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MAIWAND BANK

FINANCIAL STATEMENTS

FOR THE YEAR ENDED 20 DECEMBER 201~I

Ernst & Young Ford Rhodes Sidat HyderChartered AccountantsHouse 1013. Street 2ShlfllOOl' Road. KabulAfQhanistan

Tel: +93 752 055 025eyfrshJ(ab-~maiI.com~.(om/pk

1

MAIWAND BANK

STATEMENT OF FINANCIAL POSITION

AS AT DECEMBER 20, 2018

December 20, December 31,2016 2015

Note --- (Afs I" '000) ----ASSETS

Cash and bank balances 5 16,951,052 14,585,540Loans and advances to customers 6 6,339,745 7,993,242Operating fixed assets 7 478,320 I 273,625Intangible assets 8 1,701 2,075Other assets 9 533,138 140,277Deferred tax assets - net 10 230,297 50,586Non-current assets - held for sale 11 880,597Total assets 25,414,850 23,045,345

LIABILITIES

Deposits from customers 12 24,183,600 21,860,727Other liabilities 13 173,243 76,032Total liabilities 24,356,843 21,936,759

EQUITY

Authorised and paid-up capital 14 2,181,300 1,500,000Accumulated losses {1,123,293} (391,414}Total equity 1,058,007 1,108,586

Total liabilities and equity 25,414,850 23,045,345

CONTINGENCIES AND COMMITMENTS 15

The annexed notes 1 to 28 form an integral part of these financial statements ...._

@t~Chairman Chief Financial OffIcer

2

MAIWAND BANKSTATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED DECEMBER 20, 2016

Interest incomeInterest expenseNet Interest Income

Profit I return on Islamic financingReturn on Islamic depositsNet spread earned

Fee and commission incomeFee and commission expenseNet fee and commission Income

Foreign exchange (loss) I gainOther incomeOperating Income

Personnel expensesAllowance for impairment lossDepreciation and amortisationOther operating expensesLoss before taxation

Taxation - net

Loss after taxation

Other comprehensive income

Total comprehensive loss for the year

December 20, December 31,2016 2015

Note ---------- (Afs In '000) --------

196

7&820

1616

15,49~(23,652)(8,151)

1717

18106,309168,234

1,058,624

(356,927) (327,790)(817,692) (722,201)(38,347) (49,392)

(517,747) {416,142)(911,590) (456,901)

179,711 95,315

(731,879) {361 ,586)

21

(731,879) (361,586)

The annexed notes 1 to 28 form an integral part of these financial statements.~

(J~Chairman Chi Chief Fi~anclal OffIcer

3

MAIWAND BANKSTATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED DECEMBER 20, 2016

Paid-up Accumulatedcapital losses Total

---(A/sln'OOO)--- ....._-Balance as at January 01, 2015 1.125.000 (29,828) 1,095.172

Add: Capital injected during the year 375.000 375.000

Loss after taxation II (361,~6)11 (361,~86)1Other comprehensive income

(361,586) (361,586)

Balance as at December 31,2015 1,500,000 (391 ,414) 1,108,586

Balance as at January 01, 2016 1,500,000 (391,414) 1,108,586

Add: Capital Injected during the year 681,300 681,300

II (731.~79)jILoss after taxation (731'~79)1Other comprehensive Income

(731,879) (731,879)

Balance as at December 20,2016 2,181,300 (1,123.293) 1,058,007

The annexed notes 1 to 28 form an integral part of these financial statements.e----

()Cll~

Chairman Chief Flnahclal Officer

4

MAIWAND BANKSTATEMENT OF CASH FLOWS

FOR THE YEAR ENDED DECEMBER 20, 2018

December 20, December 31,2016 2015

Note -- (Ats [n '000) -----Cash flows from operating activitiesLoss before taxation

Adjustments:Depreciation and amortisationNet interest incomeNet spread earnedLoss / (gain) on disposal of fixed assetsAllowance for impairment loss

7&816

Working capital adjustments:Increase in deposits in banksDecrease I (increase) in loans andadvances to customers

Increase in other assetsIncrease in non-currents assets held-for-saleIncrease in deposits from customersIncrease I (decrease) in other liabilities

1213

Interest I profit receivedInterest I profit paidNet cash flows from operating activities

Cash flows from Investing activities(Investment made In) I proceeds from capital notesPurchase of property and equlpment 7Proceeds from sale of property and equipmentPurchase of intangible assets 8Net cash flows (used In) I from Investing activities

Cash flows from financing activitiesProceeds from capital injectedNet cash flows from financing activities

Net increase In cash and cash equivalentsCash and cash equivalents at beginning of the yearCash and cash equivalents at end of the year 22

6

(911,590) (456,901 )

38,347 49,392(732,511) (617,533)

8,151 (17,111)1,440 (287)

811,692 722,201(118,525) (320,239)

(118,512) (339,727)

835,805 (1,335,800)(392,861) (61,978)(880,597)

2,322,873 3,357,82097,211 ,22,961}

1,085,394 1,277,115

954,783 929,905(230,369) ~295,261)1,809,808 1,911,759

(1,253,796)' 309,727(243,128); (23,664)

223 287(603)

(1.497,904) 286,350

681,300 375,000681,300 375,000

993,204 2,573,10912,854,0891 10,280,98013,847,293 12,854,089

69

The annexed notes 1 to 28 form an integral part of these fi ncial statements.

r:». nV~Chairman Chief Financial OffIcer 1/\

5

MAiWAND BANKNOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 20, 2016

1. STATUSAND NATUREOF BUSINESS

1.1 Maiwand Bank (the Bank) is a commercial bank registered and operating in Afghanistan. The Bank isprimarily involved in commercial banking in Afghanistan.The Bank has obtained business license fromAfghanistan Investment Support Agency (AISA) to operate as a limited liabili~ company. The Bankobtained its banking license from Da Afghanistan Bank ("DAB·) under th~ Law of Banking inAfghanistanon December 31, 2008 and commenced its operationson January 01, 2009. Currently, theBank is being operatedwith 26 branchesand 20 extensioncounters in different parts of Afghanistan.

1.2 The registered office of the Bank is situated at Charrahl Torabaz Khan, Shar-e-Naw, Kabul,Afghanistan.

2. STATEMENTOFCOMPLAINCE

2.1 The financial statements have been prepared in accordance with International Financial ReportingStandards (IFRSs) as issued by the International Accounting Standards Board (IASB) and therequirements of the Law of Banking in Afghanistan. In case requirements differ, the provisions of theLaw of Banking in Afghanistan shall prevail.

2.2 Under the Banking Law of Afghanistan issued by DaAfghanistan Bank, the managementhas changedthe financial year end from December 31 to December 20. Accordingly the current year ends onDecember20, 2016.

3. BASIS OF MEASUREMENT

3.1 These financial statements have been prepared on the historical cost basis except as otherwisedisclosed in accounting pollcies.

3.2 Functional and presentation currency

Items included in the financial statementsof the Bank are measured using the currency of the primaryeconomic environment in which the entity operates. The financial statements ar, presented in Afghani(Afs), which is the Bank's functional and presentationcurrency.

3.3 Useof estimates and judgments

The preparation of financial statements in conformity with IFRSs requires management to makejudgments, estimates and assumptions that affect the applicationof Bank's accounting policies and thereported amounts of assets, liabilities, Income and expenses. Actual results may differ from theseestimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accountingestimates are recognized in the period in which the estimate is revised and in any future periodsaffected.

Information about significant areas of estimation, uncertainty and critical judgments in applyingaccounting policies that have the most signIficant effect on the amounts recognized in the financial=ments are described in notes4.3, 4.4, 4.5, 4.6 and 4.1O. ~

6 MAIWAND BANK

3.4 Standards, Interpretations and amendments to approved accounting stand rds that are not yeteffective

The following standards, amendments and interpretations with respect to the approved accountingstandards would be effective from the dates mentioned below against the respective standard orInterpretation: I

Standards, Interpretations and Amendments

Effective date(accounting periodsbeginning on or after)

IFRS2 Share-basedPayments- Classificationand Measurementof Share-basedPayments Transactions(Amendments) January 01,2018

IIFRS 10ConsolidatedFinancialStatementsand lAS 28 Investmentin Associates and Joint Ventures - Saleor Contributionof Assetsbetweenan Investorand Its Associateor Joint Venture (Amendment) Not yet finalized

lAS 7 Financial Instruments: Disclosures-Disclosure Initiative - (Amendment) January01. 2017

lAS 12 IncomeTaxes - Recognitionof DeferredTaxAssets for Unrealized losses (Amendments) January 01, 2017

IFRS 4 InsuranceContracts: Applying IFRS9 FinancialInstrumentswith IFRS4 InsuranceContracts- (Amendments) January01, 2018

lAS 40 InvestmentProperty:Transfers ofInvestment Property (Amendments) JanLary 01. 2018

I IFRIC 22 ForeignCurrencyTransactionsandAdvance Consideration January 01.2018

IFRS 9 Financial Instruments:ClassificationandMeasurement January 01. 2018

IFRS 15 Revenuefrom Contractswith Customers January 01.2018

IFRS 16 Leases January 01.2019

The above standards and amendments are not expected to have any material impact on the Bank'sfinancial statements in the periodof initial application.

