Ventures
January 1, 2019
-
Amendments to IAS 19 ‘Employee Benefits’. Plan amendment, curtailment or
settlement
January 1, 2019
-
IFRIC 23 ‘Uncertainty over Income Tax Treatments’. Clarifies the accounting
treatment in relation to determination of taxable profit (tax loss), tax bases,
unused tax losses, unused tax credits and tax rates, when there is uncertainty
over income tax treatments under IAS 12 ‘Income Taxes’.
January 1, 2019
-
Amendments to References to the Conceptual Framework in IFRS Standards
-
Amendments to IFRS 3 ‘Business Combinations’ Amendment in the definition
of business’
January 1, 2020
-
Amendments to IAS 1 ‘Presentation of Financial Statements’ and IAS 8
‘Accounting Policies, Changes in Accounting Estimates and Errors’. Clarify
the definition of ‘Material’ and align the definition used in the Conceptual
Framework and the Standards
January 1, 2020
IFRIC 23 ‘Uncertainty over Income Tax Treatments’: Clarifies the accounting
treatment in relation to determination of taxable profit (tax loss), tax bases,
unused tax losses, unused tax credits and tax rates, when there is uncertainty
over income tax treatments under IAS 12 ‘Income Taxes’.
January 1, 2020
IFRS 9 - Financial Instruments
January 1, 2019
-
-
January 1, 2020
2.2.3 Further, following new standards have been issued by IASB which are yet to be notified by the SECP for the
purpose of applicability in Pakistan.
IFRS 1 - First Time Adoption of International Financial Reporting Standards
IFRS 14 - Regulatory Deferral Accounts
IFRS 17 - Insurance Contracts
41
ANNUAL REPORT 2018
The management anticipates that these new standards, interpretations and amendments will be adopted in the Company’s
financial statements as and when they are applicable and adoption of these new standards, interpretations and amendments,
except for IFRS 9, IFRS 15 and IFRS 16, may have no material impact on the financial statements of the Company in the period of
initial application.
The Company is in process of assessing the full impact of these standards
3.
BASIS OF MEASUREMENT
3.1
Accounting convention
These financial statements have been prepared under the historical cost convention except that investments classified as held for
trading and available-for-sale are measured at fair values, excluding investment in associate which is carried using equity method
and staff retirement benefit schemes that are stated at the present value of the obligation.
3.2
Critical accounting estimates and judgments
The preparation of financial statements in conformity with approved accounting standards requires management to make
judgments, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income
and expenses. It also requires management to exercise judgment in application of its accounting policies. The estimates and
associated assumptions are based on historical experience and various other factors that are believed to be reasonable under
the circumstances. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects
only that period, or in the period of the revision and future periods if the revision affects both current and future periods.
The areas where various assumptions and estimates were significant to the Company’s financial statements or where judgments
were exercised in application of accounting policies are as follows:
a.
Classification of investments
Held-for-trading
In classifying investments as “held-for-trading” the Company has determined securities which are acquired with the intention to
trade by taking advantage of short term market fluctuations in market prices / interest rate movements and dealer’s margin.
Held-to-maturity
In classifying investments as “held-to-maturity” the Company follows the guidance provided in SBP circulars on classifying nonderivative financial assets with fixed or determinable payments and having fixed maturity in which the Company has positive
intent and ability to hold to maturity. In making this judgment, the Company evaluates its intention and ability to hold such
investments till maturity.
Available-for-sale
The investments which are not classified as “held for trading” or “held to maturity” are classified as “available for sale”.
b.
Provision against non-performing advances and investments
The Company regularly reviews its loan portfolio to assess the amount of non-performing advances, and provision required thereagainst. While assessing this requirement various factors including the delinquency in account, financial position of the borrower,
forced sale value and requirements of the Prudential Regulations are considered.
The Company determines that available-for-sale and held-to-maturity 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 Company evaluates among other factors, the normal volatility in market price (in case of listed
securities). 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.
42
HOUSE BUILDING FINANCE COMPANY LIMITED
c.
Operating assets, residual value, depreciation and amortization
Estimates with respect to residual values, useful lives and pattern of flow of economic benefits are based on the analysis of the
management of the Company. Further, the Company reviews the value of assets for possible impairment on an annual basis. Any
change in the estimates in the future might affect the carrying amount of respective item of property, plant and equipment, with
a corresponding effect on the depreciation charged and impairment.
d.
Employees retirement benefit plans
The liabilities for employees retirement benefits are determined as per actuarial advice using the Projected Unit Credit Method.
The actuarial advice involves assumptions about discount rates, expected rates of return on assets, future salary increases and
future pension increases as disclosed in note 29.2. Changes in these assumptions in future years may affect the liability / asset
under these plans in future years.
3.3
Functional and presentation currency
Items included in the financial statements are measured using the currency of the primary economic environment in which the
Company operates. The financial statements have been presented in Pakistani Rupee, which is the Company’s functional and
presentation currency.
4.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The significant accounting policies adopted in the preparation of these financial statements are the same as those applied in the
preparation of the financial statements of the Company for the year ended December 31, 2017 except for change in accounting
policy as mentioned below:
4.1
Change in accounting policies
4.1.1 Deferred credit
Until last year, the Company was recording demand charges recovered after June 30, 2000, net of recovery expenses, as deferred
credits. Such accounting treatment was followed because of the requirement of section 24(20)(d) of the House Building Finance
Corporation (HBFC) Act, 1952 as amended by the HBFC (Amendment) Ordinance, 2001 (HBFC Ordinance). However, as a result of
transfer of assets and liabilities of the Corporation to the Company (under Companies Ordinance, 1984) due to SRO dated July 25,
2007 on July 25, 2007, the HBFC Ordinance was not considered applicable. Since the Company was considered a company under
Companies Ordinance, 1984 the Board and management considered that the requirements of HBFC Act and HBFC Ordinance was
not applicable on the Company since July 25, 2007. In 2016, the Board (after obtaining legal opinion to support the view of the
non-applicability of the HBFC Ordinance) vide its resolution dated April 22, 2016 approved the recognition of net demand charges
relating to conventional schemes as income.
In this connection, management vide its letter reference HBFC/HOK/CFO/2016/2231 to SBP dated August 15, 2016 explained
the nature of the accounts and asked for approval to adopt the treatment to take these deferred credits (related to conventional
schemes) to income. However, SBP vide its letter BPRD/BRP/2016-30100 asked the Company to obtain a legal opinion to evaluate
if there are legal restrictions on transfer of this amount. Following submission of information requested and legal opinion, the SBP
vide its letter no. BPRD/RPD/21633/2018 dated October 04, 2018 stated that HBFC is allowed to take up the subject matter with
their Board for taking a decision in accordance with the applicable laws, regulations and provisions of SRO 941(1)/2009 dated
October 31, 2009, issued by the Finance Division, Ministry of Finance. The Board in its meeting held on October 31, 2018 approved
transfer of deferred credit amount pertaining to conventional schemes along with the mark up thereon as of September 30, 2018
amounting to Rs. 1,689,623,398/- to the retained earnings / income whereas the amount pertaining to Flexi Scheme (i.e., under
Islamic mode of financing) as of September 30, 2018 amounting to PKR 33,060,757/- shall be kept in the Other obligation account.
Although the SBP has given the direction in the current year, the abovementioned adjustment related to demand charges has
been accounted for as a change in accounting policy, as explained above, the Board had felt in previous years that this should
have been recognized as income, except for demand charges related to Ghar Asaan Flexi Scheme that is based on Islamic concept
of Diminishing Musharakha and Ijarah and as per the advice of a qualified Shariah Scholar, the accumulated amount under such
scheme shall be donated for charity purposes.
As stated in note 14.1, the effect of this change in accounting policy, which is applied with retrospective effect, is as follows:
43
ANNUAL REPORT 2018
As at December 31, 2017
Previously stated
Change
Restated
------------------------- (Rupees in '000') ------------------------------
Impact on Statement of Financial Position
Accumulated loss
Statutory reserve
Other liabilities
(5,375,751)
1,037,680
(5,300,971)
1,683,274
1,047
1,684,321
(3,692,477)
1,038,727
(3,616,650)
172,460
1,620,091
1.16
5,236
5,236
-
177,697
1,625,328
1.16
708,374
5,236
713,611
2,013,876
2,200,348
5,236
5,236
2,019,113
2,246,602
Impact on Profit and Loss Account
Other income
Profit after taxation
Earnings per share
Impact of Statement of Comprehensive Income
Impact of Cash Flow Statement
Profit before taxation
Other liabilities
As at December 31, 2016
Previously stated
Change
Restated
------------------------- (Rupees in ‘000’) ------------------------------
Impact on Statement of Financial Position
Accumulated loss
Other liabilities
(5,757,934)
(6,587,429)
1,679,085
1,679,085
(4,078,849)
(4,908,344)
4.1.2 As stated in note 2.2.1, surplus / deficit on investments which was previously shown below equity have now been included as part
of equity. These deficit / surplus aggregate to Rs. 20.844 million as at December 31, 2018 (2017: Rs 2.174 million, 2016: Rs. 1.686
million)
4.1.3 As stated in note 2.2.1, reversal of provision against advances and investments amounting to Rs. 325.451 million and Rs. 6.492
million respectively which were previously shown separately in the profit and loss account have now been shown as part of other
provisions / write-offs in note 23.
4.2
Bank balances
Cash and cash equivalents
It is carried in the balance sheet at cost and for the purpose of cash flow statement, it consist of cash in hand and balances with
the State Bank of Pakistan (SBP) and other banks in current and deposit accounts.
Cash in transit
Collection in transit as on the reporting date received from the borrowers / partners at the branches is treated as cash in transit
and included in the bank balances.
4.3
Lendings to / borrowings from financial institutions
The Company enters into transactions of borrowings (repos) from and lending (reverse repos) to financial institutions at contracted
rates for a specified period of time. These are recorded as under:
44
HOUSE BUILDING FINANCE COMPANY LIMITED
Sale under repurchase obligations
Securities sold with a simultaneous commitment to repurchase at a specified future date (repos) continue to be recognized
in the statement of financial position and are measured in accordance with accounting policies for investment securities. The
counterparty liability for amounts received under these agreements is included in borrowings from financial institutions. The
difference between sale and repurchase price is treated as mark-up/return/interest expense and is accrued over the term of the
related repo agreement.
Purchase under resale obligations
Securities purchased with a corresponding commitment to resell at a specified future date (reverse repos) are not recognized
in the statement of financial position, as the Company does not obtain control over the securities. Amounts paid under these
agreements are included in lendings to financial institutions. The difference between purchase and resale price is treated as markup/return/interest income and is accrued over the term of the related reverse repo agreement.
Other lendings
These are secured 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 time proportionate basis using effective interest rate method except for mark-up on
impaired/delinquent lendings, which are recognized on receipt basis.
Other borrowings
These are recorded at the proceeds received. Mark-up on such borrowings is charged to the profit and loss account on time
proportion basis using effective interest method.
4.4
4.5
Revenue recognition
-
Mark-up / return on regular advances, and investments and deposits is recognized on accrual time proportion basis. Mark
-up / return on classified advances and investments is recognized on receipt basis.
-
Mark-up income on Ghar Aasan Scheme is recognized on the basis of share in rental income and share in appreciation in
value of property.
-
Mark-up income on housing finance under Interest Bearing Scheme is not recognized since July, 2000 pursuant to the
decision of the Honorable Supreme Court of Pakistan.
-
Income from sale of houses under housing projects is recognized using stage of completion of contract.
-
Dividend income, except for dividend on investment in associate i.e. accounted for under equity method, is recognized
when the right to receive the dividend is established.
-
Gain / loss on disposal of investments are recognized in the profit and loss account.
Advances
Housing finance advance
Advances are stated net of general and specific provisions. The general and specific provisions are made in accordance with the
requirements of the Prudential Regulations and other directives issued by the State Bank of Pakistan (SBP) and are charged to the
profit and loss account.
Non-performing advances are written off only when all possible courses of action to achieve recovery have proved unsuccessful.
The Company determines write-offs in accordance with the criteria prescribed by the SBP.
4.6
Investments
Investments of the Company, other than investment in associate, are classified as held for trading, held-to-maturity and available
for sale.
45
ANNUAL REPORT 2018
Initial measurement
All “regular way” purchases and sales of investments are recognized on the trade date, i.e., the date that the Company commits
to purchase or sell the asset. Regular way purchases or sales are purchases or sales of investments that require delivery of assets
within the time frame generally established by regulation or convention in the market place.
Investments are initially recognized at fair value, which in the case of investments other than held-for-trading, includes transaction
costs associated with the investments. Transaction cost on investment held for trading are expensed as incurred.
Subsequent measurement
(a)
Held-for-trading
These are measured at subsequent reporting dates at fair value. Gains and losses on re-measurement are included in the profit
and loss account.
(b)
Held-to-maturity
These are measured at amortized cost using the effective interest rate method, less any impairment loss recognized to reflect
irrecoverable amounts.
(c)
Available-for-sale
Quoted-securities classified as available-for-sale investments are measured at subsequent reporting dates at fair value. Any
surplus / deficit arising thereon is kept in a separate account as shown in the statement of financial position as part of equity and
charged to the profit and loss account when actually realized upon disposal or when the investment is considered to be impaired.
Unquoted equity securities are valued at the lower of cost and break-up value. A decline in the carrying value is charged to the
profit and loss account. The break-up value of these equity securities is calculated with reference to the net assets of the investee
company as per the latest available audited financial statements. Investments in other unquoted securities are valued at cost less
impairment losses.
