Final Project on Al Faysal Investment Bank Ltd(AFIBL)

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INTRODUCTION

It gives us pleasure to introduce Al Faysal Investment Bank Limited (AFIBL), a member of the Dar Al Maal Al Islami Group (DMI).

AFIBL was incorporated in 1991 with an authorized capital of Rs.500 million, later enhanced to Rs 1.0 billion. Today it is the largest investment Bank in Pakistan with paid up capital of Rs.978.7 million and total equity of over Rs. 24.5 billion. AFIBL’s share is listed on the national bourses and today it has the largest market capitalization compared to any investment Bank in the country.

AFIBL has had a very successful track record and performance. The operating profit of Rs 434 million in 1999 was 14% higher as compared to 1998. Despite the depressed market conditions and constraints in the financial sector, AFIBL reported an increase of 6.5% in profit after tax from Rs. 170 million to Rs 181 million in 1999.

AFIBL’s parent institution Dar Al Maal Al Islami is based in Geneva, Switzerland. DMI has a paid up capital in excess of US$ 347 million and total assets of over US$ 1 billion. It also manages fiduciary funds of US$ 3.5 billion. The DMI

Group spans the European, Asian and African continents by virtue of a sophisticated network of financial institutions acting as a vital nexus between the business houses of the Orient and West. The synergy that drives from such a multifarious network is our strength. Today DMI’s cross border commitments to Pakistan are in excess of US $ 700 million.

AFIBL has a vast network of sister concerns in the Middle East. Two prominent institutions; Faysal Islamic Bank of Bahrain E.C. (FIBB) and Islamic Investment Company of the Gulf E.C Bahrain (IICG) were merged to form the Shamil Bank of Bahrain E.C. in June 2000. AFIBL and its parent have been honored by having as their chairman, HRH Prince Mohammed Al Faisal Al Saud, son of late King Faysal of Saudi Arabia.

AFIBL has been assigned an Entity Credit Rating for long term of AA+ (A One Plus). The rating has been conducted by the Pakistan Credit Rating Agency (Pvt.) Limited which is an affiliate of IBCA Limited of UK. This is one of the highest credit rating that any financial institution has received in the country.

The phenomenal growth of AFIBL in a short period has been achieved through its multifaceted contributions to all spheres of Banking activities. Its fine sense of the market and its close watch on the rapidly changing economic horizon have been incorporated in a proactive and dynamic flexibility that grants us the competitive edge to formulate solutions for the most complex financial problems of our sophisticated clients.

AFIBL has been a major provider and arranger of debt and equity finance for power plants, refineries, pipelines, oil terminals, cement plants, fertilizer projects, telecommunication companies, chemical projects, and transport projects. We attach a list of some of our accomplishments to date, which are unparalleled in this market.

AFIBL has strong relationship with local corporations, government and various institutions, which are carrying out major trade and commerce of the country. Our leadership in corporate finance activities is evident from the growth on our revenues over last seven years.

In 1997 AFIBL’s after tax profit of RS 319 million was more than the combined profits of the 9 investment Banks operating and registered in Pakistan. AFIBL has a balance sheet footing of Rs.24.5 billion, which is not only larger than all investment banks but also greater than many other local & foreign commercial Banks. The balance sheet has growth at a remarkable rate of 58% over the last 8 years.

AFIBL has shown the capability and commitment to locate international investors with an appetite for the Pakistan market. Due to its strong bonds with the Middle East, its principals and their customers, AFIBL has been in the past able to efficaciously arrange funding for numerous sources.

AFIBL has also forged Strategic Alliances with world-renowned institutions for providing a vital link to international markets and facilitating the arrangement and placement of equity & debt. As such we have an enviable record in raising funds for the infrastructure projects. AFIBL has appointed as the Financial Advisor for the privatization of Industrial Development Bank of Pakistan. AFIBL and Goldman Sachs were short-listed as Financial Advisor for privatization of PTCL to a strategic investor in 1995. Also, AFIBL with Kleinworth Benson, Regent Pacific and Alliance Capital was short, listed for Financial Advisor of Privatization Fund. AFIBL Price Water House and Indosuez W. I Carr have been short listed for sale of GOP shareholding in Attock Refinery Limited & Pakistan Oil Field Limited.

AFIBL has a team of highly trained and experienced Corporate Finance specialists. We offer an array of services both for the Corporate as well as individual clients. These includes:

INVESTMENT PRODUCTS AND PORTFOLIO MANAGEMENT

ð Capital Market Operations, Equity Participation, Underwriting, Pre IPO Placements

Financing

Advisory Services

As an investment Bank, we are able to offer excellent rates on our certificates of deposits. Our rates match the very best in the industry. The tenor of such COIs ranges from one month to five years. New products and investment schemes are also constantly in the pipeline. We also make investment plans tailored to address the specific needs of our valuable clients.

In a short time AFIBL has achieved a unique position among the financial institutions of the country. Our commitment to progress is evident from the latest annual accounts, which are enclosed for your information.