In addition to the above standards and amendments. Improvements to various accounting standardshave also been issued by the IASB in December2016. Such improvements are generally effective foraccountingperiods beginningon or after January 01. 2017 (see note 4.1 below). The Bank expects thatsuch improvements to the standards will not have any impact on the Bank's financial statements in theperiod of initial application.

I 4. SIGNIFICANTACCOUNTINGPOLICIES

The accounting policies adopted in the preparationof these financial statements are cdnsistent with those ofth~viOUS financial year except as described below: i

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7 MAIWAND BANK

4.1 Standard or Interpretation

The Bank has adopted the following accounting standards, amendments and interpretations of IFRSswhich became effective for the currentyear:

IFRS 10Consolidated FinancialStatements. IFRS 12Disclosure of Interests inOther Entities and lAS 27 SeparateFinancialStatements- Investment EntitiesApplying the ConsolidationException(Amendment)

IFRS 11 Joint Arrangements - Accounting for Acquisition of Interest in Joint Operation (Amendment)

lAS 1 Presentationof FinancialStatements- Disclosure Initiative (Amendment)

lAS 16Property. Plant and Equipmentand lAS 38 Intangibleassets -Clarificationof Acceptable Methodof Depreciationand Amortization (Amendment)

I lAS 16 Property. Plant and Equipment lAS 41Agriculture - Agriculture: Bearer Plants (Amendment)

lAS 27 Separate Financial Statements - Equity Method in Separate Financial Statements(Amendment)

IFRS 14 RegulatoryDeferralAccounts

Improvements to Accounting Standards Issued by the lASe in December 20~3

IFRS 5 Non-current Assets Held for Sale and Discontinued Operations - Changes in methods ofdisposal

lAS 19 EmployeeBenefits - Discount rate: regionalmarket issue

lAS 34 Interim Financial Reporting - Disclosureof information'elsewhere in the interim financial report'

The adoption of the above amendments, improvementsto accounting standards and interpretationsdidnot have any effect on the financial statements.

Certain annual improvementshave also beenmade to a numberof IFRSs.

4.2 Cash and cash equivalents

Cash and cash equivalents include notes and coins in hand, unrestricted balances held with centralbank and capital notes, balances in Nostro accountsand highly liquid financial assets with maturities ofthree months or less from acquisition date that are subject to inSignificant risk 9f changes in their fairvalue, and are used by the Bank in the managementof its short-termcommitments.

4.3 Loans and advances

Advances are stated net of general and specific provisions. The specific and general provisions foradvances are made in accordance with the requirements of Asset Classification and ProvisioningRegulation 2015 (the Regulation) issued by Da Afghanistan Bank and are charged to the statement ofcomprehensive income.

:: and advances classified as loss are writtenoff as requiredby the Regulation. . '\(

8 MAIWAND BANK

4.4 Property and equipment

(I) Recognition and measurement

Items of property and equipment are measured at cost less accumulated depreciation andaccumulated impairment losses, (if any).

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost ofself-constructed assets includes the cost of materials and direct labour, any other costs directlyattributable to bringing the asset to a working condition for its intended use, and the costs ofdismantling and removing the items and restoring the site on which tIley are located andcapitalized borrowing costs. Purchased software that is integral to the functionality of the relatedequipment is capitalized as part of that equipment.

The gain or loss on disposal of an item of property and equipment is determined by comparing theproceeds from disposal with the carrying amount of the item and are recognized net within otherincome in profit or loss.

(II) Subsequent costs

The cost of replaCing part of an item of property and equipment is recognized in the carryingamount of the item if it is probable that the future economic benefits embodied within the part willflow to the Bank and its cost can be measured reliably. The carrying amount of the replaced part isderecognized. The costs of the day-to-day serviCing of property and equipment are recognized inprofit or loss as incurred.

(III) Depreciation

Property and Equipments are stated at cost less accumulated depreciation and any provision forimpairment loss. Depreciation on Property and Equipments is charged to Statement ofComprehensive income applying the reducing balance method whereby the cost of the asset iswritten off over the estimated useful life. The useful lives, residual value and depreciation methodare reviewed and adjusted if appropriate, at each balance sheet date. Depreciation on additions ischarged for the full month in which the asset is put to use and on deletlol1s up to the monthimmediately preceding the deletion. The rate of depreciation used are as folloWs:

December 20, December 31,2016 2015

Leasehold improvements 5% 5%Office equipment 10%·33% 10% - 33%Furniture and fixture 10% 10%IT equipment 33% 33%Vehicles 20% 20%ATM 10% 10%

Depreciation methods, useful lives and residual values are reassessed at the reporting date andadjusted if appropriate.

4.5 Intangible assets

Banking software acquired by the Bank is stated at cost less accumulated amortization andaccumulated impairment losses, if any.

Subsequent expenditure on the software is capitalized only when it increases the future economic~s embodied in the asset. All other expenditure is expensed as Incurred. 't

9 MAIWAND BANK

Amortization is recognized in profit or loss uSingreducing balance method@ 33%, from the date it isavailable for use, since this most closely reflects the expected pattern of con umption of the futureeconomic benefits embodied in the asset.

Amortization method, useful life and residual value are reviewed at each firanCial year-end andadjusted if appropriate.

4.6 Impairment of non.flnancial assets

The carrying amounts of assets are reviewed at each statement of financial position date forimpairmentwhenever events or changes in circumstances indicate that the carrying amounts may notbe recoverable. If such indication exists. and where the carrying value exceeds the estimatedrecoverableamount, assets are written down to their recoverable amount. The recoverable amount isthe higher of an asset's fair value less costs to sell and value in use. The resulting impairment loss istaken to the profit and loss account.

4.7 Tax expense

Tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profitor loss except to the extent that it relates to items recognized directly in equity or In othercomprehensiveincome.

Current tax is the expected tax payableor receivableon the taxable income for the year, using tax ratesenacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect ofpreviousyears.

Deferred tax is recognized in respect of temporarydifferences between the carryingamounts of assetsand liabilities for financial reporting purposesand the amounts used for taxation purposes.

Deferred tax is measured at the tax rates that are expected to be applied to the temporary differenceswhen they reverse, based on the laws that have been enactedor substantively enacted by the reportingdate.

Deferred tax assets and liabilities are offset if there is a legally enforceable righl to offset current taxliabilities against current tax assets, and they relate to taxes levied by the same tax authority on theentity and the current tax liabilities and assets are Intended to be settled on a, net basis and areexpected to be realized simultaneously.

A deferred tax asset Is recognized for unused tax losses, tax credits and deductible temporarydifferences to the extent that it is probablethat future taxable profits will be available against which theycan be utilized. Deferred tax assets are reviewed at each reporting date and are reduced to the extentthat it is no longer probable that the related tax benefitwill be realized.

4.8 Ceposlts

DepOSitsare initially recorded at the amount of proceeds received. Mark-up accrued on deposlts isrecognisedseparately as part of other liabilitiesand is charged to the profit and loss account on a timeproportion basis.

4.9 Non-current assets held for Sale

The Bank acquires properties in settlement of certain advances and are classified as non-currentassets held for sale under IFRS 5 - Non-currentAssets Held for Sale and Discontinued Operations.These are stated at lower of the carrying value of the related advances and the current fair value ofsuch assets. .

4.10 Provrslons

Provisions are recognisedwhen the Bank has a present obligation (legal or constructive) as a result ofpast events and it Is probable that an outflow of resourceswill be required to settle the obligationand areliable estimate of the amount can be made. Provisions are reviewed at each statement of fi~ancialpositiondate and are adjusted to reflect the current best estimate.~

10 MAIWAND BANK

4.11 Financial guarantees

Financial guarantees are contracts that require the Bank to make specified paYr1j1entsto reimburse theholder for a loss it incurs because a specified debtor fails to make payment wilen due in accordancewith the terms of a debt instrument. Financial guarantee liabilities are recognlied Initially at their fairvalue, and the initial fair value is amortized over the life of the financial guarantee. The guaranteeliability Is subsequently carried at the higher of this amortized amount and the present value of anyexpected payment when a payment under the guarantee has become probable.

4.12 Foreign currency

Transactions in foreign currencies are translated into the functional currency of the Bank at the spotexchange rate at the dates of the transactions.

Monetary assets and liabilities denominated In foreign currencies at the reporting date are translatedinto the functional currency at the spot exchange rate at that date. Non-monetary assets and liabilitiesdenominated in foreign currencies that are measured at fair value are retranslated into the functionalcurrency at the spot exchange rate at the date that the fair value was determined. Non-monetary assetsand liabilities that are measured in terms of historical cost In a foreign currency are translated using theexchange rate at the date of the transaction. Foreign currency differences ariSing on translation isrecognized in profit or loss.