Provision for diminution in the value of securities (except term finance certificates and sukuks) is made for impairment, if any.
Provision for diminution in the value of term finance certificates is made as per the aging criteria prescribed by the Prudential
Regulations issued by the SBP.
(d)
Investment in associate
Investment in associate, where the Company has significant influence, is accounted for using equity method of accounting wherein
the Company’s share of underlying net assets of the investee company is recognized as the carrying amount of such investment.
Differences between the amount previously recognized and the amount calculated at each year end is recognized in the profit and
loss account as share of profit or loss of associate. Any distribution received out of such profits is credited to the carrying amount
of investment in associated undertaking.
Gains and losses on disposal of investments are dealt with through the profit and loss account in the year in which they arise.
The carrying values of investments are reviewed for impairment at each financial reporting date. Where any such indications exist
that the carrying values exceed the estimated recoverable amounts, provision for impairment is made through the profit and loss
account.
4.7
Operating fixed assets
Property and equipment
Property and equipment are stated at cost less accumulated depreciation and impairment losses (if any). Cost of property and
equipment consists of historical cost, borrowing cost pertaining to erection / construction period of qualifying assets and other
directly attributable costs of bringing the asset to working condition. When parts of an item of property and equipment have
different useful lives, they are accounted for as separate items of property and equipment.
46
HOUSE BUILDING FINANCE COMPANY LIMITED
Depreciation on property and equipment is charged to income using the ‘Straight Line Method’ over the useful life of the asset
at the rates mentioned in note 10.2. The residual values, useful lives and depreciation method are reviewed and adjusted,
if appropriate, at each reported date. Depreciation charge commences from the day when the asset is available for use and
continues till the day the asset is discontinued either through disposal or retirement.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be
measured reliably. All other repairs and maintenance are charged to the profit and loss account when incurred.
Any gain or loss on disposal of the assets is included in the profit and loss account in the year of disposal.
Intangibles
Intangible assets having finite useful life are stated at cost less accumulated amortization and impairment losses, if any. Intangible
assets comprise of cost of computer software and patents, which are amortized using the ‘Straight Line Method’ over their useful
lives as stated in note 11 Amortization is charged from the month of acquisition and up to the month of deletion. The useful lives
and amortization method are reviewed and adjusted, if appropriate, at each reporting date.
Costs associated with maintaining computer software are recognized as an expense when incurred.
Capital work-in-progress
Capital work-in-progress is stated at cost accumulated up to the reporting date and represents expenditure incurred on property
and equipment in the course of construction / development. These expenditure are transferred to relevant category of property
and equipment as and when the assets become available for use.
Impairment of non-financial assets
The carrying amount of assets are reviewed at each reporting date for impairment whenever events or changes in circumstances
indicate that the carrying amounts of the assets may not be recoverable. If such indication exists, and where the carrying value
exceeds the estimated recoverable amount, assets are written down to their recoverable amount. The recoverable amount is
higher of an asset’s fair value less cost to sell and value in use. The resulting impairment loss is taken to profit and loss account.
A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s
recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased
to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of
depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit and loss
account.
4.8
Taxation
Income tax expense comprises of current and deferred tax. Income tax expense is recognized in the profit and loss account except
to the extent that it relates to items recognized directly in equity or in other comprehensive income.
Current
Provision for current taxation is based on taxable income at the current rate of tax after taking into account applicable tax credits,
rebates and exemptions available, if any. 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 recognized using the liability method on all temporary differences, at the reporting date between the tax base of
assets and liabilities and their carrying amounts for the financial reporting purposes. Deferred tax is calculated at the tax rates that
are expected to apply when the differences are expected to reverse, based on the tax rates that have been enacted or substantially
enacted at the financial reporting date.
Deferred tax liability is generally recognized for all taxable temporary differences. Deferred tax asset is recognized to the extent
that it is probable that future taxable profits will be available against which the asset can be utilized.
47
ANNUAL REPORT 2018
The carrying amount of deferred tax asset is reviewed at each statement of financial position date and reduced to the extent that
it is no longer probable that sufficient taxable profit will be available to allow whole or part of the asset to be utilized.
Deferred tax is charged or credited in the profit and loss account, except in the case of items credited or charged to equity, if any,
in that case it is included in equity.
4.9
Employee benefits
a.
Defined benefit plan
Pension Fund
The Company operates an approved funded pension scheme for all its employees who have been in full time employment for at
least 10 years. The scheme provides pension based on the employees’ last drawn pensionable salary. Contributions are made to
the scheme on the basis of actuarial recommendation.
Post retirement medical benefits
The Company provides post retirement medical facility to an employee in the following events:
-
Retirement
Early retirement from service
Death/disability during or after service
The Company’s post retirement medical benefits’ structure is as follows:
Executives / officers their spouse and dependent children
Entitlement
-
One gross pension
One gross pension
One gross pension
For hospitalization
For consultation/pathological test etc.
For cost of medicine
Clerical staff
Entitlement
-
One gross pension
One gross pension
Two gross pension
For hospitalization
For consultation/pathological test etc.
For cost of medicine
Non-clerical staff
Entitlement
-
One and half gross pension
One and half gross pension
Three gross pension
For hospitalization
For consultation/pathological test etc.
For cost of medicine
The actuarial gains/losses on re-measurement of defined benefit obligations are recognized in the other comprehensive income.
b.
Defined contribution plan
The Company also operates an approved non-contributory Provident Fund scheme for all its employees. Contributions are made
to the Fund by the employees at the rate of 12% of their basic salaries in accordance with the Fund’s rules.
c.
Employees’ compensated absences
Employees of the Company are entitled to carry forward and accumulate their unavailed leaves. The rules of the leave encashment
scheme state that the employee shall be entitled to encash 50% of his balance subject to maximum of 180 days i.e. he is allowed
to accumulate his balance up to 365 days. The employees can avail their leave balance in excess of 365 days at any time as the
excess balance will not be encashed at retirement and will lapse. The Company provides for employees compensated absences
on the basis of actuarial valuation in accordance with the requirements of IAS-19. Actuarial valuation of the scheme is carried out
every year and the latest valuation was carried out at December 31, 2018.
48
HOUSE BUILDING FINANCE COMPANY LIMITED
d.
Accounting policy - defined benefit plan
Actuarial gains and losses are recognized in other comprehensive income (OCI) in the periods in which they occur. Amounts
recorded in the profit and loss account are limited to current and past service costs, gains or losses on settlements, and net
interest income (expense). All other changes in the net defined benefit obligation are recognized directly in other comprehensive
income with no subsequent recycling through the profit and loss account.
4.10 Foreign currency transactions and translations
Monetary assets and liabilities in foreign currency are translated into Rupees at the applicable rate of exchange prevailing at the
reporting date. Foreign currency transactions during the year are translated into Pakistani Rupee applying the exchange rate at the
date of respective transactions. Gains and losses on translation are included in profit and loss account currently.
4.11 Financial instruments
Financial assets and liabilities
Financial instruments carried on the statement of financial position include cash and bank balances, lendings to financial
institutions, investments, advances, certain receivables, borrowings from financial institutions, deposits and certain other
liabilities. The particular recognition methods adopted for significant financial assets and financial liabilities are disclosed in the
individual policy statements associated with them. Financial assets are de-recognized when the contractual right to future cash
flows from the asset expire or is transferred along with the risk and reward of the asset. Financial liabilities are de-recognized
when obligation specified in the contract is discharged, cancelled or expired. Any gain or loss on de-recognition of the financial
assets and liabilities is recognized in the profit and loss account of the current period.
Off setting
Financial assets and financial liabilities are only offset and the net amount is reported in the financial statements when there is a
legally enforceable right to set-off the recognized amount and the Company intends either to settle on a net basis, or to realize the
assets and to settle the liabilities simultaneously. Income and expense items of such assets and liabilities are also off-set and the
net amount is reported in the financial statements.
4.12 Provisions
Provisions are recognized when the Company 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 financial reporting date and are adjusted to reflect the current best estimate.
4.13 Borrowing costs
Borrowing costs specific to a significant addition of a project during its construction / erection period is capitalized. Other borrowing
costs are charged to the profit and loss account as and when incurred.
4.14 Earnings per share
The Company presents basic and diluted earnings per share (EPS). Basic EPS is calculated by dividing the profit or loss, as the case
may be, attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding
during the year. Diluted EPS is determined by adjusting the profit attributable to ordinary shareholders and the weighted average
number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, if any.
4.15 Demand charges
Demand charges (penalties) of flexi scheme on late payment by the partners are credited to ‘Deferred Credit’ account. This
amount is utilized for charity purposes after netting of recovery charges whereas demand charges of conventional schemes is
charged to income as approved by the Board.
49
ANNUAL REPORT 2018
5.
CASH AND BALANCES WITH TREASURY BANKS
Note
2018
2017
----------- Rupees in '000 -----------
With State Bank of Pakistan in
Local currency current account
5.1
34,315
53,462
With National Bank of Pakistan in
Local currency deposit account
5.2
72
34,387
69
53,531
5.1
This represents the amount required to be maintained by the Company in accordance with the SBP’s regulations.
5.2
The bank account carries mark-up at rate 5.08% (2017: 3.75%) per annum.
6.
BALANCES WITH OTHER BANKS
In Pakistan
In deposit account
In term deposit receipts
Note
6.1
6.2
2018
2017
----------- Rupees in ‘000 -----------
212,020
200,000
412,020
6.1
These bank accounts carry mark-up at rates ranging from 3.78% to 8.5% (2017: 4% to 6%) per annum.
6.2
These term deposit receipts carry mark-up at the rate of 11% (2017:6.50%) per annum.
7.
LENDINGS TO FINANCIAL INSTITUTIONS
Note
Letters of placement
Repurchase agreement lendings(Reverse Repo)
7.1
7.2
Less: provision held against Lending to Financial Institutions
Lending to Financial Institutions - net of provision
7.3
271,582
500,000
771,582
2018
2017
----------- Rupees in ‘000 -----------
605,683
3,656,891
4,262,574
(55,683)
4,206,891
362,175
551,542
913,717
(62,175)
851,542
300,000
100,000
150,000
5,909
49,774
605,683
100,000
100,000
100,000
5,909
56,266
362,175
7.1 Particulars of letters of placement
In local currency
Habib Metropolitan Bank Ltd (HMB)
Pak Oman Investment Co. Limited (POICL)
Pak Brunei Investment Company Limited (PBICL)
PAIR Investment Company Limited (PICL)
Trust Investment Bank Limited (TIBL)
First Dawood Investment Bank Limited (FDIBL)
7.1.1
7.1.1
7.1.2
7.1.3
7.1.4
7.1.1 These represent the clean placements made on December 31, 2018 for a period of 2 days at the mark-up rate of 10.30% and
10.40%per annum.
7.1.2 This represents the clean placement made on December 26, 2018 for a period of 36 days at the mark-up rate of 10.95% per
annum.
50
HOUSE BUILDING FINANCE COMPANY LIMITED
7.1.3 This represents clean placement made on November 17, 2008 for a period of 14 days at the mark-up rate of 28% per annum. The
transaction remained unsettled at maturity and rescheduling has been made twice. Mark-up accrued up to February 15, 2012
has been received. The Company filed a suit in the Banking Court for the recovery of outstanding principal along with mark-up.
The Banking Court decreed the case in favor of the Company on October 12, 2015. Execution application has been filed by the
Company with notice issued to TIBL for attachment of assets of TIBL. However, on prudent basis, the Company has maintained
100% provision against outstanding receivable.
7.1.4 This represents clean placement made on September 12, 2008 for a period of 94 days at the mark-up rate of 17% per annum.
The transaction remained unsettled at maturity and consequently the Company filed a suit against FDIBL in the Sindh High Court
(SHC) for the recovery of outstanding principal. However, the Company on prudent basis has maintained 100% provision against
outstanding receivable amount in its books of accounts. The SHC decreed the case in favor of the Company on November 05,
2010. Supreme Court of Pakistan, ordered to pay the principal and cost of funds to HBFC in twelve monthly installments. FDIBL
paid twelve installments with total of Rs. 18.733 million as per their own schedule prepared by FDIBL which was not accepted
by HBFC up to March 2017. HBFC filed Execution application in March 2018 for recovery of Cost of funds of Rs. 77.650 million as
well as remaining Principal of Rs.56.266 million. Two applications were filed in the Sindh High Court on 20.03.2018 as rejoinder to
Execution No.46 for sale of attached securities and release of Rs. 6 million from NAZIR a/c (as received being proceeds of attached
TFC of Ghareebwal Cement Factory on or after 15.10.2015), the matter was argued and reserved for orders in April 2018.
Both applications for sale of attached securities as well as release of Rs. 6 million from the NAZIR account to HBFC were accepted.
The Company approached the Nazir High Court and received/ realized a cheque of Rs. 6.492 million from NAZIR on 03.08.2018
which reduced the the lending balance of First Dawood Investment Bank to Rs. 49.77 million (principal amount). Further the
Company is waiting for next action of NAZIR High Court for selling the unlisted securities already attached.
