ZARAI TARAQIATI BANK LIMITED BALANCE SHEET AS AT JUNE 30, 2006 (Un-audited) (Audited) June 30, 2006 December

31, 2005 Rupees in '000 1,100,262 7,366,427 10,877,941 57,885,081 9,162,026 723,834 1,621 87,117,192 411,995 51,257,213 3,170,691 3,204,323 15,207,464 11,435 73,263,121 13,854,071 1,585,421 7,813,844 12,820,668 52,925,286 8,010,698 690,141 1,829 83,847,887 235,741 51,257,213 2,644,647 3,204,323 13,441,518 2,048 70,785,490 13,062,397

Note ASSETS Cash and balances with treasury banks Balances with other banks Investments Advances Other assets Operating fixed assets Deferred tax assets LIABILITIES Bills payable Borrowings from financial institutions Deposits and other accounts Sub-ordinated loan Other liabilities Deferred income NET ASSETS REPRESENTED BY Share capital Statutory reserve Contingencies reserve Unappropriated profit Surplus on revaluation of securities

5 6

7 8

11,869,612 215,387 30,000 1,351,464 13,466,463 387,608 13,854,071

11,869,612 215,387 30,000 702,355 12,817,354 245,043 13,062,397

CONTINGENCIES AND COMMITMENTS

The annexed notes from 1 to 12 form an integral part of these financial statements.

PRESIDENT

DIRECTOR

DIRECTOR

DIRECTOR

ZARAI TARAQIATI BANK LIMITED PROFIT AND LOSS ACCOUNT FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)

Quarter ended June 30, 2006

Six months ended June 30, 2006

Quarter ended June 30, 2005

Six months ended June 30, 2005

Rupees in '000

Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/interest income Reversal/(provision) against non-performing loans and advances Reversal for portfolio audit Reversal for diminution in the value of investments Reversal against other assets Net mark-up/interest income after provisions NON MARK-UP/INTEREST INCOME Fee, commission and brokerage income Dividend income Deferred income amortization Other income Total non mark-up/interest income

1,370,415 1,666,499 (296,084) 2,056,182 163 2,056,345 1,760,261

3,576,019 1,683,139 1,892,880 (1,377,484) 163 (1,377,321) 515,559

827,450 (602,467) 1,429,917 613,949 270,187 585 7,460 892,181 2,322,098

3,544,087 220,339 3,323,748 (2,893,330) 270,187 585 6,145 (2,616,413) 707,335

2,960,302

815 6,458 4,004 1,153,530 1,164,807 2,925,068

1,313 6,458 7,864 1,736,952 1,752,587 2,268,146

3,251 2,153 19,918 225,686 251,008 2,573,106

4,093 2,153 19,918 368,486 394,650 1,101,985

NON MARK-UP/INTEREST EXPENSES Administrative expenses Senior management expenses Other provisions/write offs Other charges Total non mark-up/interest expenses PROFIT/(LOSS) BEFORE TAXATION Taxation - current - prior years - deferred PROFIT/(LOSS) AFTER TAXATION Unappropriated profit brought forward PROFIT AVAILABLE FOR APPROPRIATION Basic/diluted earnings per share (Rupees) The annexed notes from 1 to 12 form an integral part of these financial statements. 687,403 4,004 691,407 2,233,661 341,666 341,666 1,891,995 1,891,995 1.594 1,269,299 7,864 1,277,163 990,983 341,666 208 341,874 649,109 702,355 1,351,464 0.547 661,438 19,918 681,356 1,891,750 5,390 5,390 1,886,360 1,886,360 0.159 1,163,014 19,918 1,182,932 (80,947) 19,691 189 19,880 (100,827) 861,549 760,722 (0.008)

PRESIDENT

DIRECTOR

DIRECTOR

DIRECTOR

ZARAI TARAQIATI BANK LIMITED CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)

Six months ended June 30, 2006 CASH FLOW FROM OPERATING ACTIVITIES Profit/(loss) before taxation Dividend income Adjustments for non-cash charges: Depreciation Amortization of deferred income Provision against non-performing advances Reversal under portfolio audit Provision for employees post retirement medical benefits Reversal against other assets Provision for employees' compensated absences Gain on sale of fixed assets 990,983 (6,458) 984,525 44,137 (7,864) 1,377,484 3,258 (163) 27,170 (5,201) 1,438,821 2,423,346 (Increase)/decrease in operating assets: Advances-net Others assets (excluding advance taxation) Increase/(decrease) in operating liabilities: Bills payable Deposits Other liabilities (excluding current taxation) Deferred income Income tax paid Net cash flow/(used in) from operating activities CASH FLOW FROM INVESTING ACTIVITIES Net investments in held-to-maturity securities Dividend received Investments in operating fixed assets Sale proceeds of property and equipment disposed-off Net cash flow/(used in) from investing activities CASH FLOW FROM FINANCING ACTIVITIES Net cash flow from financing activities (Decrease)/increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period (932,576) 9,399,265 8,466,689 (6,337,279) (1,151,166) (7,488,445) 176,254 526,044 1,699,298 17,251 2,418,847 (305,446) (2,951,699)