4.13 Revenue recognition

Interest income and expense are recognized in profit or loss using the effective Interest method. Theeffective interest rate is the rate that exactly discounts the estimated future cash payments and receiptsthrough the expected life of the financial asset or liability (or, where appropriate a shorter period) to thecarrying amount of the financial asset or liability. When calculating the effective interest rate, the Bankestimates future cash flows considering all contractual terms of the financial instrument, but not futurecredit losses.

The calculation of the effective interest rate includes all fees paid or received that are an integral part ofthe effective interest rate. Transaction costs include incremental costs that are directly attributable tothe acqulsltlon, issue or disposal of a financial asset or liability.

Interest income and expense presented in the statement of comprehensive income include interest onfinancial assets and financial liabilities measured at amortised cost calculated on an effective interestbasis.

Profit on Murabaha, Musharaka and Diminishing Musharaka is recognised on receipt basis.

4.14 Fee and commission

Fees and commission Income and expense that are integral to the effective interest rate on a financialasset or liability are included in the measurement of effective interest rate.

Other fees and commission income, including account servicing fee, funds transfer fee and placementfee, are recognized as the related services are performed. When a loan commitment fee Is notexpected to result in the draw-down of a loan, loan commitment fees are recognized on a straight-linebasis over the commitment period. .

Other fees and commission expense relate mainly to transaction and service fees, -.yhlch are ex~n~/eservices are received. ' "1

u)

11 MAIWAND BANK

4.15 Financial assets and financial liabilities

(I) Recognition and Initial measurement

The Bank Initially recognizes loans and advances to customers and deposits from customers onthe date that they are originated. All other financial assets and liabilities (including financial assetsand liabilities designated at fair value through profit or loss) are initially recognized on the tradedate at which the Bank becomes a party to the contractual provisions of the instrument.

A financial asset or liability is measured initially at fair value plus, for an item not at fair valuethrough profit or loss, transaction costs that are directly attributable to its acquisition or issue.

(II) Derecognltlon

The Bank derecognizes a financial asset when the contractual rights to the cash flows from theasset expire, or when it transfers the financial asset in a transaction In which substantially all therisks and rewards of ownership are of the financial asset are transferred or in which the Bankneither transfers nor retains substantially all the risk and rewards of ownership and it does notretain control of the financial asset. Any Interest in transferred financial assets that qualify forderecognition that is created or retained by the Bank is recognized as a separate asset or liabilityin the statement of financial position.

On derecognition of a financial asset, the difference between the carrying amount of the asset (orthe carrying amount allocated to the portion of the asset transferred) and consideration received(Including any new asset obtained less any new liability assumed) and (ii) any cumulative gain orloss that had been recognized in the other comprehensive Income, is recognized in profit or loss.

The Bank derecognizes a financial liability when its contractual obligations are discharged orcancelled or expired.

(III) Offsetting

Financial assets and liabilities are set off and the net amount presented in the statement offinancial position when, and only when, the Bank has a legal right to set Ioff the amounts andintends either to settle on a net basis or to realize the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRSs, or for gainsand losses arising from a group of similar transactions.

(Iv) Amortised cost measurement

The amortized cost of a financial asset or liability is the amount at which the financial asset orliability is measured at initial recognition, minus principal repayments, plus or minus the cumulativeamortization using the effective interest method of any difference between the initial amountrecognized and the maturity amount. minus any reduction for impairment.

(v) Identification of measurement of Impairment

At each reporting date, the Bank assesses whether there is objective evidence that the financialassets not carried at fair value through profit or loss are impaired. Financial asset or group offinancial assets is (are) impaired when objective evidence demonstrates that a loss event hasoccurred after the initial recognition of the asset(s), and that the loss event has an impact on the~ cash nows on the assel(.) that can be estimated retlably. \{

...!\

12 MAIWAND BANK

Objective evidence that the financial assets are impaired can Include defa It or delinquency by aborrower, restructuring of a loan or advance by the Bank on terms theU the Bank would nototherwise consider, Indication that a borrower or issuer will enter bankrupt~, disappearance of anactive market for a security, or other observable data relating to a group of assets such as adversechanges in the payment status of a borrowers or issuers in the Bank, or economic conditions thatcorrelate with defaults in the Bank.

Impairment losses on assets carried at amortized cost are measured as the difference betweenthe carrying amount of the financial assets and the present value of estimated future cash flowsdiscounted at the assets' original effective interest rate. Losses are recognized in profit or loss andreflected in an allowance account against loans and advances. Interest on the impaired assetcontinues to be recognized through the unwinding of the discount (if applicable).

When a subsequent event causes the amount of impairment loss to decrease. the impairment lossis reversed through profit or loss.

The Bank writes off certain loans and advances when they are determined to be uncollectable andare classified in accordance with the regulations of Oa Afghanistan Bank:

i) Standard: These are loans and advances, which are paying in a current manner and areadequately protected by sound net worth and paying capability of the borrower or by the collateral,if any supporting it. A provision is maintained in the books of account @ 1%1of value of such loansand advances.

ii) Watch: These are loans and advances which are adequately protected by the collateral, if anysupporting It. but are potentially weak. Such advances constitute an unwarranted credit risk, butnot to the point of requiring a classification to Substandard. Further, all loans and advances whichare past due by 1 to 30 days (Islamic 1 to 30 days) for princlpa' or interest payments are classifiedas Watch. A provision is maintained in the books of account @ 5% of value of such loans andadvances.

iii) Substandard: These are loans and advances which are Inadequately protected by currentsound net worth and paying capacity of the borrower or by the collateral, if any, supporting it.Further, all loans and advances which are past due by 31 to 90 days (Islamic 31 to 90 days) forprincipal or interest payments are also classified as Substandard. A provision is maintained in thebooks of account @ 25% of value of such loans and advances.

Iv) Doubtful: These are loans and advances which can be classified as Substandard and haveadded characteristic that these weaknesses make collection or liquidation in full, on the basis ofcurrent circumstances and values, highly questionable and improbable. Further, all loans andadvances which are past due by 91 to 360 days (Islamic 91 to 180 days) for principal or Interestpayments are also classified as Doubtful. A provision is maintained in the books of account @50% of value of such loans and advances.

v) Loss: These are loans and advances which are not collectible and or sbCh little value that Itscontinuance as a bankable asset is not warranted. Further, all loans and advances which are pastdue over 361 (Islamic over 181 days) days for principal or interest payments are also classified asLoss. A provision Is maintained In the books of account @1oo% of value of such loans andadvances and then these loans are charged off and the reserve for losses i~ reduced immediatelyu~.termlnatiOn of Loss status. ~

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13 MAIWAND BANK

December 20, December 31,2016 2015

Note _._--- (Afs in '000) ---5. CASH AND BANK BALANCES

Cash in hand:Local currency 927,681 1,127,999Foreign currency 5.1 3,633,490 2,783,772

4,561,171 3,911,771

Balances with Oa Afghanistan Bank (DAB) 5.2 10,583,909 9,975,341Balances with other banks and financial institutions 5.3 1,805,972 698,428

12,389,881 10,673,76916,951,052 14,585,540

5.1 Foreign currency profile

US Dollar 3,237,903 2,299,471Euro 352,127 452,435GB Pound 43,460 31,866

3,633,490 2,783,772

5.2 Balances with Da Afghanistan Bank (DAB)

Current accounts:Local currency 1,361,302 900,795Foreign currency 5.2.1 5,619,615 5,637,230

5.2.2 6,980,917 6,538,025Saving accounts - local currency:Capital notes 5.2.3 1,748,383 498,629Overnight deposits 5.2.4 4,646 1,207,236

1,753,029 1,705,865Security deposit with DAB 1,500 1,500Required reserve with DAB 5.2.5 1,848,463 1,729,951

10,583,909 9,975,341

I

5.2.1 Foreign currency profile:US DollarEuro

5,446,249173,366

5,519,300117,930

5,619,615 5,637,230

5.2.2 The current accounts held with DAB are interest free.

II

5.2.3 This represents capital notes issued by DAB with maturity period of 91 to 364 days withinterest rate of 4.33% to 6.66% per annum (2015: capital notes issued by DAB withmaturity period of 28 days with the Interest rate of 3.54% per annum).

5.2.4 This represents overnight deposit facility provided by DAB. These deposits earn interestat rates applicable to 7 days capital notes reduced by 1% (2015: rate applicable to 7s: capital notes reduced by 1%) per annumandhavemaximummaturily of 7 da~

jAIWAND BANK

5.2.5 This represents the required reserve account being maintained with DAB which isdenominated in AFN to meet minimumreserve requirement in accord~ncewith Article 3"Required Reserves Regulation- of the Banking Regulations issued by DAB. Thesebalances are interest free and are not available for use In the Bank's day-to-day

14

operations.