Note
7.2
2018
2017
----------- Rupees in ‘000 -----------
Repurchase agreement lendings (Reverse Repo)
In local currency
1,475,879
1,189,332
499,722
491,958
3,656,891
Pak Oman Investment Company Limited
United Bank Limited
Samba Bank Limited
Habib Metropolitan Bank Limited
PAIR Investment Company Limited
Pak Libya Holding Company (Pvt) Limited
7.2.1
300,840
250,702
551,542
7.2.1 This reverse repo carry mark-up at rate of 10.10% to 10.40% (2017: 6.03%) per annum.
7.2.2 The maturity date of these reverse repo is ranging from January 03, 2019 to February 28, 2019.
7.3
Particulars of provision
Opening balance
Provision made during the year
Provision reversed during the year
Closing balance
51
2018
2017
----------- Rupees in ‘000 ----------62,175
(6,492)
55,683
63,290
(1,114)
62,175
ANNUAL REPORT 2018
7.4
Securities held as collateral against
Lending to financial institutions
Market Treasury Bills
Pakistan Investment Bonds
Total
2018
2017
Further
Further
Held by
Held by
given as
Total
given as
Total
bank
bank
collateral
collateral
------------------------------------- Rupees in '000 ------------------------------------3,656,891
3,656,891
-
3,656,891
3,656,891
551,542
551,542
-
551,542
551,542
7.4.1 The market value of securities held as collateral against repurchase agreement lending amounted to Rs. 3.657 billion.
7.5
Category of classification
2018
Classified
Lending
2017
Provision held
Classified
Lending
Provision held
----------------------------- Rupees in ‘000 ----------------------------Domestic
Loss
55,683
55,683
62,175
62,175
52
53
8.2
8.1
8.
(71,740)
4,103,033
(20,845)
-
-
(2,275)
(17,087)
(1,483)
(20,845)
4,010,448
-
-
3,354,983
584,060
63,285
8,120
4,010,448
6,559,079
51,240
26,240
2,344
45,000
73,584
6,124,240
302,839
7,175
6,434,255
(71,740)
-
(26,240)
(45,000)
(71,240)
(500)
(500)
2,174
-
-
3,180
(1,006)
2,174
6,489,513
51,240
2,344
2,344
6,127,420
301,833
6,675
6,435,929
(71,740)
4,103,033
Total Investments
(26,240)
(45,000)
(71,240)
(500)
(500)
-
-
26,240
45,000
71,240
9,603
63,785
73,388
3,357,258
601,147
3,958,405
(20,845)
-
-
(1,483)
(1,483)
(2,275)
(17,087)
(19,362)
4,010,448
-
-
8,120
63,285
71,405
3,354,983
584,060
3,939,043
6,559,079
51,240
26,240
45,000
2,344
73,584
7,175
7,175
6,124,240
302,839
6,427,080
(71,740)
-
(26,240)
(45,000)
(71,240)
(500)
(500)
-
2,174
-
-
-
3,180
(1,006)
2,174
6,489,513
51,240
2,344
2,344
6,675
6,675
6,127,420
301,833
6,429,254
2018
2017
Cost
/
Provision
Cost/
for Surplus /
Carrying
Surplus /
Carrying
Amortised Provision
Amortised for diminudiminution
(Deficit)
Value
(Deficit)
Value
cost
tion
cost
-------------------------------------------------------------- Rupees in ‘000 --------------------------------------------------------------
-
-
(26,240)
(45,000)
(71,240)
(500)
(500)
Associates
Takaful Pakistan Limited
8.1.4
8.1.5
8.1.3
Fully paid-up ordinary shares:
Listed Companies
Unlisted Companies
Term Finance Certificates, Debentures,
Bonds & Participation Term Certificates
Unlisted Sukuk Bonds
Certificate of Investments
Term Deposit Receipts
8.1.1
8.1.2
Market Treasury Bills
Pakistan Investment Bonds
Investments by segments:
Total Investments
8.6
Associates
Takaful Pakistan Limited
26,240
45,000
71,240
8.1.4
8.1.5
3,357,258
601,147
63,785
9,603
4,031,793
2018
2017
Cost
/
Cost /
for Surplus /
Carrying
for Surplus /
Carrying
Amortised Provision
Amortised Provision
diminution
(Deficit)
Value
diminution
(Deficit)
Value
cost
cost
-------------------------------------------------------------- Rupees in '000 -------------------------------------------------------------8.1.1
8.1.2
8.1.3
Held-to-maturity securities
Unlisted Sukuk Bonds
Term Deposit Receipts
Certificate of Investments
Available-for-sale securities
Market Treasury Bills
Pakistan Investment Bonds
Unlisted Ordinary Shares
Listed Ordinary Shares
Investments by type:
INVESTMENTS
HOUSE BUILDING FINANCE COMPANY LIMITED
ANNUAL REPORT 2018
8.1.1 These carry yield at rate 8.80% (2017: 5.99 % to 6.039%) per annum.
8.1.2 These carry mark-up (coupon rate) at rates ranging from 9.25% to 9.32% (2016: 8.75% to 9.25%) per annum.
8.1.3
Unlisted ordinary shares
Note
Resource and Engineering Management Corporation Limited
Pakistan Mortgage Refinance Company Limited
Takaful Pakistan Limited
2018
2017
----------- Rupees in ‘000 ----------500
6,675
56,610
63,785
8.1.3.1
8.1.3.2
8.6.1.1
500
6,675
7,175
8.1.3.1 This represent investment in 66,125 ordinary shares of Rs.10 each in Resource and Engineering Management Corporation Limited.
Full provision has been made against this investment.
8.1.3.2 This represents payment made for ordinary shares subscription against commitment to take shares for Rs.200 million of newly
formed Pakistan Mortgage Refinance Company Limited. 667,500 shares were transferred to the Company on February 13, 2017.
The investment is carried at cost.
8.1.4 Particulars of investment in sukuk bonds
Name of issuer
Note
Rating
Eden Housing Limited (EHL)
Outstanding face value: Rs. 656 each
Maturity date: June 29, 2014
Chief Executive Officer: Mr. Muhammad Amjad
8.1.4.1
Unrated
Mark-up rate
Total nominal value
2018
2017
----- Rupees in ‘000 ----26,240
3 months KIBOR plus 3%
26,240
8.1.4.1 As per the original terms of repayment, these sukuk bonds were to be repaid in eight equal semi-annual installments starting from
June 2009 till December 2012 along with mark-up of six months KIBOR plus 2.50%.
Eden Housing Limited (EHL) paid two installments of Rs. 25 million each and then defaulted the repayment. On June 30, 2010, EHL
entered into a restructuring arrangement according to which outstanding principal of Rs. 150 million to be repaid on quarterly
basis along with mark-up of KIBOR plus 2.5% and 3% for the first three years and fourth year, respectively. EHL defaulted for the
two coupon mark-up due on March 29, 2014 and June 6, 2014 of Rs.13.120 million each. However, on prudent basis, the Company
has maintained full provision of the outstanding principal amount. Matter is pending with Lahore High Court for recovery.
8.1.5 This represents investment in certificates of investment (COIs) of Rs. 200 million for three years and Rs. 25 million for three months
in 1996 and 1998 respectively. Bankers Equity Limited (BEL) defaulted the repayment and went under liquidation on April 18, 2001,
hence claims of BEL were placed before Sindh High Court (SHC). However, the Company on prudent basis had maintained 100%
provision against outstanding principal amount. The Company has received Rs. 22.5 million during the year where as a cumulative
sum of Rs. 180 million (80%) has been received up till December 31, 2018 against invested amount, on the directive of SHC.
2018
2017
----------- Rupees in ‘000 -----------
8.3
Provision for diminution in value of investments
8.3.1 Opening balance
Charge / reversals
Reversals for the year
Reversal on disposals
Closing balance
71,740
96,584
71,740
(24,844)
(24,844)
71,740
54
HOUSE BUILDING FINANCE COMPANY LIMITED
8.3.2
Particulars of provision against debt securities Category of classification
2018
2017
Non
Non
performing
Provision
performing
Provision
Ioan
Ioan
----------------------------- Rupees in ‘000 -----------------------------
Domestic
Loss
8.4
71,240
71,240
71,240
71,240
Quality of Available for Sale Securities
Details regarding quality of Available for Sale (AFS) securities are as follows
2018
Note
Federal Government Securities - Government guaranteed
Market Treasury Bills
Pakistan Investment Bonds
2017
Cost
----------- Rupees in ‘000 -----------
8.1.1
8.1.2
3,357,258
601,147
3,958,405
6,124,240
302,839
6,427,078
9,603
9,603
-
Shares
Listed Companies
- Banking
2018
Unlisted Companies
Note
Entity wise disclosure to be given
Resource and Engineering Management Corporation Limited
Pakistan Mortgage Refinance Company Limited
Takaful Pakistan Limited
2017
Breakup
Breakup
Cost
Cost
value
value
------------------------ Rupees in ‘000 ------------------------
8.1.3
8.1.3
500
6,675
56,610
63,785
6,675
47,380
54,055
500
6,675
7,175
6,675
6,675
2018
8.5
Particulars relating to Held to Maturity securities are as follows:
Non Government Debt Securities Unlisted
- Unrated (Unlisted Sukuk Bonds of Eden Housing Limited)
- Unrated (Term Deposit Receipts of Asset Investment Bank Limited)
- Unrated (Certificate of Investment of Bankers Equity Limited)
55
Note
8.1.4
8.1.5
2017
Cost
------ Rupees in ‘000 -----26,240
45,000
71,240
26,240
2,344
45,000
73,584
ANNUAL REPORT 2018
8.6
Investment in an associate
2018
2017
----------- Rupees in ‘000 -----------
Takaful Pakistan Limited
Place of incorporation
Principal business
Pakistan
Takaful
Number of shares held
Cost of investment - Rupees in '000
Assets - Rupees in '000
Liabilities - Rupees in '000
Net contribution revenue - Rupees in '000
(Loss)/Profit after tax - Rupees in '000
Percentage of investment
Break up value per share - Rupees
Earnings per share - basic and diluted
Latest available financial statements
Name of Chief Executive
Carrying value of investment in an associate
8.6.1
under equity method
Carrying value of investment at beginning of the year
Share of (loss)/profit
Disposal of investment in associate
Carrying value of investment at end of the year
Note
8.6.1.1
31-Dec-18
Dr. Syed Tariq
Husain
8,699,500
87,000
478,962
232,849
137,707
3,132
29%
6.54
0.04
31-Dec-17
Dr. Syed Tariq
Husain
2018
2017
----------- Rupees in ‘000 ----------51,241
(3,860)
(47,380)
-
50,478
1,430
(667)
51,241
8.6.1.1 On March 2, 2018, Takaful Pakistan Limited (as associated Company) issued 31,298,905 shares at a discount of Rs, 3.61 per share
without offering a right issue to the existing shareholders. The approval for such issue was already obtained from the existing
shareholders in prior year. Consequent to the issue of such shares, the shareholding of the Company in the investee reduced from
29% to 14.19%. Due to such reduction in shareholding, the Company lost significant influence over the operating decisions of the
investee and accordingly equity method of accounting was discontinued with effect from March 2, 2018. The discontinuation of
equity method accounting has resulted in the gain of Rs. 9.23 million (note 20). The remaining interest of 14.19% in the investee
is classified as Available for sale at an amount of Rs. 56.61 million (equivalent to breakup value of shares) (note 8.1.3). Breakup
value of shares is Rs. 6.5 per share.
56
HOUSE BUILDING FINANCE COMPANY LIMITED
9. ADVANCES
In Pakistan - local currency
Note
Performing
Non Performing
Total
2018
2017
2018
2017
2018
2017
----------------------------------------- Rupees in '000 -----------------------------------------
9.1
9.2
9.3
38,625
887,441
46,679
794,032
1,479,910
99,941
1,177,713
1,530,285
103,714
1,674,138
1,518,534
99,941
2,065,154
1,576,964
103,714
2,468,170
9.4
9.5
9.6
9.7
9.8
9.9
358
8,658,472
11,447
23,000
9,619,343
966
6,922,047
29,775
60,255
7,853,753
156,493
6,074
1,731,541
19,585
34,041
4,705,298
11,268
190,706
6,074
3,139,455
11,170
(354)
6,666,457
156,851
6,074
10,390,013
31,032
57,041
14,324,640
11,268
191,672
6,074
10,061,502
40,944
59,900
14,520,209
Housing finance to employees
Car advance to employees
PC advance to employees
9.10
9.11
402,117
54,092
19
456,228
331,453
62,945
19
394,417
5,550
5,550
5,550
5,550
407,667
54,092
19
461,778
337,003
62,945
19
399,967
Partners' death claims
9.12
611
(9)
-
-
611
(9)
"Transitory district bank accounts-net"
9.13
21,557
10,097,739
45,052
8,293,213
4,710,848
6,672,007
21,557
4,808,586
45,052
14,965,220
9.14
38,340
-
-
1,458,419
99,968
876,702
1,509,898
103,714
956,865
1,496,759
99,968
876,702
1,509,898
103,714
956,865
38,340
153,482
135,967
141,592
5,720
338,963
7,980
689
5,550
2,935,584
-
11,268
159,915
5,720
563,960
5,550
3,316,890
-
141,592
5,720
338,963
7,980
689
5,550
2,973,924
153,482
11,268
159,915
5,720
563,960
5,550
3,316,890
135,967
9,905,916
8,157,246
1,775,264
3,355,117
11,681,180
11,512,363
Rental Sharing Schemes
Interest Bearing Schemes
Ghar Aasan Scheme
"Gawadar Employees Co-operative
Housing Society (GECHS)"
Shandar Ghar Scheme
Financing facility for Small Builders
Ghar Aasan Flexi Scheme
Bisma & Saima Projects
New Small Builders
Employee portfolio
Advances - gross
Provision for non-performing advances
- Specific
Rental Sharing Schemes
Interest Bearing Schemes
Ghar Aasan Scheme
Gwadar Employees Co-operative
Housing Society
Shandar Ghar Scheme
Financing facility for Small Builders
Ghar Aasan Flexi Scheme
Bisma & Saima Projects
New Small Builders Scheme
Finance to employees
- General
Advances - net of provision
9.15
9.1
This represents advances under Profit & Loss Sharing Scheme, Simplified Scheme, New Simplified Scheme (NSS), Gothabad Scheme
and loan to Precast Industries (Pvt.) Limited. No additional disbursement of advance under these schemes has been made since
2000. Advances under NSS have been provided up to 98% (December 31, 2017: 93%) of the gross advance whereas advances
under rest of the schemes are fully provided. These are provided on subjective basis.
