Left Right Left Right Company Information Board of Directors Registered Office Mr. Christos Papadopoulos Chairman Standard Chartered Bank (Pakistan) Limited Mr. Mohsin Ali Nathani Chief Executive Officer P.O. Box No. 5556, I.I. Chundrigar Road Mr. Andrew James Hardacre Karachi 74000 Pakistan Mr. Raheel Ahmed Tel: (021) 32450000 Mr. Najam I. Chaudhri Fax: (021) 32414914 Mr. Shahid Zaki Mr. Parvez Ghias Main Office Company Secretary Standard Chartered Bank (Pakistan) Limited P.O. Box No. 5556, I.I. Chundrigar Road Mr. Rahim Panjwani Karachi 74000 Pakistan Tel: (021) 32450000 Audit Committee of the Board Fax: (021) 32414914 Mr. Najam I. Chaudhri Chairman Website Mr. Shahid Zaki Member Mr. Andrew James Hardacre Member www.standardchartered.com.pk Registrar and Share Transfer Office Auditors M/s THK Associates (Pvt.) Limited M/s KPMG Taseer Hadi & Co Ground Floor, State Life Building No.3 Chartered Accountants Dr. Ziauddin Ahmad Road, Karachi Tel: (021) 111-000-322 Legal Advisors Fax: (021) 35655595 Haidermota & Co Barristers at Law & Corporate Counselors www.standardchartered.com.pk Annual Report 2010 01 Table of Contents Page Notice of Annual General Meeting 03 Directors’ Report 05 Management’s Statements on Internal Controls and Risk Management Framework 08 Report of Shariah Advisor 12 Auditors’ Report on Statement of Compliance with the Code of Corporate Governance 14 Statement of Compliance with the Code of Corporate Governance 15 Auditors’ Report to the Members 19 Un-Consolidated Financial Statements 20 Auditors’ Report to the Members on Consolidated Financial Statements 85 Consolidated Financial Statements 86 Pattern of Shareholding 149 Form of Proxy 02 Annual Report 2010 www.standardchartered.com.pk NOTICE OF ANNUAL GENERAL MEETING Notice is hereby given that the Fifth Annual General Meeting of the shareholders of Standard Chartered Bank (Pakistan) Limited ("Bank") will be held on Wednesday, March 30, 2011 at 3:00 PM at Jinnah Auditorium, The Institute of Bankers Pakistan, Moulvi Tamizuddin Khan Road, Karachi, to transact the following business: A. ORDINARY BUSINESS 1. To receive, consider and adopt the Audited Accounts of the Bank and consolidated accounts of the Bank and its subsidiaries for the year ended December 31, 2010 along with the Directors' and Auditors' Reports thereon. 2. To consider the appointment of external auditors namely M/s KPMG Taseer Hadi & Co., Chartered Accountants and to authorize the Chief Executive Officer and Chief Financial Officer to fix their remuneration. M/s KPMG Taseer Hadi & Co., Chartered Accountants being eligible have offered themselves for re-appointment. 3. To consider and approve cash dividend @ Rs. 0.60 per share of Rs. 10 each (i.e 6%) for the year ended December 31, 2010 as recommended by Board of Directors. B. SPECIAL BUSINESS 4. To grant approval to the remuneration paid to the Directors in accordance with the Articles of Association of the Bank and in that connection to pass the following resolution, as ordinary resolution, with or without modification, addition or deletion: "RESOLVED THAT the decision of the Board of Directors of Standard Chartered Bank (Pakistan) Limited to pay a fee of Rs. 3,355,000/- during the year ended December 31, 2010 to the non-executive members of the Board, in terms of their discretion under the Articles of Association of the Bank, be and is hereby confirmed and approved by the shareholders." A statement of material facts under section 160 (1) (b) of the Companies Ordinance, 1984 relating to the aforesaid special business to be transacted in the said Annual General Meeting is appended below. C. OTHER BUSINESS 5. To transact any other business as may be placed before the meeting with the permission of the chair. By Order of the Board Rahim Panjwani Company Secretary Karachi: March 3, 2011 www.standardchartered.com.pk Annual Report 2010 03 NOTICE OF ANNUAL GENERAL MEETING Notes: 1. The Share Transfer Books of the Bank will remain closed from March 24, 2011 to March 30, 2011 (both days inclusive). 2. A member entitled to attend and vote at the above meeting is entitled to appoint another member as his/ her proxy to attend and vote instead of him/ her Proxies, in order to be valid, must be received by the Bank at its registered office marked for the attention of the office of the Company Secretary, not less than forty-eight hours before the time for holding the meeting and must be duly stamped, signed and witnessed. A member shall not be entitled to appoint more than one proxy. 3. Members are requested to notify change in their address, if any, to the Share Registrars, M/s. THK Associates (Pvt.) Limited, Ground Floor Building-3, Dr. Ziauddin Ahmed Road, Karachi-75530. 