December 20, December 31,2016 2015

Note --- (Afs In '000) -----5.3 Balances with other banks and financial

Institutions

HDFCBank, IndiaPashtanayBank,AfghanistanBank-e-MillieAfghan, AfghanistanEmiratesNBDBank, UAEUniCreditS.P.A, ItalyKBCBank, BelgiumBankof China,ChinaAktif YatirimBanasiA.S., TurkeyYinzhouBank,China

7,6327658

43,1435,580

72,8211,671,417

2,1822,424

3,100779548

47,5902,303

59,036507,32275,2752,475

1,805,972 698,428

5.3.1 Currencyprofile of balanceswith other banksand financial institutions is as follows:

Currentaccounts:Local currencyForeigncurrency

1095.3.1.1 1,805,863

--'7"":::":":""=:-1,805,972

648697,780698,428

5.3.1.1 Foreigncurrencyprofile:US DollarEuro

1,711,99793,866

636,05761,723

1,805,863 697,780

5.3.2 Geographicprofile of balanceswith otherbanksand financial institutions is as follows:

Europe 80,583 80,053SouthAsia 1,681,473 510,422MiddleEast 43,143 106,626Afghanistan 773 31,327

1,805,972 728,428

5.3.3 These balances with other banks and financial institutions are interest free exceptbalancewith the Bank of China,which earns interestat the rate of 0.15% (2015: 0.15%)

~

per annum.~

15 MAIWAND BANK

Note

December 20, December 31,2016 2015

- (Ats in '000)-6. LOANS AND ADVANCES TO CUSTOMERS

ConventionalIslamic

6.16.2

5,159,1721,180,573

6,566,7181,426,524

6,339,745 7,993,242

December 20,2016 December 31,2015

NoteGross Impainnent Carrying

--- (Ats in '000) ----Impairment Canying

----(Ats in '000) ----Gross

6.1 Conventional

Retail customers - running finances 6.1.1 6,102,108 (944,813) 5,157,295 7,088,829 (526,369) 6.562,460Short tenn loans to employees 6.1.2 1,763 (18) 1,745 3,261 3.261Other consumer loans 6.1 ..3 133 (1l 132 997 997

6,104,004 (944,832l 5,159,172 7,093,087 ~526,369) 6,566,718

6.1.1 Running finance facilities are extended to borrowers for a maximum period of two years. These facilities carry interest ranging from 15% and 20% (2015:15% and 20%) per annum. The facilities are secured against immovable properties, stocks and receivables of the borrowers and personal guarantees incertain cases. All these loans are expected to be recovered within 12 months of the reporting date (2015: 12months).

December 20, December 31,2016 2015

---- (Ats In '000) -Allowance for Impalnnent:Balance at beginning of yearLoans written off during the yearCharge to comprehensive incomeReversalExchange rate differenceImpainnent loss for the year

526,369(168,832)

169,246(12,034)

(277,279) (96,588)(7,114) -

871,_ 465,745

Balance at end of year587,295 369,157944,832- -526.36==-===~===

-'"'"\

6.1.2 Short term loans to employees are repayable within twelve months. These loans carry interest at the rate of 10% (2015: 10%) per annum.

6.1.3 Other consumer loans are extended for a maximum period of one year. These carry interest at the rate of 16% (2015: ranging from 10% and 1\1%)perannum and are secured against immovable properties and personal guarantees.

~

16 MAIWAND BANK

December 20, Decembel' 31,2016 2015

-- (Ats in '000) -6.1.4 Currency profile of loans and advances - conventional is as follows:

local currencyForeign currency - US Dollar

845,8645,258,1406,104,004

December 20, 2016 December 31, 2015Note Gross Impairment Canying

---- (Ats in '000) -----

1.002.8436,090.2447.093 ..087

Gross Impairment Carrying---- (Ats in '000) ----

6.2 Islamic

Musharaka financing 6.2.1 46,901 (23,451) 23,450 128,953 128.953Diminishing Musharaka 6.2.1 126,541 (53,513) 73,028 184.606 184,606Murahaba finance 6.2.2 1,407,853 (323,758) 1,084,095 1.299.979 (187,097) 1.112.882Qarza-e-Hasna 83 83

1,581,295 ~400,7221 1,180,573 1.613.621 {187,O97} 1,426.524

6.2.1 Musharaka and Diminishing Musharaka facilities are extended to customers on profrt 1 loss sharing basis. These cany profit sharing ratio of 10% to 16%(2015: 10% to 16%) on annual basis. These are secured against immovable properties and stocks.

December 20, December 31,2016 2015

-- (Ats In '000) --Allowance for Impairment:Balance at beginning of yearLoans written off during the yearCharge to comprehensive incomeReversalExchange rate differenceCharge for the year

187,097(6,621)

(67,958)(3,037,

291,241220,246

Balance at end of year 400,7'22-

6.2.2 Murabaha facilities are extended to customers for purchase of immovable properties. These are secured against the undertying properties.

6.2.3 Currency profile of loans and advances - Islamic is as follows:

Local currencyForeign currency - US Dollar

~

122,2541,459,0411,581,295

(165,947)

483.691

(130.647)

353.044

124.7441,488.8771.613.621

17 MAIWAND BANK

7. OPERATING AXED ASSETS

Leasehold Office Furniture IT MotorLand Improvements equipment and fittings equipment vehicl .. ATM Total

(Ats in '000)CostBalance as at January 01, 2015 25,407 101,951 149,333 20,574 130,355 76,390 34,246 538,256Transfers (46,029) (891) 51,745 (4,825)Additions 5,666 5,505 1,676 6,369 4,448 23,664Disposal (383) (383)Adjustment 478 11,301 (733) (4,407) (4,730) (1,629) 280Write-off ~4l63} (4,763)Balance as at December 31,2015 25,407 108,095 120,110 20,626 179,299 75,725 27,792 557,054

Balance as at January 01. 2016 25,407 108,095 120,110 20,626 179,299 75,725 27,792 557,054Additions 45,909 178,489 6,898 65 12,367 243,728Disposal (2,080) (2,080)Write-off {4l} {43}Balance a. at December 20, 2016 71,316 286,584 124,885 20,691 191,668 75,725 27,792 798,659

Rate 0% 5% 10·.<.-33% 10% 33% 20% 10%

DepreciationBalance as at January 01, 2015 42,391 38,794 8,102 102,742 37,550 10,910 240,489Transfers (5,446) (407) 6,807 (954)Charge for the year 2,457 3,566 508 34,673 6,728 438 48,370Disposal (383) (383)Adjustment (9,470) 6,176 261 329 1,376 1,044 (284)Write off (4,763) (4,763)Balance as at December 31,2015 35,378 43,090 8464 139,788 45,271 11A38 283,429

Balance a. at January 01, 2016 35,378 43,090 8,464 139,788 45,271 11,438 283,429Charge for the year 6,009 7,893 1,186 14,767 5,924 1,591 37,370Dispos_al (451) (451)Writeoff {91 --(9)

Balance as at December 20, 2016 41,387 50,523 9,650 154,555 51,195 13,029 320,339

Carrying amountsAs at December 31,2015 25,407 72717 77,020 12,162 391511 30,454 161354 273,625_.As at December 20, 2016 71,316 245,197 74,362 11,041 37,111 24,530 14,763 478.3~~ ....__

18

NoterAIWAND BANK

December 20, December 31,2016 2015••••••• (Afs In '000) --

I8. INTANGIBLEASSETSCoatBalance at beginning of yearAcquisitionsBalance at end of year

25,247603

25,247

25,850 25,247

AmortizationBalance at beginning of yearCharge for the yearBalance at end of year

Carrying amounts

23,172977

24,149

22,1501,022

23,172

1.701 2,075

9. OTHERASSETS

PrepaymentsAdvances to suppliers and contractorsReceivable from Ministry of LabourAdvances to employeesSecurity deposit - Western UnionSecurity deposit - othersReceivable from Western UnionAdvance and withholding tax receivableInterest receivable on capital notesMargin Money with Bank-e-Millie, KabulMargin Money with AfghanistanCommercial Bank, Kabul

Others

9.1

46,12563

6918,870

13,3361,671

23,74822,16012,623

363,400

34,4463,610751

27,65413.6202,234

27,546

5.2.39.2 30,000

9.3 40,000451

533,138416

140,277

9.1 This represents payments made on behalf of Ministry of Labour, Government of Afghanistanto Government employees on account of pension.

9.2 This includes margin money of Afs.333.40 million (2015: Nil) paid to the Bank-e-Millie Afghanagainst performance guarantee for securing a contract in respect of collection of utility bills onbehalf of Oa Afghanistan Breshna Sherkat.

9.3 This represents margin money of Afs.40 million (2015: Nil) paid to the AfghanistanCommercial Bank against bid guarantee for securing Government business of Salarydisbursements to employees of various ministries.