9.2
No new disbursement has been made under this scheme since the year 1979. In pursuance to the decision of the Honorable
Supreme Court of Pakistan, the Company has not accrued interest on these advances since July 01, 2000. All advances under this
category have been classified as “Loss” and fully provided.
9.3
This scheme was based on Diminishing Musharaka for construction, purchase of houses and replacement of existing housing
advance obtained by applicants from another financial institutions - Balance Transfer Facility (BTF) with maximum financing limit
of Rs. 7.5 million. This advance is repayable by the partners in 36 to 240 monthly installments. The net annual rental income
is 5% of the total assessed cost of the house, subject to upward revision of annual rent on cumulative basis at 25% after every 3
years. For disbursements after May 26, 2008, constant net annual rental income of 15.5% is charged on daily product basis on the
57
ANNUAL REPORT 2018
value of outstanding units. In addition, the Company shares appreciation in the value of the house at rates ranging between 2.5%
to 12.5% per annum assessed for various localities. New disbursement under this scheme has been discontinued from February
11, 2009. Provision has been made in accordance with the prudential regulations.
During 2017, management has introduced the Ghar Asaan Incentive Scheme after approval of the Board of Directors (BoD) in their
meeting held on May 02, 2017. Under the scheme, appreciation rate, as explained above, was replaced with fixed rental charge
at the rate of 10% with equal monthly instalments since inception of advance. Under the scheme, customers who have opted
the facility may settle/regularize their advances after payment of due amounts based on revised terms. The scheme was initially
offered up till 30 September 2017, which has been extended to June 30, 2019 by BoD. Total 5,625 customers have availed the
scheme out of which 2,731 customers have settled their advances and 2,894 customers have regularized their advances.
9.4
In 2017, the entire amount of Rs. 11.268 million was received from Gwadar Employees Co-operative Housing Society.
9.5
Advances under Shandar Ghar Scheme for renovation of houses only with maximum financing limit of Rs. 2.5 million are based on
Murabaha approved by the Board of Directors on January 20, 2004 . The advance is repayable by the partners in 12 to 120 monthly
installments. The Murahaba profit varies from 8% to 13.5% (2017: 8% to 13.5%) per annum. New disbursement under this scheme
has been discontinued from February 11, 2009. Provision has been made in accordance with the prudential regulations.
2018
2017
----------- Rupees in ‘000 ----------Shandar Ghar Scheme
Unearned income
440,904
(284,053)
156,851
480,286
(288,614)
191,672
9.6
Advances under ‘Finance facility for Small Builders’ for construction of individual houses and apartments for sale to the general
public with maximum financing limit of Rs. 7.5 million is based on Musharaka financing approved by the Board of Directors in
August 2007. This advance is for a period of 12 to 18 months, extendable for further 3 months, to be repaid at the end of the
tenure along with the profit ranging from 13% to 18% (2017 : 13% to 18%) per annum, or is transferable to the buyer of the house/
apartment under Ghar Aasan Scheme. New disbursement under this scheme has been discontinued from November 17, 2009.
Provision has been made in accordance with the prudential regulations.
9.7
Advances under Ghar Aasan Flexi Scheme for construction, renovation and purchase of house and replacement of existing housing
facility – Balance Transfer Facilities (BTF) with maximum financing limit of Rs.25 million is based on Diminishing Musharaka. This
advance is repayable by the partners in 36 to 240 monthly installments. The markup income for salaried person and business
person is one year KIBOR with a spread of 3.25% and 3.5% (2017: 3.25% and 3.5%) respectively per annum.
There are two installment plans under this scheme; variable installment plan and fixed installment plan. New disbursement under
variable installment plan has been discontinued effective from July 27, 2009. Provision has been made in accordance with the
prudential regulations.
9.8
Advances under ‘Bisma and Saima Project’ for construction of individual houses and apartments with maximum financing limit of
Rs. 10 million is based on Musharaka financing. This advance is for a period 12 to 18 months and profit is calculated on the basis of 2
years fixed KIBOR rate. The payment of installments is commenced from the next month of the completion of construction of houses
and apartments. Provision has been made in accordance with the prudential regulations.
9.9
This Scheme was introduced to facilitate the small contractors / individuals who are in business of selling and / or building houses
and / or flats. Maximum financing limit is Rs. 25 million with the tenure of 12 to 24 months. Provision has been made in accordance
with the prudential regulations.
9.10
Housing advance is given to employees as per the terms of employment for purchase of land, renovation or construction of
houses, at concessional rates. Provision has been made in accordance with the prudential regulations.
9.11
Car advance is given to employees as per the terms of employment for purchase of car at concessional rates. Provision has been
made in accordance with the prudential regulations.
9.12
This represents the insurance claims received from State Life Insurance Corporation of Pakistan (SLICP) on behalf of the partners’
passed away. Subsequently this will be paid to respective partners’ heirs.
9.13
This net balance mainly includes unpresented cheques of disbursements and identified collections in bank accounts at district and
zonal offices.
9.14
General provision against advances has been determined in accordance with the requirements of Prudential Regulations (HF-9)
issued by the State Bank of Pakistan on regular portfolio of consumer financing.
58
HOUSE BUILDING FINANCE COMPANY LIMITED
9.15
Advances include Rs. 4,710 million (2017: Rs. 6,672 million) which have been placed under non-performing status as detailed
below:2018
2017
Non
Non
Category of Classification
performing
Provision
performing
Provision
Ioan
Ioan
----------------------------- Rupees in ‘000 ----------------------------Domestic
Other Assets Especially Mentioned
Substandard
Doubtful
Loss
Total
9.16
240,151
267,883
499,126
3,703,688
4,710,848
Particulars of provision against
advances
1,141
27,084
72,564
2,834,794
2,935,584
927,977
909,105
1,068,254
3,766,671
6,672,007
2018
Specific
Note
General
179,232
235,552
2,902,106
3,316,890
2017
Total
Specific
General
Total
-------------------------------------- Rupees in '000 --------------------------------------
Opening balance
3,316,890
135,967
3,452,857
3,959,470
148,889
4,108,359
Charge for the year
Reversals
231,723
(574,115)
(342,392)
(574)
2,973,924
17,515
17,515
153,482
249,238
(574,115)
(324,877)
(574)
3,127,406
395,220
(1,037,202)
(641,982)
(598)
3,316,890
(12,922)
(12,922)
135,967
395,220
(1,050,124)
(654,904)
(598)
3,452,857
Amounts written off
Closing balance
9.17
9.16.1 The SBP vide BSD Circular no. 10 of 2009 dated October 20, 2009 had allowed banks/DFIs to avail benefit of forced sales value
of collaterals mortgaged with them while determining provisioning requirement against non-performing financing. Further, SBP
vide BSD Circular no.1 of 2011 dated October 21, 2011 made certain amendments in the Prudential Regulations for Consumer
Financing with respect to allowing additional benefit of forced sales value (FSV) of mortgage properties held as collateral against
housing finances. According to the said circular, the impact on profitability due to availing FSV benefit shall not be available for
payment of cash dividend or stock dividend. As at December 31, 2018, had FSV benefit of IH&SMEFD Circular no. 03 of 2017 not
been taken, profit for the year before taxation would have been decreased by Rs. 1,047.77 million.
9.17 Particulars of Write offs:
Against provisions
Directly charged to Profit & Loss account
Note
9.18
2018
2017
----------- Rupees in ‘000 ----------574
574
598
598
9.18 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 Rupees five hundred thousand or above allowed to a person(s) during the year ended is given in
Annexure-1 (except where such disclosure is restricted by overseas regulatory authorities).
10.
2018
2017
----------- Rupees in ‘000 -----------
FIXED ASSETS
Note
Capital work-in-progress
Property and equipment
10.1
10.2
12,860
299,657
312,517
4,579
287,449
292,028
10.1.1
12,860
12,860
4,579
4,579
10.1 Capital work-in-progress
Civil works
59
ANNUAL REPORT 2018
10.1.1 This amount pertains to construction of building in Lahore and Qasimabad.
10.2 Property and Equipment
2018
Electrical,
Building on
Furniture
office and
Lease hold
Vehicles
Total
and fixture computer
land
equipment
--------------------------------------------------- Rupees '000 ---------------------------------------------------
Free hold
land
At January 1, 2018
Cost / Revalued amount
Accumulated depreciation
Net book value
Lease hold
land
6,075
6,075
5,673
5,673
357,525
(113,390)
244,135
82,766
(73,252)
9,514
199,137
(181,569)
17,568
54,780
(50,296)
4,484
705,956
(418,507)
287,449
6,075
5,673
244,135
9,514
17,568
4,484
287,449
-
-
1,683
1,297
45,909
65
48,954
-
-
-
(5)
5
-
(289)
289
-
(11,383)
8,642
(2,741)
(11,678)
8,936
(2,741)
Depreciation charge
-
-
(15,480)
(5,645)
(12,466)
(755)
(34,346)
Other adjustments / transfers
- Cost
Other adjustments in accumulated
depreciation
-
-
43
(22)
(1)
1
(1,031)
1,352
(45)
45
(1,034)
1,376
Closing net book value
6,075
5,673
230,359
5,166
51,332
1,053
299,657
At December 31, 2018
Cost
Accumulated depreciation
Net book value
6,075
6,075
5,673
5,673
359,251
(128,892)
230,359
84,057
(78,891)
5,166
243,726
(192,394)
51,332
43,417
(42,364)
1,053
742,198
(442,541)
299,657
-
-
5%
10%
10%-33%
20%
Year ended December 31, 2018
Opening net book value
Additions
Disposals
- Cost
- Depreciation
Rate of depreciation (percentage)
2017
Electrical,
office and
Vehicles
Total
computer
equipment
--------------------------------------------------- Rupees ‘000 ---------------------------------------------------
Free hold
land
At January 1, 2017
Cost / Revalued amount
Accumulated depreciation
Net book value
Lease hold Office prem- Furniture
land
ises
and fixture
6,075
6,075
5,673
5,673
355,647
(98,043)
257,604
82,793
(67,331)
15,462
202,423
(179,114)
23,309
58,221
(52,126)
6,095
710,832
(396,614)
314,218
6,075
5,673
257,604
15,462
23,309
6,095
314,218
-
-
1,938
-
2,842
-
4,780
-
-
(60)
26
(34)
(27)
27
-
(6,128)
5,974
(154)
(3,441)
3,441
-
(9,656)
9,468
(188)
Depreciation charge
Closing net book value
6,075
5,673
(15,373)
244,135
(5,948)
9,514
(8,429)
17,568
(1,611)
4,484
(31,361)
287,449
At December 31, 2017
Cost
Accumulated depreciation
Net book value
6,075
6,075
5,673
5,673
357,525
(113,390)
244,135
82,766
(73,252)
9,514
199,137
(181,569)
17,568
54,780
(50,296)
4,484
705,956
(418,507)
287,449
-
-
5%
10%
10%-33%
20%
Year ended December 31, 2017
Opening net book value
Additions
Disposals
- Cost
- Depreciation
Rate of depreciation (percentage)
60
61
2,741
2,741
188
5
289
11,383
11,677
9,656
2018
2017
221
4,307
4,269
29
9
33
1,566
1,528
29
Auction
As per policy*
Auction
Various
Various
Various
Lease hold
land
Building on
Free hold land
2018
-
-
-
57,129
Building on
Lease hold
land
59,855
Furniture and
fixture
163,597
40,478
321,059
Electrical,
office and
Free hold land
Vehicles
Total
computer
equipment
---------------------------------------------------------------------- Rupees ‘000 ----------------------------------------------------------------------
10.2.2 Cost of fully depreciated asset still in use
* As per Company's policy electrical, office and computer equipments can be disposed off after useful life of 3 years with the approval of Managing Director
Furniture and fixtures
Electrical, office and computer
equipment
Motor vehicles
9
Net book
Gain on
Mode of
Particular of
Sale proceeds
value
disposal
disposal
buyers
----------------------------------------------------- Rupees ‘000 ----------------------------------------------------Cost
Items having cost more than one million rupees or book value more than two hundred and fifty thousand rupees
Particulars
10.2.1 Disposal of operating fixed assets
HOUSE BUILDING FINANCE COMPANY LIMITED
ANNUAL REPORT 2018
11.
2018
2017
Computer
Computer
software &
software &
Licenses
Licenses
----------- Rupees in ‘000 -----------
INTANGIBLE ASSETS
At January 1
Cost
Accumulated amortization and impairment
Net book value
8,716
(8,029)
687
8,716
(7,698)
1,018
687
1,018
Additions
1,266
-
Amortization charge
(443)
(331)
(7)
-
1,503
687
9,982
(8,479)
1,503
33%
3 years
8,716
(8,029)
687
33%
3 years
Year ended December 31
Opening net book value
Adjustments
Accumulated depreciation
Closing net book value
At December 31
Cost
Accumulated amortization and impairment
Net book value
Rate of amortisation (percentage)
Useful life
12.