Six months ended June 30, 2005

Rupees in '000

(80,947) (2,153) (83,100) 41,671 (19,918) 2,893,330 (270,187) 73,955 (6,145) 8,455 (496) 2,720,665 2,637,565 (2,625,093) 3,071,713 446,620 541,988 (1,213,158) 207,627 10,636 (452,907) (57,677) 2,573,602

2,085,292 6,458 (79,546) 6,918 2,019,122

(1,543,406) 2,153 (4,076) 551 (1,544,779)

1,028,823 16,385,166 17,413,989

The annexed notes from 1 to 12 form an integral part of these financial statements.

PRESIDENT

DIRECTOR

DIRECTOR

DIRECTOR

ZARAI TARAQIATI BANK LIMITED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED JUNE 30, 2006 (UNAUDITED)

Share capital

Advance against equity

Statutory reserve

Contingencies reserve

Unappropriated profit

Total

Balance as at December 31, 2004 Loss after taxation for the period Transfer to statutory reserve Balance as at June 30, 2005 Transfer to share capital Loss after taxation for the period Transfer to statutory reserve Transfer to contingencies reserve Balance as at December 31, 2005 Profit after taxation for the period Transfer to statutory reserve Transfer to contingencies reserve Balance as at June 30, 2006

11,869,611 11,869,611 1 11,869,612 11,869,612 -

Rupees '000 215,387 -

861,549 (100,448) 761,101

12,946,548 (100,448) 12,846,100 (28,746) 12,817,354 649,109 13,466,463

1 (1)

215,387 215,387 215,387 30,000 30,000 30,000

(28,746) (30,000) 702,355 649,109 1,351,464

The annexed notes from 1 to 12 form an integral part of these financial statements.

PRESIDENT

DIRECTOR

DIRECTOR

DIRECTOR

ZARAI TARAQIATI BANK LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE PERIOD ENDED JUNE 30, 2006 (UN-AUDITED) 1. 1.1 STATUS AND NATURE OF BUSINESS Reorganization and conversion The Federal Government in its cabinet meeting held on August 28, 2002 decided for the reorganization and conversion of Agricultural Development Bank of Pakistan into a public limited company for the purposes of ensuring good governance, autonomy, delivering high quality and viable financial services to a greater number of rural clientele and adequate returns to stake holders. Accordingly the Agricultural Development Bank of Pakistan (Reorganization and Conversion) Ordinance, 2002 was promulgated for taking over the entire undertaking of Agricultural Development Bank of Pakistan and for matters connected therewith or incidental thereto. 1.2 Status As required under section 3 of the Agricultural Development Bank of Pakistan (Reorganization and Conversion) Ordinance, 2002, Zarai Taraqiati Bank Limited was incorporated as public limited company under the Companies Ordinance, 1984 on October 23, 2002. Consequently, under SRO 823 (1)/2002 dated November 18, 2002, all the assets, contracts, liabilities, proceedings and undertakings of Agricultural Development Bank of Pakistan were transferred to, and vested in Zarai Taraqiati Bank Limited on December 14, 2002, the effective date specified by the Federal Government on the basis of net worth determined at Rs. 8.9 billion. The Bank's principal office is situated at 1-Faisal Avenue (Zero Point), Islamabad. The Bank operates 345 (December 31, 2005: 345) branches in Pakistan as at close of the period. According to the SRO 823 (1)/2002 dated 18th November 2002, notwithstanding the provisions of Income Tax Ordinance 1979 and/or the Income Tax Ordinance 2001, the proceedings of Agricultural Development Bank of Pakistan are to continue in Zarai Taraqiati Bank Limited without taking any effect on taxable income of adjustments to the value of assets and liabilities of Agricultural Development Bank of Pakistan made solely for the purposes of reorganization including the revaluation of tangible assets and the taxation provisions shall apply to Zarai Taraqiati Bank Limited as if Zarai Taraqiati Bank Limited is a continuation of Agricultural Development Bank of Pakistan and its operations. 2. STATEMENT OF COMPLIANCE These financial statements have been prepared in accordance with approved accounting standards as applicable in Pakistan and the requirements of the Companies Ordinance, 1984, the Banking Companies Ordinance, 1962, the directives issued by the State Bank of Pakistan (SBP) and Securities and Exchange Commission of Pakistan. Approved accounting standards comprise of such International Accounting Standards as notified under the provisions of the Companies Ordinance, 1984. Whenever, the requirements of the Companies Ordinance, 1984, Banking Ordinance, 1962 or the directives issued by the State Bank of Pakistan and the Securities and Exchange Commission of Pakistan differ with the requirements of these standards, the requirements of the Companies Ordinance, 1984, Banking Companies Ordinance, 1962 or the requirements of the said directives take precedence. The disclosures made in these financial statements have, however, been limited based on the format prescribed by the State Bank of Pakistan vide BSD Circular letter No. 2 dated May 12, 2004 and International Accounting Standard 34 Interim Financial Reporting. International Accounting Standard 39, Financial Instruments: Recognition and Measurement (IAS 39) and International Accounting Standard 40, Investment Property (IAS 40) are not applicable for banking companies in Pakistan. Accordingly, the requirements of these standards have not been considered in the preparation of these financial statements. However investments have been presented in accordance with the requirements prescribed by the State Bank of Pakistans BSD Circular No. 10 dated July 13, 2004. 3. BASIS OF MEASUREMENT These financial statements have been prepared under the historical cost convention, as modified for the revaluation of investments (Note 5) and in conformity with the accepted accounting practices of the banking institutions in Pakistan. 4. 4.1 4.2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies adopted in the preparation of these financial statements are the same as those applied in the preparation of the annual financial statements of the bank for the year ended December 31, 2005. These financial statements are unaudited and have been reviewed by the auditors as required by the Code of Corporate Governance.