9.4 Currency profile of other assets is as follows:

Local currencyForeign currency - US Dollar~

130,898 55,290402,240 , 84.987533.138 --1~4:":'0':':,2=n~~

19 MAIWAND BANK

10. DEFERREDTAX ASSETS· NET

Recognised deferred tax assets and (liabilities)Deferred tax assets and (liabilities) are attributable to the following:

December 20, 2016Assets Liabilities Net

(Ats In '000) ---

Property and equipment and intangible assetsUnused tax losses

(59,7~1)290,058

(59,761)290,058

290,058 (59,781) 23_0...,2_97_

December 31,2015Assets Liabilities Net

........ TO ... (Ats In '000) ----

102,445

(51.859)102,445

Property and equipment and intangible assetsUnused tax losses

(51,859)102,445

(51,859) 5=0,=58=6..

Movements In temporary differences during the year

Opening Profit I (loss)balance for the year------- (Afs In 'OOG) ----

Closingbalance

December 20,2016

Property and equipment and intangible assetsUnused tax lossesDeferred tax asset

(51,859)102,44550,586

(7,902)187,813

(59,761)290,058

179,711 230,297

December 31, 2015

Property and equipment and intangible assetsAccumulated tax lossesDeferred tax asset

(55,554) 3,695 (51,859)10.825 91,620 102,445(44,729) 91i1:!5,=31=5....==---=5=0=,5=86=

11. NON-CURRENTASSETS· HELD FORSALE

During the year, the Bank has acquired certain properties of defaulted borrowers (NPA accounts) insatisfaction of claims. According to the requirements of circular issued by Da Afghanistan Bank videthe Circular No. FSD 4061 15293 dated 09-06-1395, these properties are classified as "Non-currentassets - held for sale" till such properties are disposed off by the Bank within 5 years after theacquisition of such assets.

These properties acquired under satisfaction of claims against which non-p~rforming loans wasreduced and specific provision have been reversed.

T':.:arket value 01assets heldfor sale acquired In satisfaction01claims is AIS.91,5.568mlll~

20 MAIWAND BANK

December 20, December 31,2016 2015

Note ---- (Afs In '000) --12. DEPOSITS FROM CUSTOMERS

Conventional depositsIslamic depositsMargin money against letter of guarant.eesDeposits under lien

12.1 17,409,852 15,464,11012.2 3,222,286 2,915,553

3,384,307 3,322,03812.3 167,155 159,026

24,183,600 I 21,860,727

12.1 Conventional depoSits

Term depositsCurrent depositsSaving deposits

12.1.112.1.212.1.3

1,169,60213,977,4902,262,76017,409,852

1,033,52512,148,1392,282,44615,464,110

12.1.1 Term deposits carry interest at rates ranging from 1% and 5% (2015: 6.5% and 7%)per annum.

12.1.2 Current deposits are interest free.

12.1.3 Saving deposits carry interest at rates ranging from 0.5% and 3% (2015: 5%) perannum.

12.1.4 Currency profile of customer deposits - Conventional is as follows:

December 20, December 31,2016 2015

Note --- (Afs In '000) --

Local currency:Term depositsCurrent depositsSaving deposits

Foreign currency:Term depositsCurrent depositsSaving deposits

12.1.5

12.1.5 Foreign currency profileUS DollarEuroGB Pound

61,4773,008,9351,346,6634,417,075

1,108,12410,968,555

916,09812,992,777

17,409,852

12,423,880543,11725,980

12,992,777

71,2343,093,031881,368

4,045,633

962,2919,055,1081,401,078

11,418,477

15,464,110

10,910,848488,96718,662

11'418'4~

,v,

21 MAIWAND BANK

December 20 December 31,2016 2015

--- (Af I In '000) ---Note

12.2 Islamic deposits

Term depOSitsCurrent depositsSaving deposits

12.2.112.2.212.2.3

293,706434,860

2,493,720

205,206393,549

2,316,7983,222,286 2,915,553

12.2.1 Term deposits include Meaadi Certificates carrying profit at the rate of 3% (2015:4%) per annum.

12.2.2 Current deposits (Al-Wadiah accounts) are being operated at no profit or loss basis.

12.2.3 Saving deposits include the following:

1. Musharaka Saving2. Mutalim Musharaka3. Khass Musharaka

These deposits carry profit at rate of 0.5% (2015: ranging from 0.8% and 1.5%)perannum.

12.2.4 Currency profile of customer deposits - Islamic is as follows:

December 20, December 31,2016 2015

Note --- (Ata In '000)

Local currency:Term deposits 5,494 7,018Current deposits 80,065 50,653Saving deposits 805,286 712,835

890,845 770,506Foreign currency:Term deposits 288,212 198,188Current deposits 354,795 342,896Saving deposits 1,688,434 1,603,963

12.2.5 2,331,441 2,145,047

3,222,286 2,915,553

12.2.5 Foreign currency profileUS DollarEuro

2,283,07648,365

2,331,441

12.3

22 I MAIWAND BANK

This represents deposits of customers which are "Lien Marked" against ~ertificate of accountbalance issued to the customer and addressed to a third party. This certificate is a security forthat third party. This balance can only be withdrawn by the custome upon showing "Noobjection letter" from that third party.

December 20,. December 31,2016 2015

Note -- (Ats In '000) --

13. OTHER LIABILITIES

Afghan Deposit Insurance Corporation (ADIC)premium payable

Accruals and other payablesWithholding tax payableOthers

13.113.2

17,395132,13812,49311,217

11,96736,12211,55816,385

173,243 76,032

13.1 This represents premium paid to ADle, at the rate of 0.3% per annum on Quarterly averagedeposits, in respect of deposit insurance to protect depositors within a certain coverageamount against the loss of their deposits placed at the Bank in the unlikely events of theBank's failure.

13.2 This includes Afs.76.387 million (2015: Nil) payable to DABS against collection of utility bills(see note 9.2).

14. AUTHORISED AND PAID-UP CAPITAL

Autohrised capital 3,000,000 2.000,000

Paid-up capital 2,181,300 1,500,000

14.1 As of December 20. the shareholding pattern of the Bank is as follows:

December 20,2016

December 31,2015

---%

Dr. Fraidoon NoorzadHajl Naseer AhmedHajl Abdul Qayoom PardlsEng AllauddinHajl Abdul Samad~

5020101010

5020101010

100

23

NoteMovement In share capital during the year isas follows:

Opening balanceCapital injected during the yearClosing balance

15. CONTINGENCIES AND COMMITMENTS

15.1 Contingencies

Letters of guarantees 15.1.1

Decembe 20, December31,2016 2015--- <r In '000)---

1,5oo,boo681,300

2,181,300

5,074,444

MAIWAND BANK

1,125,000375.000

1,500.000

5,153,337

15.1.1 These are guarantees extended to corporate entities against performance of contracts and bids.

15.2 Commitment.

There were no outstanding commitments as at 20 December 2016.

16. NET INTEREST INCOME

Int..... t incom.Cash and cash equivalentsLoans and advances to customers 16.1

Int.rest expenseDeposits from customers 16.2

18.1 Interest Income -loans and advancesto customers

OnRetail customers - running financesShort term loan to employeesDemand loansOther consumer loans

16.2 Interest .xpense - deposits from custom.rs

OnTerm depositsSaving deposits~

47,148 20,896892,140 865,564939,288 886,460

206,117 268.927206,717 268.927

732,571 617.533

891.658346

892,140

70.710136.007206,717

136

861,954383

3,045182

865,564

60,133208,794268,927

24 MAJWAND BANK

Note

Decembe 20, December 31,2016 2015-- 'r In'000)-

17. NET FEE AND COMMISSION INCOME

Fee and commission IncomeCommission on guarantees issuedCommission on remittancesLoan processing feeAccount servicing feeOthersTotal fee and commission income

28,084 40.53386,989 91.38033,1n 47.73022,172 13,2875,852 4.561

176,274 197.491

(11,622) (25.372)(53,412) ~22.682~(65,034) (48,054)

111,240 149.437

Fee and commission expenseCommission on remittancesInter-bank transaction feesTotal fee and commission expense

18. OTHER INCOME

Bad debt recovery(Loss) I gain on disposal of property and equipment

6,221 167,947_______~(~1,~440~)----------~~2~87~

4,781 168,234

19. PERSONNEL EXPENSES

Salaries and wagesStaff welfare

324,40132,526

298,38629,404

356,927 327,790

19.1 It Includes an amount of Afs.42.432 million (2015: Afs.25.561 million) In respect of short-term employeebenefits paid to Key Management Personnel.

20. OTHER OPERATING EXPENSES

Rent 67,811 62,195Internet and connectivity 82,546 71,443Electricity and power 38,257 40.509Legal and professional charges 24,1170 21.297Advertisement expenses 18,978 17.205Travel 8,536 9,352AOIC insurance charges 20.1 67,009 42.322Repair and maintenance 18,379 16.987Printing and stationery 4,041 4.546Software maintenance fee 8,611 2.932Security expenses 113.937 100.329Subscription 842 2,530Communication 4,100 3.352Directors' remuneration 14,680 2,972Office expenses 16,7:' 17,020Provision against other assets 11,5 5Others 17,466 1,151

517,747 416.142

20.1 These charges are paid to Afghan Deposit Insurance Corporation (AOIC) @ 0.30% (2015: 0.23%) per ann~of total deposits.