Morabaha Service

The Bank extends Short, Medium & Long Term (project Finance) financing through the Islamic mode of financing primarily MORABAHA.Morabaha financing represents more than two thirds of the Bank’s total assets portfolio.

The Bank thus has an asset portfolio of varying terms, short term – one year or less, to long term project finances – up to seven years. While the Bank focuses on cash flow based financing, all financing is secured through additional collateral’s as allowed and /or required by the state Bank of Pakistan.

Security collateral’s vary from charge on assets (Mortgage on Land & Building, Hypothecation of Fixed & Current Assets and Hypothecation of Receivables), scuritization of Receivables, Bank Guarantees, Cash

Deposits (Pak Rupee & Foreign Currency), under structured transactions, the Bank manages larger funding requirements.

Larger funding requirements are met through syndicated arrangements comprising of consortium of more than one financial institution.

The Bank can also arrange Redeemable Capital (TFC) that is Shariah compatible. Both Listed and Non-Listed TFCs are managed through private and public placements (with specific benefits).

In order to meet additional financing requirements of the clients the Bank facilitates financing through Leasing arrangements. For this purpose the Clients of the Bank facilitates financing through leasing arrangements. For this purpose the Bank has developed strategic partnership with some of the leading Leasing arrangements. For this purpose the Bank has developed strategic partnership with some of the leading Leasing Companies in the country.

DEPARTMENTS

Administration

Administration is Branch function reporting to the respective Regional Head. It comprises of teams at the three locations facilitating the core activities of the bank. Administration is responsible for all administrative issues from house keeping, maintenance, transport, communications, protocol and other associated activities.

Corporate Finance

Corporate Finance represents the major part of the front office of the bank (the other being private client services) and is the main Revenue Generator. The Department comprises a team of qualified & experienced professionals reporting directly to the respective Regional Heads. The total strength of the department is 10 people at the three locations. The department is responsible for marketing the Banking Services and for Relationship Management. Corporate Finance undertakes transactions directly & through Syndication. Complete scope of services including Financing, Guarantees, Advisory, Privatization, Mergers & Acquisitions etc are all under taken by the Department.

Investments in projects is made through direct funded facilities in the shape of term loans or indirectly through Syndicated arrangements, through underwriting of public issues of stocks/shares/securities, short term and long term participation Term Certificates and Term Finance Certificates.

The financing is provided at market competitive rates. Both fixed and variable rate facilities are offered.

The department also undertakes contingent risk exposure based on non-funded facilities like Bank Guarantees and Counter Guarantees.

The department undertakes a multitude of corporate financial services, including: acting as advisor and financial agents for clients in obtaining bank loans, syndicated loans, export credits etc

Private placement of debt and equity in domestic and foreign markets adviser with regard to financial restructuring as well as preparation of resource mobilization adviser with regard to financial restructuring as well as preparation of resource mobilization plans

Credit Admin

The credit admin department comprises of three units one in support of each branch. Each unit is headed by a unit head reporting to the respective regional head at the branch level. The total strength of the credit admin function is 9 persons. The credit admin department is responsible for the post approval formalities including legal documentation, creation of security, post disbursement monitoring, remedial asset management. Additional responsibilities include management & regulatory reporting and audit.

Private Client Services

A person at the three locations represents private client services (PCS). PCS is focused towards meeting the banking requirements of high net worth individuals. The customer base comprises of over 150 customers.

OPERATIONS

The operations department provides the required back office support facilitating all disbursement and receipts with regard to transactions. The department comprises a team of 10 persons distributed at the three offices. Operations are a branch function reporting to the respective regional heads.

Capital Market

The capital markets department operates out of Karachi, the main business center of the country. The department undertakes the required capital market activities for the bank including:

v Issuing long term certificates of deposit or investment, underwriting of stocks and shares, participation term certificates etc.

Treasury

The treasury function is handled out of Karachi. Inter and Intra bank lending & borrowing is the domain of the treasury. The department undertakes the following activities for the bank:

q Trading in commercial paper, government securities, promissory notes, banker’s acceptance etc.

Personnel

The personnel function is located at Islamabad and is headed by the regional head – north, Mr. khalid Pervaiz. The department is responsible for developing the personnel policies and undertakes human resource planning and career development. In this regard various arrangement of in-house training programs and assigning personnel to various training programs and seminars is undertaken. In addition the department manages the employment records of all the employees.

Information Technology

The information technology department, headed by Mr.Usman Hameed, has a team of six IT professional based in Karachi, Lahore and Islamabad.

Operations of the bank are automated under ORACLE / developer 2000 based systems, which run under SCO UNIX platform. Microsoft products are used for the automation of the office/ time / mail management systems. UNIX and windows NT based networks are installed at all branches. Approximately 100 workstations are installed in the bank.

Financial control

Financial control department is headed by Mr. Mansoor H. Hamdani, who is a chartered accountant with over 30 years varied experience. Besides financial control the responsibility of corporate secretary is also vested with Mr. Hamdani.

