INVESTMENTS Investments by types

2011
Held by Given as Bank Held for trading securities Fully paid ordinary shares Available for sale securities Market Treasury Bills Pakistan Investment Bonds Fully paid ordinary shares / unit Units of open end mutual funds Fully paid preference shares Term Finance Certificates National Investment Trust (NIT) units Sukuk Certificates
Government of Pakistan Euro Bonds

2010
Total Held by Bank Given as Collateral Total

Collateral

Foreign securities Held to maturity securities Term Finance Certificate Pakistan Investment Bonds Government of Pakistan Euro Bonds Sukuk Certificates Credit Linked Notes Investment in associate Askari General Insurance Company Limited Investment in subsidiaries Askari Investment Management Limited Askari Securities Limited Investment at cost
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Provision for diminution in value of investments Investments (net of provision) Unrealised loss on revaluation of held for trading securities net Deficit on revaluation of available for sale securities net Total investments Market value of held to maturity securities as at December 31, 2011 is Rs. 4.6 % (2010: Rs. 5.1%).

Investments by segments:

2011
Federal Government Securities Market Treasury Bills Pakistan Investment Bonds Government of Pakistan Euro Bonds Sukuk Certificates Fully paid up ordinary shares / units Listed companies / funds Unlisted companies Units of open end mutual funds Fully paid preference shares Listed companies Unlisted companies Term finance certificates Listed term finance certificate Unlisted term finance certificates Foreign securities Mena transformation fund Credit linked notes Other investments Sukuk certificates National Investment Trust (NIT) units
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2010

Total investment at cost Provision for diminution in value of investments Investments (net of provisions) Unrealized loss on revaluation of held for trading securities net Deficit on revaluation of available for sale securities net Total investments 9.2.1 Particulars of provision for diminution in value of investments Opening balance Charge for the year Closing balance 9.2.2 Particulars of provision in respect of type and segment Available for sale securities Fully paid ordinary shares unlisted Preference shares unlisted Term finance certificates Sukuk certificates Held to maturity securities Term finance certificates Subsidiaries Fully paid ordinary shares unlisted These represent investments by Wholesale Bank Branch carrying markup at 6.88% and 7.13% and having maturities up to June 2017. Al Meezan Mutual Fund, previously a closedend fund, is converted into an openend equity fund with effect from August 5, 2011. The fund is managed by Al Meezan Investment Management Limited. Askari Investment Management Limited (AIML) is a wholly owned subsidiary of the Bank, licensed as a NonBanking Finance Company (NBFC), to undertake asset management and investment advisory services under Non Banking Finance Companies and Notified Entities Regulations, 2007 (NBFC and NE Regulations). Two shares are held in the name of two nominee directors of the Bank in AIML. Askari Securities Limited (ASL) is a partly owned subsidiary of the Bank, incorporated under the Companies Ordinance, 1984 as a public limited company to undertake the business of share brokerage, investment advisory and consultancy services. Four shares are held in the name of four nominee directors of the Bank in ASL. This represents subscription by the Bank towards capital of Khushhali Bank as per the SBPs letter No. BSD (RU26/625MfB/13317/00) dated August 7, 2000. In accordance with the
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restrictions imposed under section 10 of the Khushhali Bank Ordinance, 2000, the sale / transfer of these shares is subject to the prior approval of the SBP. The difference between the paid up value and break up value of Pakistan Export Finance Guarantee Agency Limited amounting to Rs. 5,680 thousand (2010: Rs. 5,680 thousand) is considered as impairment and has been fully provided for. These carry rate of return ranging from 8.45% to 15.64% (2010: 8.45% to 17.36%) per annum and having remaining maturity periods of up to 9 years (2010: 8 years). This represents investment in Funds managed by Askari Investment Management Limited; a wholly owned subsidiary of the Bank These represent investments by Wholesale Bank Branch carrying markup at 6.88% and 7.13% and having maturities up to June 2017. The Bank has invested in MENA Transformation Fund I.L.P a closed ended fund having six years term. Investment in associate represents 27.18% (2010: 25%) investment in the equity of Askari General Insurance Company Limited (AGICO), a listed associated company. Summary of financial information of AGICO is given below: This represents investment by the Wholesale Bank Branch in credit linked notes issued by Standard Chartered Bank, Singapore at 3 months USD LIBOR plus 3.50% per annum maturing on December 20, 2012. These are Government of Pakistan guaranteed securities. These include Government of Pakistan guaranteed Sukuk Certificates of Rs. 7,000,000 thousand (2010: Rs. 2,010,000 thousand) Ratings for these equity securities / units represent Entity Ratings. Local securities have either been rated by The Pakistan Credit Rating Agency Limited (PACRA) or JCRVIS Credit Rating Company Limited (JCRVIS), whereas foreign securities are unrated. These ratings reflect independent credit risk assessment by respective rating entities. Market Treasury Bills and Pakistan Investment Bonds are securities eligible for rediscounting with the SBP. Investments given as collateral include securities having book value of Rs. 36,602 thousand pledged with the SBP as security against demand loan and TT / DD discounting facilities.