~r,.!J\

25 MAIWAND BANK

Deferred tax 10

December 20, December 31,2016 2015

-- ( In '000) ---

179.t11 95.315179,111 95.315

21. TAXATION· NET Note

21.1 Reconciliation of accounting 10••

Loss before taxation (911,590) -=_(..45_6..,.90...1....)

Tax on taxable profit @ 20%Impact of deductible temporary differencesImpact of taxable temporary differencesTax expense for the year

187,613 91.620_______~(~7,~"~2~)----_=3~.6~95~

179,711 95.315

22. CASH AND CASH EQUIVALENTS

Cash and bank balancesCapital notes having maturities more than 3 monthsSecurity deposit with DABRequired reserve with DAB

5I

16,951,052(1,253.796)

(1.500) (1.500)(1,848,463) __ ~(~1~.72~9~.9~51~)13,847,293 12.854.089

14.585.540

22.122.1

22.1 The deposits with DAB are not available to finance the Bank's day-to-day operations fnd. therefore. are notpart of cash and cash equivalents.

Ultimate controlling party

The Bank is owned by individual persons. who own the Bank's shares in different proportions (Refer note 14.1).

Tran.actions with key management personnel

The Bank has a related party relationship with its shareholders. directors. key management personnel and theirclose family members. The bank had transactions with following related parties at mutually agreed terms during theyear.

23. RELATED PARTY TRANSACTIONS

Key management personnelland close famlll members) Directors and ShareholdersDecember 20, December 31, December 20, December 31,

2016 2015 2016 2015._-- (At. In '000) ---- ••_._. (Ats in '000) --

(a) Deposits from related partie.At beginning of the year 91 121 2,038 33,148Received during the year 35,060 22,685 912,217 9,871Withdrawn during the year l34,738} ~22.715~ i885,159) ~40.981~At end of the year 413 91 29,996 2.038

(b) Other transaction. with related partl ••

• Sitting fee paid to membersof Board of Supervisors 14,680 2,972

(c) Key management compensationEmployee benefits paid 42,432 32.927

Key management personnel of the Bank include the Chief Executive Officer, Chief Financial Officer. ChiefOperating Officer. Chief Risk Officer. Chief Credit Officer and Chief of Compliance.

In addition to their salaries, the Bank also provides non-cash benefits to executives which Includes furnishedaccommodation. meals and travel.

There were no related party transactions and outstanding balances other than those disclosed above.~

26 MAlWAND BANK

24. FINANCIALASSETS AND UABIUTlES

Accounting classification of financial assets and financlaillabilitias and faIr values

IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements and disclosures about fair value measurement where such measurements arerequired as permitted by other IFRSs. It defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketparticipants at the measurementdate (i.e. an exit price).

Financial assets which ate tradable in an open market are revalued at the market prices prevailing on the statement of financial position date. The estimated fair value of all otherfinancial assets and liabiHtIesis considered not significantly different from book value.

The table below sets out the Bank's classification of each class of financial assets and liabilities, and their fair values.

NoteDesignated at Available-for·

fair value saleLoans and Otherreceivables amortised cost

------------- (Ats In '000)

Held-to­maturity

Total carryingamount Fair value

December 20,2016

Financial assets

Cash and bank balancesloans and advances to customersOther assets

Financial liabilities

Deposits from customersOther liabilities

16,951,052 16,951,052 16,951,0526,339,745 6,339,745 6,339,745"',162 464,162 464,162

23,754,959 23,754,959 23.754,959

24.183.600 24,183,600 24.183.600160.750 160,750 160,750

24,344.350 24.344.350 24,344.350

569

1213

December 31. 2015

Financial assets

Cash and bank balancesloans and advances to customersOther assets

14,585,5407,993,242105,080

14,585,5407,993,242105,080

14,585,5407,993,242105,080

569

22;683,862Financiaillabilitias

Deposits from customers 12 21,860,727 21,860,727 21,860,727Other liabilities 13 64,474 64 474 64 474

____ -_ - - - 21,925,201 21,925,201 21,925,201

t ~ny;ng amounls approximate fair values as most of Ihe assets and liabil_ have short maturities and are expected 10 be recovered '_ad at Ohair cany;ng amounts. ~

27 MAIWAND BANK

25. FINANCIAL RISK MANAGEMENT

25.1 Introduction and overview

The Bank has exposure to the following risks from its use of financial instruments:

a) credit riskb) liquidity riskc) market risksd) operational risk

This note presents information about the Bank's exposure to each of the above risks, the Bank'sobjectives, policies and processes for measuring and managing risks, and the Bank's management ofcapital.

Risk management fnlmeworlc

The Board of Supervisors has the overall responsibility for the establishment and oversight of the Bank'srisk management framework. The Board has established Management Board and a Credit Committeewhich are responsible tor developing and monitoring Bank's risk management policies in their specifiedareas.

The Bank's risk management policies are established to identify and analyze the risks faced by the Bank.to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk managementpolicies and systems are reviewed regularly to reflect changes in market conditions, new regulatoryrequirements, products and services offered. The Bank, through its training and management standardsand procedures, aims to develop a disciplined and constructive control environment, in which allemployees understand their roles and obligations.

25.2 Credit risk

Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrumentfails to meet its contractual obligations, and arises principally from the Bank's loans and advances tocustomers. For risk management reporting purposes. the Bank considers and conSolidates all elementsof credit risk exposure.

Management of credit risk

The Board has delegated responsibility for the management of credit risk to its Bank's Credit Committeewhich is responsible tor oversight of the Bank's credit risk.

A separate credit department has been established by the Bank that is responsible for oversight of theBank's credit risk and which reports to the Credit Committee. The Credit department is headed by ChiefCredit Officer (CCO). CCO along with credit department staff looks after credit risk matters and conductportfolio analysis for managing credit risk.

The Bank has established and maintained loan portfolio in line with the Bank's credit policy. The creditevaluation system comprises of credit appraisal, sanctioning and review procedu,.. for the purposes ofemphasising prudence In lending activities and ensuring the high quality of asset portfolio.

Exposure to credit risk managed through regular analysis of the borrowers to meet their respectiveinterest and capital repayment obligations, by reviewing their lending limits and rationalising whereappropriate. Exposure to credit risk Is also managed against personal guarantee of the borrower and~ge of immoveable property duly regJslered with the court of law and hypothecation over 'Iock~

28 MAIWAND BANK

Exposure to credit riskLoans and advances to

customersDecember 20, December 31,

2016 2015- (Ate In '000) -

December 20, December 31,201~ 2015

••••_.- CAfs In '000) ---Note

Carrying amount 6

Gross amountAllowance for impairmentCarrying amount

Cash and bank balances

As of the reporting date. the Bank held cash and bank balances amounting to Afsl.16.951 million (2015:Afs.14.586 million) million, which represents its maximum credit exposure on these assets. The bankbalances are held with central bank and other banks and financial institutions. Man~gement believes thatcash and bank balances are not exposed to significant credit risk. The geographical profile of cash andbank balances has been disclosed in note 5.3.2 to these financial statements.

6,339,745 7,993,242 6,339,745 7,993,242

7,685,299 8,706,708 7,68,,299(1,345,554) _-=(~71,.,:3~,4~66:-,-)_---l.:(1~,34~5,~554~)6,339,745 7,993.242 6,339,745

8,706,708(713,466)

7,993,242

In addition to the above, the Bank has issued financial guarantees I contracts fo~ which the maximumamount payable by the Bank, assuming all guarantees are called upon is Afs.5,074 (2015: Afs.5,153)million. (Refer note 15). .

Past due but not Impaired loans

Past due but not impaired loans are those for which contractual interest or principal payments are pastdue but the Bank believes impainnent Is not appropriate.

Allowances fo,Impairment

The Bank establishes an allowance for impairment losses on assets carried at amortised cost thatrepresents its estimate of Incurred losses in its loan portfolio. The main components of this allowance area specific loss component that relates to individually significant exposures, and a collective loan lossallowance established for the groups of homogeneous assets in respect of 10058S that have beenincurred but have not been identified on loans that are considered indMdually insignificant as well asindividually significant exposures that were subject to individual assessment for impainnent but not foundto be individually impaired.

All loans and other assets are classified into one of the five classification grades mentioned below forprovisioning in accordance with the regulations of DAB. General and specific all011 nee for impalnnent ismade by the Bank with the following percentages:

Days past due o!.