The head office function is based in Islamabad. Other executives of the department includes a manager (based in Karachi) and two deputy managers with a total strength of seven persons.

The department is responsible for managing the books of accounts, budgeting, annual general meetings, and matters pertaining to the board of directors & shareholders.

Internal audit

Internal audit reports directly to the bank’s president as well as the group head office in Geneva. IA undertakes an independent audit of the banks operations on a regular basis with a special focus towards verifying operational conformity with the banks policies, procedures and guidelines. In addition conformance with the SBP & other regulatory policies are also examined.

Risk Management

The risk management department is headed by Mr. Khalid Qayyum, country risk head. Risk management is a head office function reporting directly to the bank’s president. Risk department is primarily responsible for outlining the banks investment/ exposure policies based upon the risk assessment under changing market conditions. All investment/ exposure proposals prepared by the Branches are evaluated independently by the risk department and recommended to the management for further approvals.

In addition to the risk management of the banks operations the department deals manages the reporting requirements of the regulatory bodies.

Bank Guarantees

Non funded facilities comprising of Bank Guarantees and Indemnities constitute the Contingent Liability of the Bank. These comprise the major source of Fee based income for the Bank. Bank Guarantees are issued in the form of Bid Bonds, performance Bonds, surety Bonds and for financing.

The Guarantees are issued for varying time periods. As a minimum the Guarantees are issued for a single quarter while the maximum exposure under a guarantee is over 10 years. The Bank Guarantees are secured through collateral’s as allowed and are required by the State Bank of Pakistan.

The security collateral’s vary from charge on Assets (Mortgage on Land & Building, Hypothecation of Fixed & Current Assets and Hypothecation of Receivables),

counter Bank Guarantees, Cash deposits (Pak Rupee & Foreign Currency), pledge of shares, lie on Stock etc.

The bank’s Per Party Limit, for the non-funded facilities, as defined by the state bank of Pakistan, stands at approx. RS 450 million (the funded exposure can be up to RS 300 million). Larger requirements are met through Syndicated arrangements comprising of more than one financial institution.

Certificates of Investment

Regular certificates of investment (roci)

This scheme is designed to cover the vast majority of those depositors who wish to invest their funds for a fixed period of time and get higher returns.

ÿ Profit will be paid at maturity for investments of under one year. For investment of one year and above, the profit will be paid annually.

ÿ Upon premature encashment after 90 days, profit on RCOI will be paid at the profit rate prevailing on the dates of issue and corresponding to the tenor of RCOI completed.

ÿ Additional bonus rate over and above the expected profit rate will be given to depositors with deposits of following amounts.

Ø Zakat expectation certificate/ affidavit/ declaration, duly certified by Notary Public should be filled with the bank one more prior to the valuation date.

Ø Zakat (if applicable) will be calculated on the Zakat valuation date and principals and shall be deducted at the time of profit payment or encashment which ever is earlier.

Monthly Income Certificate of Investment: (Micoi)

This scheme is designed for those depositors who wish to earn a regular monthly income on their fixed investment.

Features:

Q Monthly profit will be paid to the depositors after deduction of withholding tax and any other levies (if applicable).

Q Upon premature encashment after 90 days but before one year, profit will be paid at the RCOI profit rates prevailing at the date of issue of MICOI & corresponding to the tenor completed. Any difference between the calculated profit amount and the profit already paid will be deducted from the principal. However, profit on premature encashment after completion of 1,2,3 & 4 years will be paid at the MICOI profit rates corresponding to the tenor of MICOI profit rates corresponding to the tenor of MICOI completed.

Q Zakat exemption certificate/ affidavit/ declaration, duly certified y Notary Public, must be filed with the bank at the time of investment in MICOI completed.

Q Zakat (if applicable) will be deducted @ 1/12^th of the zakat amount every month on principal only, as calculated on the 1^st of Ramdan.

Special Growth Certificate Of Investment (Sgcoi)

This scheme is for those depositors who are willing to invest on longer-term basis in order to get a huge rate of return at the end of the period and have no interim requirement for profit or income.

Features:

Q The initial investment will grow at special accelerated profit rate to become the maturity amount.

Q Profit will be paid at the time of maturity only. No profit will be paid during the interim period.

Q Upon pre-mature encashment before the completion of two years, profit on SGCOI will be paid at the profit rate of the RCOI prevailing on the date of issue and corresponding to the tenor completed. However, profit on premature encashment of SGCOI after completion of

Q 2,3,4, & 5 years will be paid at the SGCOI profit rates corresponding to the tenor completed.

Q Sakata exemption certificate/affidavit/declaration, duly certified by Notary Public, should be filed with the bank one month prior to the valuation date.

Q Zakat (if applicable) will be charged only once, on the total payable amount at the time of the encashment/maturity of SGCOI.

COMPARISON OF AFIBL COI’s

WITH NAIONAL SAVINGS SCHEMES

NOTE: Net Profit amounts have been calculated after deduction of withholding tax currently@10% p.a., wherever applicable