4. A. For attending the Meeting: i) In case of individuals, the account holder or sub-account holder and/or the person whose securities are in group account and their registration details are uploaded as per the Regulations, shall authenticate his identity by showing his original Computerized National Identity Card (CNIC) or original passport at the time of attending the Meeting. ii) In case of corporate entity, the Board of Directors' resolution / power of attorney with specimen signature of the nominee shall be produced at the time of the Meeting. B. For Appointing Proxies: i) In case of individuals, the account holder or sub-account holder and / or the person whose securities are in group account and their registration details are uploaded as per the Regulations, shall submit the proxy form as per the above requirement. ii) The proxy form shall be witnessed by two persons whose names, addresses and CNIC numbers shall be mentioned on the form. iii) Attested copies of CNIC or the passport of the beneficial owners and the proxy shall be furnished with the proxy form. iv) The proxy shall produce his original CNIC or original passport at the time of the Meeting. v) In case of corporate entity, the Board of Directors' resolution / power of attorney with specimen signature shall be submitted along with proxy form to the Bank. Statement under section 160(1) (b) The meeting fee payable to the non-executive members of the Board was approved by the Board of Directors in terms of Article 60 of the Articles of Association of the Bank. This meeting fee requires approval of the shareholders in Annual General Meeting in terms of paragraph C-2 of Regulation G-1 of prudential regulations for Corporate / Commercial Banking issued by the State Bank of Pakistan. The non-executive members of the Board are interested in the payment of fees and remaining members of the Board have no interest in the matter. 04 Annual Report 2010 www.standardchartered.com.pk Directors’ Report On behalf of the Board of Directors, I am pleased to present the Directors' Report of Standard Chartered Bank (Pakistan) Limited (SCBPL) along with the audited financial statements and auditors' report thereon for the year ended 31 December 2010. Economy The year 2010 ended on a challenging note due to the damage caused by the floods, estimated at USD 10 billion (5.2% of GDP) by the World Bank with 20 million people displaced and significant damage to crops and public infrastructure. However, the economy has received a significant boost through record high exports and remittances. Record high remittances and strong growth in rural incomes due to higher commodity prices (including cotton, wheat and sugar) will sustain private consumption spending and offset impact of floods on the economy. FX reserve position has strengthened to USD 17.2 billion by end 2010 compared to USD 15 billion at end of 2009, supporting a more stable PKR which depreciated 1.8% in 2010 compared to 8% in 2009. The Banking sector remains well capitalized, although the Capital Adequacy Ratio (CAR) has declined to 13.8% by September 2010 against 13.9% in June, primarily due to increase in non-performing loans (NPLs). NPLs to loans ratio increased to 14% by September 2010 compared to 12.9% in June. The key challenges for policy makers are to control headline inflation and reduce the buildup in public debt. Headline inflation remains high, printing 15.5% in December 2010 from 10.5% in December 2009, reflecting a spike in prices of essential food commodities in the wake of the floods. The State Bank of Pakistan (SBP) has raised the FY 2011 inflation forecast to 16% in FY 2011 from its pre-flood target of 11.5%. Similarly, delays in tax reforms have led to a sharp increase in government debt, rising to 66% of GDP by September 2010 compared to 56% in September 2009. This has raised concerns over debt sustainability, with the credit default swap (CDS) rising to 950bps in January 2011 from 650bps at end of 2009. Operating Results and Business Overview (Restated) December 31, December 31, 2010 2009 Balance Sheet (PKR millions) (PKR millions) Paid-up capital 38,716 38,716 Total equity 51,073 47,717 Deposits 220,266 206,958 Advances - gross 157,906 141,230 Advances - net 139,269 124,447 Investments - net 72,637 83,785 (Restated) FY 2010 FY 2009 (PKR millions) (PKR millions) Profit and Loss Revenue 23,433 23,167 Administrative expenses 12,851 12,127 Other non mark-up expenses 588 238 Operating profit (before provisions and tax) 9,994 10,802 Provisions (net of recoveries) 4,431 9,418 Profit before tax 5,563 1,384 Profit after tax 3,606 746 The 2010 financials reflect improved performance in the backdrop of a challenging business environment, uncertain political and security situation and the increase in financial stress caused by the recent floods. Our profits (before tax) have grown from PKR 1.4 billion last year to PKR 5.6 billion in 2010, with earnings per share up at PKR 0.93 per share from PKR 0.19 per share in 2009.