Conventional

Standard None 1%Watch 1·30 days 5%Substandard 31-90 days 25%Doubtful 91-360 days 50%Loss 361 days Of more 100%

Islamic

Standard None 1%Watch 1-30 days 5%Substandard 31-90 days 25%Doubtful 91-180 dayS 50%loss 181 days or more 100%&.-

~

"~

29IMAIWAND BANK

Write-off polley

The Bank writes off loans or advances and any related allowances for Impairment losses, when theBank's Credit Committeedeterminesthat the loans or advancesare uncollectible.This determinationisreached after considering information such as the occurrence of significant changeslin the borrowersfinancial positionsuch that the borrowercan no longerpaythe obligation,or that p~s from collateralwill not be sufficient to pay back the entire exposure and In accordance with the regulations of OaAfghanistanBank. For smaller balancestandardizedloans, write off decisionsgeneraMyare based on aproduct specific past due status. Beforeallowingto writtenoff, it Is ensured that all pdssibleavenues ofrecovery,inclusiveof legal actionareexhaustedor legalaction is not advisable.

The Bank holds collateral against loans and advances in the form of mortgage interest over property,other registeredsecuritiesover assets, and guarantees.Estimatesof fair value are basedon the valueofcollateralassessedat the time of borrowingby one of the five externalvaluersof the Bank.

An estimate of the fair value of the collateraland other security enhancementsheld against loans andadvancesto customersis shownbelow:

December 20, December 31,2016 2015

Note -- (Afs In '000) _--Against Impaired:

PropertyOthers

7,452,220 2,769,865172,906

7,452,220 2,942,771

7,285,860 13,233,55414,738,080 16,176,325

Against neither past due nor Impaired:

Concentration of credit risks by sectorAll the loans have been disbursed in geographical territory of Afghanistan. The Bank monitorsconcentrationsof credit risk by sector.An analysisof concentrationsof credit risk of loans and advancesto customersat reportingdate is as follows:

Carrying amount 6 6,339,745 7,993,242

Concentratlon by sectorManufacturing 671.067 297,432Trade 2,263,612 3,881,586Construction 1,523,677 1,584,034Services 1,534.832 1,224,607Others 346,497 1,005,583

6,339.745 7,993,242

Concentratlon by locationAfghanistan 6,339,145 7,993,242

25.3 Liquidity riskLiquidity risk is the risk that the Bank will encounter difficulty In meeting obligations from its financialliabilitiesthat are settledby deliveringcashor anotherfinancialasset.

Management of liquidity riskThe Board ensures that the Bank has necessary tools and framework to cater the requirements ofliquidity risk managementand the Bank is capableto confrontinguneven liquiditys&narioS. The Bank'smanagementis responsiblefor the implementationof soundpoliciesand procedureskeeping In viewthestrategic direction and risk appetite specified by the Board. Management Board is entrusted with theresponsibilityof managing the mismatch in maturitiesto ensure sufficient available cash flows to meetpossible withdrawal of deposits, other commitmentor challenges associated with]sudden changes inmarketconditions,whilst enablingthe Bankto pursuevaluedbusinessopportunities.

The Bank relies on deposits from customersas its primary source of funding. Deposits from custoqersgenerallyhas shortermaturitiesand largeproportlonof themare repayableon demand.~

30I

MAiWAND BANK

Exposure to liquidity risk

The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are consideredincluding cash and cash equivalent A similar, but not identical, calculation is used to measure the Bank's compliance with the liquidity limit established by the Bank's Regulator(Oa Afghanistan Bank). Details of the Bank's reported ratio of net liquid assets to a sum of attracted funds and designated off balance sheet items, at the reporting date andduring the reporting period are as follow:

At DecemberMaximum for the yearMinimum for the year

The maturity profile of the Bank's liabilities based on contractual maturities is given below:

Note

Gross nominal less than 1 3 months to 1Inflow I 1-3 months(outflow) month year

(Ats in '000)

16,951,052 13,418,257 494,587 1,253,796

7,685,299 5,225,496 1,069,364 1,383,547464,162 33,132 3,474 9,149

25,100,513 18,676,885 1,567,425 2,646,492

(24,183,600) (23,212,457) (646,678) (323,179){160,75O} {160,75O}

~24,344,35O! ~23,373,20!l ~646,678! i323,179l

756,163 ~4,696,322! 920,747 2,323,313

December 20, 2016

Financial assets:Cash and bank balancesLoans and advances tocustomers (gross)

Other assets

1-5 years

2016 2015

57%58%51%

More than 5years

54%59%48%

Carryingamount

5

69

Financial liabilities:Deposits from customersOther liabilities

1213

Netasaets

December 31,2015

Financial assets:Cash and bank balancesloans and advances tocustomers. (gross)

Other assets

5 14,585,540 12,854,089

6 8,706,7OS 3,351,324 1,613-,420 3,629;4949 105,080 591226

23,387,328 16,264,639 1,673,420 3,629,494

12 (21,860,727) (20,745,869) (185,810) (929,048)13 (641474) (641474)

F1,925,201l ,201810,343l (185,810) '929,048~

1,472,127 (4,545,704~ 1,487,610 2,700,446

Financial liabilities:Deposits from customersOther liabilities

6,892418.... 7425,299

(1,286)

1,784,412

1,784,412

______ ~i~1,~2~H) _

424,013 1,784,412

1,731,451

52,470

52,4-7'·n-----::

Net assets--- 52,470

45.8541,777,305

1,777,305

16,951,052

7.685,2994&1,162

25,100,513

24,183,600160,750

24,344,350

756,163

14,585,540

---08---"7,706:7081051080

23,397,328

21,860,72764.474

21,925,201

31 MAIWAND BANK

The above table shows the undiscountedcash flows on the Bank's financial liabilitieson the basis of their earliest possible contractual maturity. The gross nominal inflow I (outflow)disclosed in the above table is the contractual. undiscountedcash flow on the financial liability.

Maturity analysis for off balance sheet items

Gross nominal Less than 1 3 months to 1 Mora than 5 Carryinginflow I 1-3 months 1-5 years(outflow) month year years amount

Note(Afs in '000)

December 20, 2016

Issued financial guaranteescontracts 15 5,074,444 1,310,241 759,.496 1,207,045 1,797,662 5,074,444

5,074,444 1,310,241 759,496 1,207,045 1,797,662 5.074,""'-

December 31,2015

Issued financial guarantees contracts 15 5.153.337 1.383.651 681.267 1.257.088 1.829,331 2.000 5.153.337

5.153.337 1.383.651 681.267 1,257.088 1,829,331 2.000 5.153.337

25.4 Marleetrisks

Market risk is the risk that changes in market prices, such as interest rate. equity prices, foreign exchange rates and aedit spreads (not relating to changes in the obligor's Iissuer's aedit standing) will affect the Bank's income or the value of its holding of financial instruments. The objective of mari<etrisk management is to manage and controlmarket risk exposures with in acceptable parameters. while optimizing the return on risk.

Management of market risks

To manage and control rnari<etrisk a well defined limits structure is in place. These limits are reviewed. adjusted and approved periodically. Overall authority for rnari<etrisk isvested in Management Board of the Bank. The Management Board is responsible for the development of detailed risk management policies and day to day review of theirimplementation.

Exposure to Interest ,..te risk

The Bank's risk to which not-trading portfolios are exposed is the risk of loss from fluctuations in the future flows or fair values of financial instrument because of change Inmarket interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. The ManagementBoard is the monitoring body for compliance with these limits and is assisted by risk management in its monthly monitoringactivities: A summary of the Bank's interest rate gap~n non-Uading _ is as follows: Y

32 MAIWAND BANK

Interest bearingInterest rates Less than 3 Non~nterest

(p.a) months 3~monlhs 6-12 months 1-5 yean Total bearing Total(Ats In '000)

December 20, 2016

Financial assets:Cash and bank balances 0.05% to 6.66·k 2,170,650 925,893 327,903 3.424,446 13.526,606 16,951,052Loans and advances tocustomers (gross) 10% to 20% 6,294,860 1,1~806 278,741 6,892 7,685,299 7,685,299

Other assets 464,162 464,1628,465,510 2,030.699 606.644 6.892 11.109,745 13.990,768 25,100,513

FlnanclalliabilHles:Deposits from customers 0.25·.4 to 6% 5,895,323 219,806 103,373 1,286 6,219,788 17,963,812 24,183,600Other liabilities 160.750 160,750

5,895,323 219.806 103.373 1,286 6,219.788 18.124.562 24,344.350

On balance sheet lmere .. Mnsltlvity gap 2,570,187 1,810.893 503,271 5,606 4.889,957 (4,133,794) 756.163

Ifthe interest rate increase I decrease by 100 bps, the effect on loss for the year would have been Afs.48.9 million (2015: Afs.0.051 million) higher flower respectively.