DEFERRED TAX
Deferred tax asset amounting to Rs. 2.1 billion (2017: Rs. 2.035 billion) has not been recognized as management believes that it is
not probable that taxable profit will be available in the foreseeable future against which these deductible temporary differences
can be utilized.
13.
OTHER ASSETS
Income/ mark-up accrued in local currency - net of provision
Advances
Investments
Advances, deposits, advance rent and other prepayments
Advance taxation (payments less provisions)
Advance for purchase of land - housing projects
Other receivables against advances
Assets acquired from Pakistan Refugees Rehabilitation
Finance Corporation (PRRFC)
Less: Provision held against other assets
Other Assets (Net of Provision)
Note
13.1
13.2
13.3
2018
2017
----------- Rupees in ‘000 -----------
27,666
8,065
52,766
122,902
53,815
7,535
39,889
9,593
72,768
219,350
53,815
17,228
272,749
(53,815)
218,934
412,643
(53,815)
358,828
62
HOUSE BUILDING FINANCE COMPANY LIMITED
13.1
This represents an advance payment made in 2007 i.e. 32% and remaining 68% are shown as commitment for the purchase cost
of two pieces of land measuring 163 acres situated in Gwadar. The Company intends to construct low cost houses on this land to
promote affordable housing facilities to low income groups of the residents of Gwadar. The management on prudent basis, has
made full provision against this amount.
13.2
As directed vide SRO 499(1)/80 dated May 13, 1980 by Finance Division - Government of Pakistan, the Company (formerly HBFC)
took over assets and liabilities of PRRFC. Further, as per the directive of the Government of Pakistan all assets and liabilities are
shown distinctively as below, however, the Company does not have any control over these assets and liabilities. Accordingly, these
are not recorded in the books of account.
2018
2017
----------- Rupees in ‘000 -----------
Pakistan Refugees Rehabilitation Finance Company assets
Assets
Fixed assets
Cash and bank balances
Investments
Loans and advances
Inter-center adjustment
Other receivables
Sundry debtors
Advances, deposits and prepayments
Provision for doubtful debts
Liabilities
Sundry creditors
Accrued expenses
Return on capital
Other liabilities
Net assets
1
518
253
16,583
2,432
1,992
200
227
22,206
(2,579)
19,627
1
518
253
16,583
2,432
1,992
200
227
22,206
(2,579)
19,627
93
38
7,371
129
7,631
11,996
93
38
7,371
129
7,631
11,996
53,815
53,815
53,815
53,815
13.3 Provision held against other assets
Advance for purchase of land - housing projects
14.
OTHER LIABILITIES
Retirement and other service benefits
Other obligation
Accrued expenses
Insurance premium payable
Advance rent received
Refundable to customers against advances
Security deposits
Application fee - Gawadar project
Retention money payable
Reimbursement of claims by Government of Pakistan
Agents’ deposit money
Sindh Workers’ Welfare Fund
Others
63
Note
14.1
14.2
2018
2017
----------- Rupees in ‘000 ----------3,531,640
36,118
174,699
63,053
45,080
39,622
5,600
3,872
602
579
185
66,618
4,989
3,972,657
3,422,777
27,221
38,501
53,952
5,600
12,781
5,600
3,872
596
579
185
41,016
3,970
3,616,650
ANNUAL REPORT 2018
2018
2017
----------- Rupees in ‘000 -----------
Note
14.1 Other obligation
Balance at beginning of the year
Transfer to equity-net of tax (already offered for tax in prior years)
Balance at beginning of the year-restated
Demand charges - net of recovery expenses
Transfer to income during the year
Balance at end of the year
14.1.1
27,221
27,221
8,897
36,118
1,699,717
1,679,085
20,632
11,825
(5,236)
27,221
14.1.1 As disclosed in note 4.1.1, The board of directors in its meeting number 06/2018 held on October 31, 2018 approved transfer of
deferred credit amount pertaining to conventional schemes along with the mark up thereon as of September 30, 2018 amounting
PKR 1,689,623,398/- to the retained earnings whereas the amount pertaining to Flexi Scheme shall be kept in the other obligation
account. This amount has been recognized as prior year adjustment in these financial statements.
14.2
Monthly insurance premium is payable to State Life Insurance Corporation of Pakistan (SLICP) against the insurance of outstanding
dues from the partners in case of their death or total disablement and insurance premium payable to Takaful Pakistan Limited
against insurance of mortgage property. The amount of these premiums are recoverable from partners in their monthly
installments.
15.
SHARE CAPITAL
15.1
Authorized Capital
2018
2017
Number of shares
2,000,000,000
15.2
Ordinary shares of Rs.10 each
187,562,506
1,748,937,500
1,936,500,006
6
1,936,400,000
100,000
1,936,500,006
187,562,506
1,748,937,500
1,936,500,006
Ordinary shares of Rs. 10 each
Fully paid in cash
Issued for consideration other than cash
Shares issued for consideration in cash
Pattern of shareholding
Federal Government
State Bank of Pakistan
20,000,000
20,000,000
19,364,000
1,000
19,365,000
19,364,000
1,000
19,365,000
1,875,625
17,489,375
19,365,000
1,875,625
17,489,375
19,365,000
(20,845)
2,174
623,398
647,990
1,271,388
540,096
47,990
588,086
(DEFICIT) / SURPLUS ON REVALUATION OF ASSETS
(Deficit) / Surplus on revaluation of
- Available for sale securities
17.
2018
2017
----- Rupees in ‘000 -----
Issued, subscribed and paid up
6
1,936,400,000
100,000
1,936,500,006
16.
2,000,000,000
Note
CONTINGENCIES AND COMMITMENTS
-Commitments
-Other contingent liabilities
17.1
17.2
64
HOUSE BUILDING FINANCE COMPANY LIMITED
2018
2017
----------- Rupees in ‘000 -----------
17.1 Commitments
Documentary credits and short-term trade-related transactions
- Loans sanctioned but not disbursed
Equity investment to be made in
- Pakistan Mortgage Refinance Company Limited
Land to be purchased for Gwadar Housing Projects
Land to be purchased for Gwadar Office
Model Town Lahore Project
Hyderabad Project
Peshawar Office Building Project
Other commitments
17.2 Other contingent liabilities
Claims not acknowledged as debt
SMS Courier (Pvt) Limited (SMSCPL)
Liaquat National Hospital
Staff of HBFC
Note
17.2.1
17.2.2
17.2.3
226,132
140,435
193,325
149,725
9,750
27,840
5,305
10,485
836
623,398
193,325
149,725
9,750
29,490
5,308
10,485
1,578
540,096
2018
2017
----------- Rupees in ‘000 -----------
39,890
8,100
600,000
647,990
39,890
8,100
47,990
17.2.1 In the year 1995, the Company entered into an agreement with SMS Courier (Pvt) Limited (SMSCPL), a courier service company.
Subsequently, due to unsatisfactory service, the Company terminated the agreement with SMSCPL. SMSCPL claimed indemnity of
loss for Rs. 39.89 million and filed a suit for recovery from the Company which is pending for adjudication in Honorable Sindh High
Court. The legal advisor of the Company is of the opinion that no economic outflow is expected in this respect.
17.2.2 In the year 2008, the Company entered into an agreement with Liaquat National Hospital (LNH) in Karachi for providing
medical facilities/treatments to employees of the Company and their dependents. LNH lodged a claim of Rs. 8.1 million against
the Company, which include bills of the individuals who were not referred by the Company to LNH, as these were neither the
Company’s employees nor their dependents. Currently, the case is pending for adjudication in Honorable Sindh High Court. The
legal advisor of the Company is of the opinion that no economic outflow is expected.
17.2.3 In 2016, the then Board and management of the Company, under the collective bargaining mechanism, allowed an increase of
18% in the gross salaries of the workmen/staff of the Company following decision by Honorable High Court of Sindh. However,
considering certain business and other reasons the Board did not extend similar salary increase to the executives and officers
grade. Aggrieved by this decision, some officers/executives of the Company challenged this decision in the High Court of respective
jurisdictions.
The Hon’ble Division Bench of the High Court of Sindh at Karachi, vide its judgment dated November 26, 2018, held that the
decision taken by the Company, whereby it restricted the increase in salary structure to workmen/staff only and excluded its
executives and officers from such increase was erroneous and of no legal effect and remanded the case back to the Company “for
fresh decision on the issue of inclusion of the aforesaid pay and allowances in the emoluments of the Petitioners in accordance
with the law and dicta laid down by the Honorable Supreme Court of Pakistan within a period of two months, from the date of
receipt of the Judgment” of the the High Court of Sindh.
In order to protect the legal interest of the Company and its shareholders, the management filed a Civil Appeal with the Honorable
Supreme Court of Pakistan against the judgment of the High Court of Sindh. The Honorable Supreme Court while granting leave
to appeal, suspended the operation of the judgment of the Sindh High Court. The legal advisor of the Company is of the view that
the Company has a fair chance in prevailing its contention on this matter.
65
ANNUAL REPORT 2018
18.
19.
2018
2017
----------- Rupees in ‘000 -----------
MARK-UP/RETURN/INTEREST EARNED
a)
Loans and advances
Customers
Employees
b)
Investments
Available-for-sale
c)
Lendings to financial institutions
Letters of placements
Repurchase agreement lending (Reverse Repo)
d)
Balances with banks
OTHER INCOME
Profit Commission from insurance company
Rent on property
Gain on sale of fixed assets-net
Inspection and application fee
Advance Unit Purchase Charges
Balloon Payment charges of Flexi Scheme
Storage documentation
Penalty income on conventional schemes
Miscellaneous Income
Gain on sale of investment in associate
21.
1,823,252
25,536
495,937
391,944
9,895
71,899
5,573
12,968
21,645
2,241,405
22,664
2,281,936
1,838
487
53,221
37,800
1,566
10,506
19,119
220
4,569
8,715
4,063
9,230
149,009
107,304
34,181
33
7,753
18,015
698
1,512
5,236
2,965
177,697
LOSS ON SECURITIES
Realized
20.
1,631,325
10,704
Note
4.1.1
8.6.1.1
2018
2017
----------- Rupees in ‘000 -----------
OPERATING EXPENSES
Total compensation expense
21.1
Property expense
Rent and taxes
Insurance
Utilities cost
Security (including guards)
Repair and maintenance (including janitorial charges)
Depreciation
Others
Information technology expenses
Hardware maintenance
Depreciation
Amortization
Network charges
11
1,129,502
762,933
27,802
716
10,686
7,440
23,415
15,480
4,193
89,731
30,532
357
10,407
5,691
21,293
15,373
3,647
87,300
3,893
7,739
443
6,634
18,709
2,999
4,323
331
6,824
14,476
66
HOUSE BUILDING FINANCE COMPANY LIMITED
Other operating expenses
Directors' fees and allowances
Legal and professional charges
Consultancy charges
Outsourced services costs
Travelling and conveyance
Depreciation
Training and development
Postage and courier charges
Communication
Stationery and printing
Marketing, advertisement and publicity
Commission against recovery
Auditors remuneration
Banking service charges
Entertainment
Vehicle expense
Subscription
Others
Note
21.2 & 28.1
21.3
2018
2017
----------- Rupees in ‘000 ----------5,503
19,584
29,985
24,902
9,626
11,127
6,459
11,011
942
4,987
9,085
4,675
3,163
7,934
1,654
12,053
224
3,442
166,354
1,404,297
2,404
31,623
11,902
12,807
7,350
11,665
1,174
9,232
596
3,725
2,578
2,750
7,899
1,222
7,701
265
5,042
119,935
984,643
481,207
58,063
337,515
162,440
19,310
16,242
48,537
2,027
233
974
1,319
1,635
1,129,502
1,129,502
385,429
1,951
70,959
167,882
19,215
16,152
41,016
271
182
35,958
739,015
23,918
762,933
21.1 Total compensation expense
Managerial Remuneration
i) Fixed
ii) Variable
a) Cash Bonus & Cash Awards
Charge for defined benefit plan
Rent & house maintenance
Utilities
Medical
Conveyance
Group Life Insurance
Overtime to staff
Contribution to Gratuity Fund
Contribution to Provident Fund
Contribution to Benevolent Fund
Sub-total
Severance Allowance
Grand Total
21.1.1
21.1.2
21.1.3
21.1.1 It includes Rs. 92 million (2017: Nil) approved for officers on Ad hoc basis based on approval of Board of Directors.
21.1.2 It includes Rs. 54.744 million (2017: Nil) related to Eid financial relief.
21.1.3 It includes Rs. 250.64 million (2017: Rs. 122.8 million) pertains to benefit plan related to pension Rs. 82.6 million (2017: Rs. 30.68
million) pertains to benefit plan related to medical and Rs. 4.26 million (2017: Rs. (82.5) million) pertains to benefit plan related
to leave encashment.
21.2
Total cost for the year included in Other Operating Expenses relating to outsourced activities is Rs 24.9 million (2017: Rs 12.8
million). Total payment pertains to the payment to companies incorporated in Pakistan. Total cost of outsourced activities for the
year given to related parties is Rs Nil (2017: Rs Nil). Outsourcing shall have the same meaning as specified in Annexure-I of BPRD
Circular No. 06 of 2017.Recovery and sales related staff has been engaged through third party outsourcing arrangement.