5.

INVESTMENTS

Held by bank

Given as collateral Rupees in '000 2,775 2,866 Un-audited June 30, 2006

Total

As at June 30, 2006 (Un-audited) As at December 31, 2005 (Audited)

10,875,166 12,817,802

10,877,941 12,820,668

5.1

Investments by types Held-for-trading securities Available-for-sale securities Held-to-maturity securities Total investment Investment in subsidiary company (note 5.1.1) Provision for diminution in value of investments Surplus on revaluation of securities Investments at revalued amounts (net of provisions) 95,294 10,292,264 10,387,558 100,000 387,608 387,608 10,875,166

2,775 2,775 2,775

95,294 10,295,039 10,390,333 100,000 387,608 387,608 10,877,941

5.1.1

Investment in subsidiary represents Kissan Support Services (Private) Limited, a wholly owned subsidiary of the Bank. Un-audited Audited June 30, 2006 December 31, 2005 Rupees in '000

6.

ADVANCES Loans, cash credits, running finances, etc. In Pakistan Outside Pakistan Less: Provision for non-performing advances (note 6.1) Provision for long outstanding staff advances

68,159,775 68,159,775 (10,270,565) (4,129) (10,274,694) 57,885,081

64,744,526 64,744,526 (11,814,916) (4,324) (11,819,240) 52,925,286

6.1 Advances include Rs. 24,021 million (December 31, 2005: Rs. 23,424 million) which have been under non-performing status as detailed below: June 30, 2006 Total Provision required Rupees in '000 8,724,991 7,833,662 2,268,904 5,193,330 24,020,887 942,783 1,134,452 5,193,330 7,270,565

Category of classification Other assets especially mentioned Substandard Doubtful Loss

Domestic

Overseas

Provision held

8,724,991 7,833,662 2,268,904 5,193,330 24,020,887

942,783 1,134,452 5,193,330 7,270,565

Add: General provision held under portfolio audit (note 6.2)

24,020,887

24,020,887

7,270,565

3,000,000 10,270,565

6.2

The Federal Government has decided, in the meeting of the Federal Cabinet on August 28, 2002, to Corporatize/restructure the Agricultural Development Bank of Pakistan (ADBP). ADBP (Reorganization and Conversion) Ordinance, 2002 (LX of 2002) was promulgated by the Federal Government on October 04, 2002 to provide for necessary legal/ statutory cover for reorganization and conversion of (ADBP) into a public limited company, incorporated under the Companies Ordinance, 1984. Consequently, under SRO 823(1)/2002 dated November 18, 2002, the Federal Government specified December 14, 2002 to be the effective date on which all the assets, contracts, liabilities, proceedings and undertakings of ADBP shall stand transferred to, and vest in Zarai Taraqiati Bank Limited (ZTBL).