December 31,2015

Financial .... ts:Cash and bank balances 0.15% to 6% 2.213.187 2.213.187 12.372.353 14.585.540Loans and advances tocustomers (gross) 10% to 20% 5.024.744 1.955.101 1.674.393 52.470 8.706.708 8.706.708

Other assets 1051°80 10510807.237.931 1.955.101 11674.393 52.470 1019191895 12.477.433 231397.328

Financial lIabllHIes:Deposits from customers 0.8% to 7% 4.908.927 247.746 681.302 5.837.975 21.860.727Other liabilities 64474

419081927 247146 6811302 5183719-75 21~92S;:zor--

On balance sheet Interest MnsHivity gap 2,329.004 1,707,355 993.091 52.470 5.081.920 p.609.793~ 1,472.127~

33 MAIWAND BANK

Exposure to currency risk

Currency risk is the risk that the fair value or future cash flows of an exposure will f1uct~e because of changes inforeign exchange rates. Foreign currency activities result mainly from the Bank's holding Of foreign currency assetsunder Its foreign reserve management function. The overall level of these assets is ~etermlned based on theprevailing extent of credit and liquidity risks. In order to avoid losses arising from adverse changes in the rates ofexchange, the Bank's compliance with the limits established for foreign currency positions is required to bemonitored by the management. The Bank has not entered in to any foreign currency hedging transaction as at yearend.

The Bank's exposure to foreign currency risk based on notional amounts is as follow:

USD Euro GBP oo,era Total

(N.ln '000)

Dec.mber 20. 2018

Financial aneta:Cash and bank balances 10,396,149 619,359 43,460 5,892,084 16,951.052Loans and advances tocustomers (gross) 6,717,181 968,118 7,685,299

Other assets 379,003 85,159 484,16217,492,333 619,359 43,460 6,945,361 25,100,513

Financial lIabUltle.:Deposits from customers 17,419,735 596,695 25,980 6,141,190 24,183,600Other liabilities 24,003 438 136,309 160,750

17,443,738 597,133 25,980 8.2n,499 24,344,350

Net exposure currency wise 48,595 22,226 17,480 617,812 751,163

December 31,2015

Financial usets:Cash and bank balances 8.454,828 632,088 31.866 5.466,758 14.585,540Loans and advances tocustomers (gross) 7,579,121 1,127,587 8,706.708

Other assets 551094 491986 1051°8016,089,043 632,088 31,866 6.644,331 23.397,328

Financial liabilities:Deposits from customers 13.022,681 522,181 18.662 8.297,203 21.860,727Other liabilities 121991 4 511479 64474

131°351672 5221181 18,666 813481682 21,9251201

Net exposure currency wise 3.0531371 109,907 13,200 (1;104.351) 1.4721127

The following significant exchange rates appliedduring the period.

December 20, 2016 December 31,2015

Average rate Reporting Average rat. Reporting datedate spot rate spot rate

(Ats) --(Afs)-

USC 66.82 66.68 61.38 68.10Euro 74.87 70.78 67.96 74.55GBP 91.49 83.15 92.82 '){..-

" (;;1

34 MAIWAND BANK

Sensitivity analysis

A 10% strengthening of the Afghani currency, as indicated below, against the USD, Euro nd GBP at 20 December2016 would have increased I (decreased) equity and profit or loss by the amounts sho. n below. This analysis isbased on foreign currency exchange rate variances that the Bank considered to be reaS9nably possible at the endof the reporting period. The analysis assumes that all other variables, In particular interest rates, remain constant.

December 20,2016 Oecember31,2015Equity Profit& (los.)

- (AtsIn '000)-Equity Profft& (Iou)-(Ats In '000)-

USDEuroGBP

",8602,2231,748

",8602,2231.7-'8

305,33710.9911,320

305,33710,9911,320

A 10% weakening of the Afghani against the above currencies at 31 December 2015 would have had the equal butoppoSite effect on the above currencies to the amounts shown above, on the basis that all other variables remainconstant.

25.5 OperationalrI.k.

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Bank'sprocesses, personnel, technology and infrastructure, and from extemal factors other than credit, market andliquidity risks such as those arising from legal and regulatory requirements and generally accepted standards ofcorporate behaviour. Operational risks arise from all of the Bank's operations and are faCEidby all business units.

The Bank's objective is to manage operational risk so as to avoid the financial losses and damage to the Bank'sreputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

25.6 Caplt., management

Regulatory cap,e.1

The Bank's regulator DAB sets and monitors capital requirements for the Bank. The capital adequacy of the BankIs assessed In two tiers as per regulations of the DAB. As of reporting date, DAB requires the Bank to maintainfinancial capital of not less than Afs.1 billion and regulatory capital to risk-weighted asset ratio of not less than 12percent and a core (Tier 1) capital to risk-welghted asset ratio of not less than 6 percent.

- Tier 1 or core capital, consisting of the highest quality capital elements that fully meet all the essentialcharacteristics of capital; to be 6% of risk weighted assets.

- Tier 2 or supplementary capital, which includes other instruments which, to a varying degree, fall short of thequality of Tier 1 capital, but nonetheless contribute to the overall strength of a bank as a going concem.

- Regulatory capital is the sum of Tier 1 and Tier 2 capital and Tier 2 capital cannot exceed the amount of Tier 1capital.

The Bank's regulatory capital position at 20 December 2016 was as follows:

Decem~r 20, December 31,2016 2015

Note - (AtsIn '000) -Tier 1 capitalTotal equity capitalLess: Profit for the yearLess: Intangible assetsLess: Deferred tax assetsTotal tier 1 (core) capital

---

1,058,007 1,108,586

810

(1,701) (2,075)(230.297) _---=-~(50:-::-:=,58:::_:6~)....... ,.05;q

'-;\

35 MAIWAND BANK

Dece ber 20, December 31,2016 2015T (Ats In '000) --

45,000 17.840

1,8,05,972 698,428381,194 139.686

4,673,511 6,718,15023,451 105.003

2,~,481 3,411.577

3,766,836 1.636,652(1,701) (2,075)

(2(J0,297) {5O,586~3,534,838 1.583,9913,534,838 1,583,991

10.27% 15.16%

10.83% 15.41%

<»:'f>:>

General allowances on Standard AdvancesAdd: Profit for the yearTotal tier 2 (supplementary) capital

Total Regulatory capital = Tier 1 + Tier 2

45,000

871,009

Risk-weight categories

0% risk weight:Cash in Afghani and fully-convertible foreign currenciesDirect claims on DABDirect claims on other GovemmentsOthersTotal0% risk-weight total (above total x 0%)

4,561,17110,583,909

15,1,45.080

20% risk weight:Balances with other banks20% risk-weight total (above total x 20%)

50% risk weight:Loans supported by collateralLoans to builders50% risk-weight total (above total x 50%)

100% risk weight:All other assetsLess: intangible assetsLess: Deferred tax assetsAll other assets - net100% risk-weight total (above total x 100%)

Credit conversion factor

0% risk weight:Undrawn loan and overdraft facilitiesGuarantees0% credit conversion factor total (risk-weighted total x 0%)0% risk-weight total (above total x 0%)

3,276,782

20% risk weight:Commercial letters of credit20% credit conversion factor total (risk-weighted total x 20%)20% risk.weight total (above total x 20%)

'.'.

100% risk weight:Guarantees100% credit conversion factor total (risk-weighted total x 100%)100% risk-weight total (above total x 100%)

Total rlsk-welghted .. sets

1,797,6621,797.6621,797,662

8,042,175

Tier 1 Capital Ratio(Tier 1 capital as % of totalrisk-weighted assets)

Regulatory Capital Ratio(Regulatory capital as % of total risk-weighted assets)..._

17,840

1,073.765

3,911.7719,975,341

13,887,112

3,322.006

1.831,3311,831,3311.831,331

6.966,585

MAiWAND BANK36

28. ISLAMIC BANKING

The Bank commenced its Islamic BankingOperations in Afghanistan in November 2016. The statement of financialposition of Islamic branch are as follows: I

D.c.mber 20, December31,2016 2015

--- (Ata In '000) --IsI.mlc atatementof fln.ncl.1 pOlltlon

ASSETSCash and bank balancesloans and advances to customersOperating fixed assetsOther assetsTotal .... ta

1,446,8551,288,648112,746138,202

1,395,3871.426,523

1,105323

2)888,451 2,823,338

LIABILITIESDeposits and other accounts• Demand deposits• Time deposits- Saving depositsOther liabilitiesTotaillabllltl ••

437,237 397,611293,706 205,206

2,483,720 2,316,79911,900 11,389

3,~36,583 2,931,005

(250,112) P07,667}(25O,112) (107,667)

2,888,451 2,823,338

EQUITYAccumulated lossesTotal equity

Totaillabilltl ••• nd equity

27. DATE OF AUTHORISATION FOR ISSUE

These financial slalemenls ware authorised for issue on .9.~~ ('{)1.Jo)0by the B'oord 01SUpervisors of theBank.

28. GENERAL

28.1 Figures have been re-arranged and re-classifled,wherever necessary, for the purpose of better presentation.

28.2 Figures have been rounded off to the nearest thousand, except as otherwise mentioned..,.__

/

Chief Financial OffIcer