67
ANNUAL REPORT 2018
21.3 Auditors' remuneration
Note
Audit fee
Half yearly review
Special certifications, Internal Controls over Financial Reporting and other reviews
22.
9.16
(6,492)
(324,877)
(24,844)
(1,114)
(655,501)
(16,250)
2,488
(574)
(348,193)
(598)
(679,569)
38,391
919
39,310
86,467
7,480
93,947
213,263
213,263
342,783
51,003
393,786
1,041,230
1,625,328
1,936,500,006
1,936,500,006
0.54
1.16
34,387
412,020
446,407
53,531
771,582
825,113
EARNINGS PER SHARE BASIC AND DILUTED
Profit for the year
Weighted average number of ordinary shares
Earnings per share - basic and diluted
27.
180
50
230
TAXATION
Current
Prior years
Deferred
26.
9,878
9,878
RELIEF PACKAGE AND REPROCESSING CHARGES
GAS incentive
Reprocessing and closing adjustment
25.
1,210
424
1,116
2,750
PROVISIONS & WRITE OFFS - NET
Reversal of provision for diminution in value of investments
Reversal of provision for lendings
Reversal of provision against loans and advances
(Reversal) / Provision against doubtful receivable insurance premium from partners
Write off against advances
24.
1,392
488
1,283
3,163
OTHER CHARGES
Penalties imposed by State Bank of Pakistan
Penalties imposed by Securities & Exchange Commission of Pakistan
23.
2018
2017
----------- Rupees in ‘000 -----------
CASH AND CASH EQUIVALENTS
Cash and Balance with Treasury Banks
Balance with other banks
5
6
68
HOUSE BUILDING FINANCE COMPANY LIMITED
28.
2018
2017
---------------- Number ----------------
STAFF STRENGTH
489
10
499
Permanent
On Company’s contract
Company’s own staff strength at the end of the year
451
7
458
28.1
In addition to the above, 49 (2017: 56) employees of outsourcing services companies were assigned to the Company as at the end
of the year to perform services other than guarding and janitorial services.
29.
DEFINED BENEFIT PLAN
29.1 Number of Employees under the scheme
The number of employees covered under the following defined benefit schemes are:
2018
2017
---------------- Number ----------------
671
671
434
Pension fund
Post retirement medical benefits
Employees compensated absences
672
454
454
29.2 Principal actuarial assumptions
The actuarial valuations were carried out as at December 31, 2018 using the following significant assumptions:
2018
2017
-------------- Per annum -------------13.75%
13.75%
13.75%
12.75%
6.75%
Discount rate
Expected rate of return on plan assets
Expected rate of salary increase
Expected rate of increase in pension
Expected rate of increase in medical benefit
9.5%
9.5%
9.5%
8.5%
-
29.3 Reconciliation of (receivable from) / payable to defined benefit plans
Note
2018
2017
Pension
Medical
Pension
Medical
fund
benefits
fund
benefits
---------------------------------- Rupees in ‘000 ---------------------------------6,703,632
(4,232,681)
2,470,951
753,621
753,621
5,859,114
(3,484,698)
2,374,416
736,600
736,600
Obligations at the beginning of the year
5,859,114
736,600
5,955,378
951,949
Current service cost
Interest cost
Benefits paid by the Company
Re-measurement loss / (gain)
Gain due to VSS
Obligations at the end of the year
74,762
530,675
(546,117)
785,198
6,703,632
12,637
69,977
(65,593)
753,621
128,973
494,377
(1,502,815)
982,173
(198,972)
5,859,114
26,277
81,559
(186,857)
(59,173)
(77,155)
736,600
Present value of obligations
Fair value of plan assets
Payable
29.4 Movement in defined benefit obligations
69
ANNUAL REPORT 2018
29.5 Movement in fair value of plan assets
Note
Fair value at the beginning of the year
Interest income on plan assets
Benefits paid by Company
Contribution by the Company - net
Re-measurements: Net return on plan assets
over interest income (loss) / gain /
Fair value at the end of the year
2018
2017
Pension
Medical
Pension
Medical
fund
benefits
fund
benefits
---------------------------------- Rupees in ‘000 ----------------------------------
29.7.2
3,484,698
354,796
546,117
500,000
(546,117)
(106,813)
4,232,681
-
3,174,054
301,535
1,502,788
(1,502,788)
9,109
3,484,698
-
2,374,416
250,641
(500,000)
736,600
82,620
2,781,324
122,843
-
951,949
30,681
892,011
(546,117)
2,470,951
(65,599)
753,621
973,064
(1,502,815)
2,374,416
(59,173)
(186,857)
736,600
74,762
175,879
250,641
12,637
69,977
82,614
128,973
192,842
(198,972)
122,843
26,277
81,559
(77,155)
30,681
5,806
779,392
106,813
892,011
2,416
(68,015)
(65,599)
982,173
(9,109)
973,064
(59,174)
(59,174)
29.6 Movement in payable under defined benefit schemes
Opening balance
Charge / (reversal) for the year
Contribution by the Company - net
Re-measurement loss / (gain) recognized in OCI
during the year
Benefits paid by the Company
Closing balance
29.7.2
29.7 Charge for defined benefit plans
29.7.1 Cost recognized in profit and loss
Current service cost
Net interest on defined benefit asset / liability
Gain due to VSS
29.7.2 Re-measurements recognized in OCI during the year
Loss / (gain) on obligation
- Demographic assumptions
- Financial assumptions
- Experience adjustment
Return on plan assets over interest income
Total re-measurements recognized in OCI
29.8 Components of plan assets
Bank balances
Government Securities
2018
2017
Pension fund
Pension fund
----------- Rupees in ‘000 ----------1,241
4,231,440
4,232,681
1,187
3,483,511
3,484,698
29.8.1 The expected return on plan assets was determined by considering the expected returns available on the assets underlying the
current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the reporting date.
Expected return on equity investments reflect long-term real rates of return experienced in the market.
70
HOUSE BUILDING FINANCE COMPANY LIMITED
29.9 Sensitivity analysis
Sensitivity analysis has been performed by varying one assumption keeping all other assumptions constant and calculating the
impact on the present value of the defined benefit obligations under the various employee benefit schemes. The increase /
(decrease) in the present value of defined benefit obligations as a result of change in each assumption is summarized below:
2018
Change in assumption
Discount rate
Salary increase
Pension increase
Medical benefit increase
1%
1%
1%
1%
Post
retirement
medical benefit
----------- Rupees in ‘000 ----------Pension
fund
740,565
128,200
767,452
-
76,577
73,710
29.10 Expected contributions to be paid to the funds in the next financial year
500,000
29.11 Expected charge for the next financial year
528,942
29.12 Maturity profile
The weighted average duration of the obligation is 11.92 years
29.13 Risks associated with defined benefit plans
Investment risks
The risk arises when the actual performance of the investments is lower than expectation and thus
creating a shortfall in the funding objectives.
Longevity risks
The risk arises when the actual lifetime of retirees is longer than expectation. This risk is measured
at the plan level over the entire retiree population.
Salary increase risks
The most common type of retirement benefit is one where the benefit is linked with final salary.
The risk arises when the actual increases are higher than expectation and impacts the liability
accordingly.
Withdrawal risks
The risk of actual withdrawals varying with the actuarial assumptions can impose a risk to the
benefit obligation. The movement of the liability can go either way.
71
ANNUAL REPORT 2018
30.
COMPENSATION OF DIRECTORS AND KEY MANAGEMENT PERSONNEL
30.1 Total Compensation Expense
Items
Fees and Allowances etc.
Managerial Remuneration
i) Fixed
ii) Total Variable
of which
a) Cash Bonus / Awards
b) Bonus & Awards in Shares
Charge for defined benefit plan
Contribution to defined contribution plan
Rent & house maintenance
Utilities
Medical
Conveyance
Mobile Charges
Others
Total
Number of Persons
2018
Directors
Key
Executives
President /
NonManagement
Chairman
(other than
CEO
Executives
Personnel
CEO)
---------------------------------------- Rupees in '000 ---------------------------------------660
-
2,760
-
-
-
-
-
-
26,813
660
-
2,760
-
50
2,526
8,099
1,817
771
3,069
81
1,366
44,592
1
-
6
1
9
30.1.1 Approval of Syed Basit Aly, CEO remuneration is awaited from Ministry of Finance. Currently the salary is paid by State Bank of
Pakistan.
30.1.2 Remuneration of Group Head - Human Resource is paid by State Bank of Pakistan. Therefore, it is not included in disclosure.
30.1.3 Key management personal includes employees as per BPRD circular no. 05 of 2015 issued by SBP.
Items
Directors Fees
Managerial Remuneration
i) Fixed
ii) Total Variable
of which
a) Cash Bonus / Awards
Charge for defined benefit plan
Contribution to defined contribution plan
Rent & house maintenance
Utilities
Medical
Conveyance
Mobile Charges
Others
Total
Number of Persons
2017
Directors
Key
Executives
President /
NonManagement
Chairman
(other than
CEO
Executives
Personnel
CEO)
---------------------------------------- Rupees in '000 ---------------------------------------150
-
570
-
-
-
-
-
7,335
26,805
150
-
570
3,421
28
227
9
5,481
16,501
10,282
1,082
2,589
2,767
131
2,050
45,706
1
-
9
3
13
Approval of Syed Basit Aly, Managing Director remuneration is awaited from Ministry of Finance. Salary from October to December
2017 was paid by State Bank of Pakistan.
72
HOUSE BUILDING FINANCE COMPANY LIMITED
30.2 Remuneration paid to Directors for participation in Board and Committee Meetings
Sr.
No.
2018
Meeting Fees and Allowances Paid
Name of Director
For Board Committees
Total
Amount
Paid
---------------------------------------------- Rs. in ‘000’ --------------------------------------------1
2
3
4
5
6
7
Sr.
No.
1
2
3
4
5
6
7
8
9
10
31.
Ali Mehdi
Arfa Waheed
Azhar Iqbal Kureshi
Mansur Ur Rehman Khan
Mian Asif Said
Munir Ahmad
Syed Muhammad Shabbar Zaidi
Total Amount Paid
For Board
Meetings
Audit
Committee
HR
Committee
290
290
290
290
290
190
20
1,660
20
110
20
110
200
30
210
200
30
670
70
330
R.M.
Credit & Ops
Committee Committee
110
100
210
100
150
150
150
550
610
580
650
660
540
290
90
3,420
2017
Meeting Fees and Allowances Paid
Name of Director
For Board Committees
For Board
Audit
HR
R.M.
Credit & Ops
Total
Meetings Committee Committee Committee Committee Amount Paid
---------------------------------------------- Rs. in ‘000’ --------------------------------------------Ali Mehdi
Arfa Waheed
Arif Hasan
Azhar Iqbal Kureshi
Munir Ahmad
Saeed Ahmad
Tasneem Ahmad Siddiqui
Zaigham Mahmood Rizvi
Syed Muhammad Shabbar Zaidi
Mian Asif Said
Total Amount Paid
20
20
40
20
80
20
100
80
60
120
560
20
20
10
10
60
20
20
20
60
10
10
20
10
10
20
20
20
70
20
80
20
150
140
70
130
720
FAIR VALUE MEASUREMENTS
The fair value of traded investments other than those classified as held to maturity is based on quoted market price. Fair value
of unquoted equity investments is determined on the basis of break up value of these investments as per the latest available
financial statements.
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 such assets and liabilities and reliable data regarding market rates for similar
instruments. The provision for non-performing advances has been calculated in accordance with the Company’s accounting policy
as stated in note 4.5 to these financial statements.
The repricing profile, effective rates and maturities are stated in note 34.2.2 and 35.1.
The management is of the view that 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 advances are
frequently repriced.
73
ANNUAL REPORT 2018
31.1 Fair value of financial assets
The Company measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in
making the measurements:
Level 1:
Fair value measurements using quoted prices (unadjusted) in active markets for identical assets or
liabilities.
Level 2:
Fair value measurements using inputs other than quoted prices included within Level 1 that are
observable for the assets or liability, either directly (i.e. as prices) or indirectly (i.e. derived from
prices).
Level 3:
Fair value measurements using input for the asset or liability that are not based on observable
market data (i.e. unobservable inputs).
The table below analyses financial instruments measured at the end of the reporting period by the level in the fair value hierarchy
into which the fair value measurement is categorised:
2018
On balance sheet financial instruments
Level 1
Level 2
Level 3
Total
----------------------------- Rupees in ‘000 -----------------------------
Financial assets - measured at fair value
Investments
Federal Government Securities
On balance sheet financial instruments
-
4,010,449
-
4,010,449
2017
Level 1
Level 2
Level 3
Total
----------------------------- Rupees in ‘000 -----------------------------
Financial assets - measured at fair value
Investments
Federal Government Securities
6,489,513
-
6,489,513
Valuation techniques used in determination of fair valuation of financial instruments within level 2 and level 3
Item
Market Treasury Bills
32.