RISK MANAGEMENT The Group believes that effective risk management is of primary importance to achieve desired level of return while maintaining acceptable level of risk exposure. Robust risk management processes and framework are in place to achieve overall Groups objectives through a well thought out strategy, which enable the Group to effectively manage, Credit, Market, Operational and Liquidity risk in a proactive manner. The Group has a Board Risk Management Committee (BRMC) in place and the Head of Risk reports directly to BRMC for independent assurance. BRMC is responsible to review the extent of design and adequacy of risk management framework. BRMC oversees that risks are managed within the level of tolerance and risk appetite of the Group. Credit Risk Credit risk arises from the potential that an obligor is either unwilling to perform on an obligation or its ability is impaired resulting in economic loss to the Group. The Group takes necessary measures to control such risk by monitoring credit exposures, limiting transactions with specific counter parties with increased likelihood of default and continually assessing the creditworthiness of counter parties. The Group has built and maintains a sound loan portfolio in terms of a well defined Credit Policy and Credit Risk Policy approved by the Board of Directors. Its credit evaluation system comprises of welldesigned credit appraisal, sanctioning and review procedures for the purpose of emphasizing prudence in its lending activities and ensuring quality of asset portfolio. Advances portfolio constitutes more than 40% of the total asset base and is also the largest source of credit risk for the Group. Moreover, more than 80% of Groups capital requirement pertains to credit risk. The Groups advances portfolio is well diversified across various business segments, industries and geographical locations. Risk mitigants have been put in place at all stages of credit risk cycle i.e. identification, measurement, monitoring, controlling and reporting for effective risk management. Accordingly, portfolio monitoring function is in place at the Group with dedicated resources to ensure that risk is not only minimized but is optimized in risk / return perspective. Credit Risk Review is conducted at obligor as well as at portfolio level to ensure adherence to regulatory as well as the Groups policies and procedures. The review process ensures that a sound and proactive risk management culture is maintained across the Group. Meanwhile, an Advances Review Committee has been established at the Group. The committee comprises of the stakeholders from all the concerned functional units to oversee credit related activities across the

Market Risk
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Market risk is the risk that the value of on and offbalance sheet positions of a financial institution will be adversely affected by movements in market rates or prices such as interest rates, foreign exchange rates, equity prices and credit spreads resulting in a loss to earnings and capital. The Groups Risk Management Process seeks to identify, measure, monitor, and control market risks in order to shield against adverse movements in market factors and to attain an efficient risk/return profile of its open positions. The Risk Management Division has developed and implemented market risk policy and risk measurement /monitoring methodology for review and reporting of market risk. The Group makes use of the globally established ValueatRisk (VaR) methodology to measure traded market risk. In addition, sensitivity analysis is carried out to gauge the impact of extreme market movements on traded exposures. Meanwhile, stress testing is used to analyze the impact of both the abnormal market movements across different markets as well as to assess nontraded market risk, in particular interest rate risk in the banking book. The performance of the Groups traded portfolios is evaluated through the use of risk / return analysis. Risk is kept under check through the revaluation of all traded market risk exposed positions on a daily basis, and controlled by ensuring that these positions do not breach regulatory limits and the Groups own internally established risk tolerance limits.