Valuation approach and
input used
Input used
Market approach
PKRV Rates
RELATED PARTY TRANSACTIONS
Related parties comprise associated undertaking, retirement benefit plans, directors and key management personnel of the
Company. These transactions were made on substantially the same commercial terms as those prevailing at the time for comparable
transactions with unrelated parties and did not involve more than a normal amount of risk. There were no transactions with the
key management personnel other than those under the terms of their employment. Details of transactions with the related
parties other than those which have been disclosed elsewhere in these financial statements, are as follows:
74
HOUSE BUILDING FINANCE COMPANY LIMITED
2018
2017
Key
Other
Key
Other
management Associates
related
management Associates
related
personnel
parties
personnel
parties
---------------------------------------------- Rs. in ‘000’ --------------------------------------------Opening balance
Addition during the year
Repaid during the year
Transfer in / (out) - net
Closing balance
24,578
12,407
(464)
(17,934)
18,587
-
-
28,027
652
(4,101)
24,578
-
-
211
-
-
653
-
-
Income
Mark-up / return / interest earned
33.
CAPITAL ADEQUACY, LEVERAGE RATIO & LIQUIDITY REQUIREMENTS
2018
2017
----------- Rupees in ‘000 -----------
Minimum Capital Requirement (MCR):
16,926,068
15,026,928
Eligible Common Equity Tier 1 (CET 1) Capital
Eligible Additional Tier 1 (ADT 1) Capital
Total Eligible Tier 1 Capital
Eligible Tier 2 Capital
Total Eligible Capital (Tier 1 + Tier 2)
16,924,565
16,924,565
72,803
16,997,368
15,026,241
15,026,241
100,542
15,126,783
Risk Weighted Assets (RWAs):
Credit risk
Market risk
Operational risk
Total
7,491,746
243,259
4,121,584
11,856,589
7,869,479
180,230
3,544,188
11,593,897
142.74%
142.74%
143.36%
129.60%
129.60%
130.47%
Paid-up capital (net of losses)
Capital Adequacy Ratio (CAR):
Common Equity Tier 1 Capital Adequacy ratio
Tier 1 Capital Adequacy Ratio
Total Capital Adequacy Ratio
In accordance with BSD Circular No.19 dated September 05, 2008 the minimum paid up capital requirement (net of losses) of the
company at December 31, 2009 and onward would be Rs. 6 billion.
Under Basel III guidelines banks / DFIs are required to maintain the following ratios on an going basis:
S.No.
75
Ratio
2013
2014
2015
2016
2017
2018
2019
1
CET-1
5.00%
5.50%
6.00%
6.00%
6.00%
6.00%
6.00%
2
ADT-1
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
1.50%
3
TIER-1
6.50%
7.00%
7.50%
7.50%
7.50%
7.50%
7.50%
4
Total Capital
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
10.00%
5
CCB
0.00%
0.00%
0.25%
0.65%
1.28%
1.90%
2.50%
6
Total Capital
Plus CCB
10.00%
10.00%
10.25%
10.65%
11.28%
11.90%
12.50%
ANNUAL REPORT 2018
Leverage Ratio (LR):
Eligible Tier-1 Capital
Total exposures
Leverage ratio
2018
2017
----------- Rupees in ‘000 ----------16,924,565
21,501,280
78.71%
15,026,241
20,870,169
72%
3,973,430
10,258
38735%
6,480,610
1,755
369173%
20,540,049
11,214,470
183%
19,854,285
9,122,965
218%
Liquidity Coverage Ratio (LCR):
Total high quality liquid assets
Total net cash outflow
Liquidity coverage ratio
Net Stable Funding Ratio (NSFR):
Total available stable funding
Total required stable funding
Net stable funding ratio
33.1
Full disclosures of Capital Adequacy Ratio, Liquidity Coverage Ratio & Net Stable Funding Ratio will be available at www.hbfc.
com.pk under the tab of Regulatory Disclosures.
34.
RISK MANAGEMENT
Financial Institutions are exposed to various risks in pursuit of their business objectives. The nature and complexity of these risks
has rapidly changed over time. The failure to adequately manage these risks not only results in business losses but also places
hurdles in achieving strategic objectives. Consequently, a solid and vigorous risk management framework in the organization is
required.
The Company’s risk Management Policy is in line with the Risk Management Guidelines of State Bank of Pakistan and Basel III
Accord. The Risk Management Policy is approved by the Board of Directors.
The risk management policies and procedures cover all activities of the Company including credit evaluation, treasury and
investment operations. The basic principles employed in formulation of the above policies and procedures involves identification,
measurement, monitoring and controlling risks to ensure that:
-
The Company’s risk exposure is within the limits established by the Board of Directors.
-
Risk taking decisions are in line with the business strategy and objectives of the Company.
-
The expected payoffs compensate the risks taken by the Company.
Risk profile of the Company
The key risks are credit risk, liquidity risk, market risk and operational risk.
Risk Structures and Responsibilities
Organizational framework for Risk Management includes the following:
The Board of Directors is responsible for overall supervision of the risk management process. A Board Risk Management Committee
has been formed to regularly review risk related activities of the organization. The Board Risk Management Committee is
responsible to establish and implement risk management framework of the Company. Individual risks are reviewed and controlled
by various committees at management level like Assets and Liabilities Committee and Credit Committee.
76
HOUSE BUILDING FINANCE COMPANY LIMITED
Risk Management Department is responsible for coordinating and implementing all the risk management activities of the Company.
It ensures that risks remain within the boundaries as defined by the Board, comply with the risk parameters and prudential limits
and work out remedial measures. The core function is to identify, measure, monitor and report key risks to which company may
be exposed. It works in close coordination with all the functions and business units that are involved in risk taking.
Risk Management department undertakes the following activities on regular basis utilizing the overall risk framework:
-
Formulate policies and guidelines for managing all risk categories.
-
Develop systems and procedures. These systems and procedures should be capable of accurate measurement of
the risks to identify deviation from approved risk parameters.
-
Facilitate introduction and implementation of prudent practices for risk management.
-
Facilitate management in business decisions by providing analytical risk reviews.
-
Communicate and liaise with other functions and business units in carrying out risk reviews, analysis and mitigation
activities.
34.1 Credit Risk
Credit risk is the risk that a customer or counterparty may not settle an obligation for full value, either when due or at any time
thereafter. This risk arises from the potential that a customer or counterparty’s willingness to meet an obligation or its ability to
meet such an obligation is impaired, resulting in an economic loss to the Company.
Housing Finance is the core function of the Company and credit risk is the major risk faced by the Company. Credit risk is incurred
mainly in the following two areas of its operations: -
In its credit operations, where it provides housing finance to retail or wholesale clients; and
-
In treasury operations where credit risk is incurred with counterparties in its investments in financial markets and
instruments.
Overall credit risk is monitored by Credit Committee at Head Office, which reviews and recommends improvements in credit
policies and monitors portfolio behavior. To further strengthen credit risk management and credit setup, proper delegation of
credit decisions at committee level with appropriate approving limits has been made.
Following measures have been applied to govern credit policy of the Company: -
Lending process and decision is based on a full appreciation of the risks inherent in the transaction.
Management monitors credit portfolio through MIS reports.
-
Stress testing for individual credits and the overall credit portfolio under adverse changes in the conditions /
environment in which the borrowers operate.
-
The Company has instituted an effective system for monitoring servicing of its performing credit portfolio and
collection of non performing portfolio.
-
The Company creates loan loss provisions against non-performing advances in accordance with Prudential
Regulations issued by SBP.
Credit Risk Mitigation
It is the Company’s policy to reduce or mitigate credit risk on credit facilities or exposures, by securing these with collaterals. To
correctly assess the extent to which the collateral mitigates the credit risk the collateral must be valued according to a specified
valuation method, documented and monitored.
In this regard following steps have been taken: 77
Outsourcing of property title verification.
ANNUAL REPORT 2018
-
Outsourcing of borrower income verification.
-
Outsourcing of property valuation.
Credit Risk is also mitigated through a set up of sub credit committee at Zonal and Regional level for credit approvals depending
upon the level of risk assumed. Overall credit risk is monitored by central credit committee which reviews and recommends
improvements in credit policies and monitors portfolio behavior.
To strengthen credit risk management and to fulfill SBP requirements, the company is working to develop and implement internal
credit risk rating system for its entire credit portfolio.
Collateral & Security
Collateral is an important mitigate of credit risk. All the residential mortgages are collateralized. Valuation of the collateral is taken within
agreed parameters. The legal mechanism by which collaterals is pledged and the company’s procedures ensure that the Company has
clear rights over the collaterals and may liquidate, retain or take legal possession of it in a timely manner in the event of default.
Insurance Cover
-
Every borrower and guarantor is insured for life and disability for repayment of the balance amount of the loans.
-
Every property taken as collateral is insured.
Credit Concentration Risk
Concentration of credit risk is the risk related to the degree of diversification in the credit portfolio, i.e. the risk inherent in doing
business with large customers or not being equally exposed across borrower types and geographical regions. The concentration
risk can arise in loan book as well as investment book.
34.1.1 Lendings to financial institutions
Credit risk by public / private sector
Gross lendings
Non-performing lendings
Provision held
2018
2017
2018
2017
2018
2017
---------------------------------------------- Rs. in ‘000’ --------------------------------------------Public/ Government
Private
3,656,891
605,683
4,262,574
551,542
362,175
913,717
55,683
55,683
62,175
62,175
(55,683)
(55,683)
(62,175)
(62,175)
34.1.2 Investment in debt securities
Credit risk by industry sector
Non-performing
Provision held
investments
2018
2017
2018
2017
2018
2017
---------------------------------------------- Rs. in ‘000’ --------------------------------------------Gross investments
Construction
Credit risk by public / private sector
Public/ Government
Private
26,240
26,240
26,240
26,240
(26,240)
(26,240)
Non-performing
Provision held
investments
2018
2017
2018
2017
2018
2017
---------------------------------------------- Rs. in ‘000’ --------------------------------------------Gross investments
3,939,043
26,240
3,965,283
6,429,253
26,240
6,455,493
26,240
26,240
26,240
26,240
(26,240)
(26,240)
(26,240)
(26,240)
78
HOUSE BUILDING FINANCE COMPANY LIMITED
34.1.3 Advances
Credit risk by industry sector
Gross advances
Non-performing advances
Provision held
2018
2017
2018
2017
2018
2017
---------------------------------------------- Rs. in ‘000’ --------------------------------------------Others
4,324,640
14,324,640
14,520,208
14,520,208
2,973,923
2,973,923
3,316,890
3,316,890
2,973,923
2,973,923
3,316,890
3,316,890
Credit risk by public / private sector
Gross advances
Non-performing advances
Provision held
2018
2017
2018
2017
2018
2017
---------------------------------------------- Rs. in ‘000’ --------------------------------------------Public/ Government
Private
34.1.4 Contingencies and Commitments
6,828
14,317,812
14,324,640
18,097
14,502,111
14,520,208
6,828
2,967,095
2,973,923
18,097
3,298,793
3,316,890
6,828
2,967,095
2,973,923
18,097
3,298,793
3,316,890
2018
2017
----------- Rupees in ‘000 -----------
Credit risk by industry sector
Individuals
Others
79
226,132
1,045,256
1,271,388
140,435
439,551
579,986
-
437,758
105,358
Sindh
KPK including FATA
526,044
1,230,297
Total
-
82,445
AJK including Gilgit-Baltistan
-
7,542
71,150
Balochistan
Islamabad
-
526,044
526,044
Punjab
Province/Region
2018
-
2017
229,478
-
-
-
229,478
-
14,220
-
-
14,220
-
-
-
-
100,334
-
100,334
-
-
-
-
131,213
131,213
-
-
-
-
437,758
-
-
-
-
437,758
-
105,358
-
-
-
105,358
-
-
7,542
-
-
7,542
-
-
-
71,150
-
71,150
-
-
-
-
82,445
82,445
-
-
-
-
-
Utilization
KPK including
AJK including
Punjab
Sindh
Balochistan
Islamabad
FATA
Gilgit-Baltistan
-------------------------------------------------------------------------------- Rs in '000 --------------------------------------------------------------------------------
Disbursements
580,113
983,680
131,213
2,039,038
AJK including Gilgit-Baltistan
Total
-
-
14,220
-
100,334
-
-
Balochistan
229,478
KPK including FATA
580,113
983,680
Islamabad
983,680
580,113
Punjab
Sindh
Province/Region
Disbursements
Utilization
KPK including
AJK including
Punjab
Sindh
Balochistan
Islamabad
FATA
Gilgit-Baltistan
-------------------------------------------------------------------------------- Rs in '000 --------------------------------------------------------------------------------
34.1.5 Advances - Province/Region-wise Disbursement & Utilization
ANNUAL REPORT 2018
80
81
-
-
-
-
6,330,107 1,907,896 1,183,106
-
-
Cumulative Yield/Interest Risk Sensitivity Gap
-
-
3,972,657
3,972,657
16,591,204 6,330,107 1,907,896 1,183,106
34,387
412,020
412,020
4,206,891 4,056,891
150,000
4,010,448 1,303,041 1,573,580
905,297
11,681,180
558,154
184,316
277,808
218,934
20,563,860 6,330,106 1,907,896 1,183,106
6,330,107 1,907,896 1,183,106
5.08%-8%
10.1%-10.9%
8.8%-9.32%
rate
2018
-
-
-
-
-
-
-
-
-
-
714,345 1,291,684 1,127,796 3,512,135 2,974,987 1,255,549
714,345 1,291,684 1,127,796 3,512,135 2,974,987 1,255,549
-
-
714,345 1,291,684 1,127,796 3,512,135 2,974,987 1,255,549
150,440
65,156
563,905 1,291,684 1,062,640 3,512,135 2,974,987 1,255,549
714,345 1,291,684 1,127,796 3,512,135 2,974,987 1,255,549
(3,706,402)
(3,706,402)
-
-
3,972,657
3,972,657
(3,706,402)
34,387
12,934
218,934
266,255
Exposed to Yield/ Interest risk
Non-interest
Over 1
Over 3
Over 6
Over 1
Over 2
Over 3
Over 5
bearing
Months
financial
Upto 1
to 3
to 6
to 2
to 3
to 5
to 10
Above
to 1
instruments
Month
Months
Months
Year
Years
Years
Years
Years
10 Years
-------------------------------------------------------------------------------- Rupees in ‘000 -------------------------------------------------------------------------------Total
Total Yield/Interest Risk Sensitivity Gap
Off-balance sheet gap
Commitments in respect of:
- forward foreign exchange contracts
- forward government securities transactions
- derivatives
- forward lending
Other commitments (to be specified)
Documentary credits and short-term trade-related
transactions
Off-balance sheet financial instruments
On-balance sheet gap
Bills payable
Borrowings
Deposits and other accounts
Liabilities against assets subject to finance lease
Subordinated debt
Other liabilities
Liabilities
Cash and balances with treasury banks
Balances with other banks
Lending to financial institutions
Investments
Advances
Other assets
Assets
On-balance sheet financial instruments
Interest
Effective
Yield/
34.2.2 Mismatch of Interest Rate Sensitive Assets and Liabilities
Yield / interest rate risk is the risk that the value of the financial instruments will fluctuate due to changes in the market yield / interest rates. Sensitivity to yield / interest rate risk arises from
mismatches of financial assets and financial liabilities that mature or reprice in a given period. The Company manages these mismatches through matching the repricing of assets and liabilities and
off-balance sheet instruments. The Company is exposed to yield / interest risk in respect of the following:
34.2.1 Yield / Interest Rate Risk in the Banking Book (IRRBB)-Basel II Specific
HOUSE BUILDING FINANCE COMPANY LIMITED
-
-
82
-
-
-
-
-
(3,146,375)
(3,146,375)
-
3,616,650
3,616,650
(3,146,375)
53,531
57,916
358,828
470,275
20,037,358
292,715
20,330,073
3,616,650
20,563,861
314,020
20,877,881
3,972,657
December 31,
December 31,
2018
2017
----------- (Rupees in ‘000) -----------
797,799 1,273,017 1,152,112 3,461,378 2,931,992 1,237,404
797,799 1,273,017 1,152,112 3,461,378 2,931,992 1,237,404
-
797,799 1,273,017 1,152,112 3,461,378 2,931,992 1,237,404
242,043
104,829
555,756 1,273,017 1,047,283 3,461,378 2,931,992 1,237,404
797,799 1,273,017 1,152,112 3,461,378 2,931,992 1,237,404
Yield Risk is the risk of decline in earnings due to adverse movement of the yield curve. Interest rate risk is the risk that the value of the financial instrument will fluctuate due to changes in the market interest
rates.
Total financial liabilities
Total financial assets
Operating fixed assets and intangibles assets
Total assets as per balance sheet
Reconciliation of Assets and Liabilities exposed to Yield/Interest Rate Risk with Total Assets and Liabilities
3,518,132 3,464,926 1,730,325
-
Cumulative Yield/Interest Risk Sensitivity Gap
-
3,616,650
3,616,650
16,420,709 3,518,132 3,464,926 1,730,325
53,531
771,582
771,582
851,542
100,000
751,542
6,489,513 2,096,462 2,531,731 1,456,532
11,512,363
550,088
181,653
273,793
358,828
20,037,359 3,518,132 3,464,926 1,730,325
3,518,132 3,464,926 1,730,325
3.75% - 5.60%
3.75% - 5.60%
6.01%-6.15%
5.99%-9.25%
rate
2017
Exposed to Yield/ Interest risk
Non-interest
Over 1
Over 3
Over 6
Over 1
Over 2
Over 3
Over 5
bearing
Months
financial
Upto 1
to 3
to 6
to 2
to 3
to 5
to 10
Above
to 1
instruments
Month
Months
Months
Year
Years
Years
Years
Years
10 Years
--------------------------------------------------------------------------- Rupees in ‘000 ---------------------------------------------------------------------------
Total
Total Yield/Interest Risk Sensitivity Gap
Off-balance sheet gap
Commitments in respect of:
- forward government securities transactions
- forward lending
Off-balance sheet financial instruments
On-balance sheet gap
Bills payable
Borrowings
Deposits and other accounts
Liabilities against assets subject to finance lease
Subordinated debt
Other liabilities
Liabilities
Cash and balances with treasury banks
Balances with other banks
Lending to financial institutions
Investments
Advances
Other assets
Assets
On-balance sheet financial instruments
Interest
Effective
Yield/
ANNUAL REPORT 2018
83
Asset and Liability Committee (ALCO), Treasury, Finance Division and Risk Management Department each have a role in management of liquidity risk.
Liquidity risk is the risk caused, among others by the inability of the Company to settle liabilities at due date. Objectives of our liquidity management is to ensure that the Company is able to honor all
its financial commitments on an ongoing basis without (i) effecting the Company’s cost of funds (ii) adversely effecting ability to raise funds and (iii) resorting to sale of assets.
LIQUIDITY RISK
Operational Risk is the risk of loss resulting from inadequate or failed internal processes, people and system or from external events.
Operational Risk
19,365,000
1,246,974
(3,685,905)
(20,845)
16,905,224
Share capital
Reserves
Unappropriated/ Unremitted loss
Deficit on revaluation of assets
Net assets
3,972,657
3,972,657
16,905,224
34,387
412,020
4,206,891
4,010,448
11,681,180
312,517
1,503
218,934
20,877,881
Bills payable
Borrowings
Deposits and other accounts
Liabilities against assets subject to finance lease
Subordinated debt
Deferred tax liabilities
Other liabilities
Liabilities
Cash and balances with treasury banks
Balances with other banks
Lending to financial institutions
Investments
Advances
Fixed assets
Intangible assets
Deferred tax assets
Other assets
Assets
2018
70,558
70,558
2,728,290
34,387
412,020
494,032
1,295,591
558,154
1,890
9
2,765
2,798,848
74,871
74,871
5,419,833
3,712,859
1,564,582
184,316
3,729
18
29,200
5,494,704
145,393
145,393
1,040,804
900,121
277,808
5,594
27
2,647
1,186,198
277,845
277,845
455,149
149,580
563,905
12,812
62
6,635
732,994
1,142,661
1,142,661
243,283
,291,684
22,377
108
71,774
1,385,943
881,193
881,193
353,069
64,783
1,062,640
22,377
108
84,354
1,234,262
1,306,786
1,306,786
2,256,313
3,512,135
43,879
211
6,872
3,563,098
52,190
52,190
3,015,672
2,974,987
77,744
374
14,757
3,067,862
20,929
20,929
1,394,799
35,791
1,255,549
122,115
587
1,685
1,415,728
Over 1
Over 3
Over 6
Over 1
Over 2
Over 3
Over 5
Upto 1
to 3
to 6
Months to 1
to 2
to 3
to 5
to 10
Above
Month
Months
Months
Year
Years
Years
Years
Years
10 Years
--------------------------------------------------------------------------- Rupees in ‘000 ---------------------------------------------------------------------------
Total
35.1 Maturities of assets and liabilities - based on expected maturities of the assets and liabilities of the Company
35.
34.3
HOUSE BUILDING FINANCE COMPANY LIMITED
3,616,650
3,616,650
16,713,424
19,365,000
1,037,680
(5,375,752)
2,174
15,029,102
Bills payable
Borrowings
Deposits and other accounts
Liabilities against assets subject to finance lease
Subordinated debt
Deferred tax liabilities
Other liabilities
Share capital
Reserves
Accumulated loss
Surplus on revaluation of assets
68,165
68,165
3,447,730
751,542
2,531,731
181,653
3,493
47,477
3,515,896
132,372
132,372
1,607,498
1,456,532
273,793
5,240
4,304
1,739,870
252,961
252,961
567,626
242,043
555,756
12,000
10,789
820,587
1,040,323
1,040,323
370,354
1,273,017
20,959
116,701
1,410,677
802,272
802,272
507,953
Sd/______________________
Chief Financial Officer
President/Chief Executive
84
Director
Sd/_____________
Figures have been rounded-off to the nearest thousand rupees except stated otherwise.
38.1
Sd/_______________________
GENERAL
-
104,829
1,047,283
20,959
137,154
1,310,225
Director
Sd/_____________
These financial statements were approved and authorized for issue on _____________ by the Board of Directors of the Company.
DATE OF AUTHORIZATION
Comparative figures have been reclassified and re-arranged where necessary for the purpose of better presentation.
RECLASSIFICATION OF COMPARATIVE FIGURES
38.
37.
36.
64,238
64,238
3,513,689
53,531
771,582
100,000
2,096,462
550,088
1,770
4,495
3,577,928
Information relating to above disclosure is not available through system, therefore is based on management best estimate.
Net assets
Liabilities
53,531
771,582
851,542
6,489,513
11,512,363
292,715
358,828
20,330,074
Cash and balances with treasury banks
Balances with other banks
Lending to financial institutions
Investments
Advances
Operating Fixed assets
Deferred tax assets
Other assets
Assets
2017
1,189,749
1,189,749
2,323,902
3,461,378
41,099
11,174
3,513,651
19,054
19,054
1,393,383
57,916
1,237,404
114,377
2,740
1,412,437
Director
Sd/_____________
47,515
47,515
2,981,288
2,931,992
72,818
23,994
3,028,804
Over 1
Over 3
Over 6
Over 1
Over 2
Over 3
Over 5
Upto 1
to 3
to 6
Months to 1
to 2
to 3
to 5
to 10
Above
Month
Months
Months
Year
Years
Years
Years
Years
10 Years
----------------------------------------------------------------------------- Rupees in ‘000 -----------------------------------------------------------------------------
Total
ANNUAL REPORT 2018
85
9580000199
9320000426
9640003761
7100335847
2217104
2
3
4
5
6
3740506274933
13562394680
B-V 228, Nashtar,
Muslim Town, Shakrial
Plot No-50-51 Faisal
Town Malkandher
Nasirbagh Raod
Peshawar
Munawar Sultana
Saimeen Uzair
Mubashar Nazar
TOTAL:
1610215532431
Takht Bhai, 6, Mazdoor Abad
Moris Khan
P.48 Block.2 D.iqbal
Karachi
3520249660634
Ghzala Irshad
74 Lahore, A, State
Life Society, Lahore
4
Name of individuals/
partners/directors
(with CNIC No.)
4550411210845
3
Address of the
Borrower
Muhammad Akram E-163 Ii Sukkur TownSiddiqui
ship Sukkur
2
Name of the Borrower
Abdul Aziz Muslim
Javaid Akhter
Nazar
Mohammad
Naseer Khan
Muhammad Irshad
Mohammad
Hussain Siddiqui
5
Father's/
Husband's
name
2,393,611
-
200,000
954,214
349,282
361,365
528,750
6
Principal
-
425,188
-
243,271
63,424
78,859
39,634
7
Interest/
Mark-up
8
-
-
-
-
50,067
-
50,067
Appreciation
2,806
428,141
416,470
531,556
10
Total
44,664
-
22,406
,913,530
-
515,744
3,981 1,021,619
-
15,471
9
Other than
Interest/
Mark-up
Outstanding Liabilities at beginning of year
* Relief includes amounts which would be due to the Company under contractual arrangements whether or not accrued in the books.
8050008765
Account No
1
1
S.
No.
574,361
-
15,036
27,896
2,679
-
528,750
11
Principal
written-off
66,325
-
-
-
-
50,771
15,554
12
Interest/
Mark-up
written-off/
waived
STATEMENT SHOWING WRITTEN-OFF LOANS OR ANY OTHER FINANCIAL RELIEF
OF RUPEES FIVE HUNDRED THOUSAND OR ABOVE PROVIDED
DURING THE YEAR ENDED 2018
129,215
11,200
-
10,029
38,949
-
69,037
13
Other
financial
relief
provided
769,901
11,200
15,036
37,925
41,628
50,771
613,341
Total
(11+12+13)
Annexure - I
HOUSE BUILDING FINANCE COMPANY LIMITED
ANNUAL REPORT 2018
BRANCH NETWORK
South Region
Area South-1
Area South-2
1.
Gwadar
1.
Dadu
2.
Hyderabad
2.
Jacobabad
3.
Karachi-I
3.
Khairpur
4.
Karachi-II
4.
Larkana
5.
Mirpurkhas
5.
Quetta
6.
Nawabshah
6.
Sukkur
7.
Sanghar
8.
Thatta
Central Region
Area Central-1
Area Central-2
1.
Faisalabad
1.
Bahawalnagar
2.
Gujranwala
2.
Bahawalpur
3.
Gujrat
3.
Dera Ghazi Khan
4.
Jhang
4.
Multan
5.
Kasur
5.
Muzaffargarh
6.
Lahore-A
6.
Rahim Yar Khan
7.
Lahore-B
7.
Vehari
8.
Lahore-C
9.
Sahiwal
10.
Sargodha
11.
Sheikhpura
12.
Sialkot
North Region
Area North-1
Area North-2
Area North-3
1.
Abbottabad
1.
Bannu
1.
Gilgit
2.
Attock
2.
Chitral
2.
Hunza
3.
Islamabad
3.
DI Khan
3.
Skardu
4.
Jhelum
4.
Kohat
5.
Mansehra
5.
Mardan
6.
Mirpur(AJK)
6.
Peshawar
7.
Rawalpindi
7.
Swat
8.
Wah
86