Accordingly State Bank of Pakistan appointed an independent firm of Chartered Accountants who carried out a portfolio audit and recommended a provision of Rs. 10 billion against its non-performing advances over and above the provision under prudential regulation No. VIII of State Bank of Pakistan. The bank incorporated a general provision of Rs. 3 billion in the year ended June 30, 2002 on the basis of the provisional portfolio audit report. Government of Pakistan approved cash support of Rs. 7 billion which will be provided to Zarai Taraqiati Bank Limited over a period of three years. In consequence to this the State Bank of Pakistan vide their revised letter No.BSD/SU-54/4033286/2004 dated June 05, 2004 has allowed that the balance provision of Rs. 7 billion is to be provided by Zarai Taraqiati Bank Limited in their financial statements in three installments as follows: 1) 2) 3) Provision of Rs. 3 billion be created in the financial statements for the year ending December 31, 2003. Provision of Rs. 3 billion be created in the financial statements for the year ending December 31, 2004. The balance of provision of Rs. 1 billion in the financial statements for the year ending December 31, 2005.

Subsequently the Ministry of Finance, Government of Pakistan has directed the bank vide their letter No. (6) 3) IF-I/2005 dated June 08, 2005 to reverse the specific provision created on the basis of portfolio audit against loans and advances which have been subsequently recovered in the financial statements for the year ended 2004 and comply with the State Bank of Pakistan's prudential regulation for making the necessary time based provisions. In complying with Ministry of Finance, Government of Pakistan directives, the bank has reversed the specific provision to the extent of recoveries against the specific provision of Rs. 3,000.799 million made in the financial statements for the year ended 2003 over and above the prudential regulation provisioning pursuant to portfolio audit carried out as a part of restructuring process of the bank.

Un-audited Audited June 30, 2006 December 31, 2005 Rupees in '000 7. BORROWINGS FROM FINANCIAL INSTITUTIONS In Pakistan Outside Pakistan 7.1 Particulars of borrowings from financial institutions In local currency In foreign currency 51,257,213 51,257,213 51,257,213 51,257,213 51,257,213 51,257,213 51,257,213 51,257,213

7.2

Details of borrowings from financial institutions - secured Borrowing from State Bank of Pakistan Agricultural loans (note 7.3) Agri-project loans (note 7.4)

50,174,089 1,083,124 51,257,213

50,174,089 1,083,124 51,257,213

7.3

As per agreement with the State Bank of Pakistan, these loans were obtained for providing finance to customers for agriculture purposes. Three credit lines amounting to Rs. 1,576.796 million carry interest rate of 4% per annum while remaining thirty two credit lines amounting to Rs. 48,597.293 million are based on profit and loss sharing subject to maximum share of profit to State Bank of Pakistan ranging from 4% to 10% per annum. These loans are secured by way of guarantee of Government of Pakistan. The bank has submitted a proposal to State Bank of Pakistan for restructuring the debt according to which the State Bank of Pakistan's debt of Rs. 51,257 million is repayable in 15 years in 30 bi-annual installments with a grace period of 3 years starting from July 2003 i.e the period of 15 years for repayment of State Bank of Pakistan debts will start from July 2006. State Bank of Pakistan vide its letter No. ACD/3104/Loans-15-A/2004 dated 16 December 2004 has approved the above said proposal except for the terms and conditions in respect of markup which are still under negotiation. In view of the critical importance of debt pricing for the future financial viability and sustainability of Zarai Taraqiati Bank Limited the matter has been referred to Ministry of Finance for a considered Government decision. Keeping in view the above stated facts mark-up has been charged on these loans as per existing contractual rates of respective credit lines.

7.4

These loans were given by the State Bank of Pakistan for the purpose of providing finance to agro based industry. These are subject to profit and loss sharing with a maximum share of profit to State Bank of Pakistan ranging from 4% to 6% per annum. These are secured by guarantee given by the Government of Pakistan. The Bank has submitted a proposal to the State Bank of Pakistan for restructuring of the debt as stated in note 7.3.

8.

SUB-ORDINATED LOAN As per restructuring plan of the bank approved by the ECC of the cabinet, State Bank's Equity holding of Rs. 3.204 billions was converted into subordinated loan on terms to be agreed with State Bank of Pakistan. Accordingly, the bank has submitted a proposal to State Bank of Pakistan for repayment of the loan in 15 years in 30 bi-annual installments starting from July 2006 and rate of mark up to be pegged at weighted average yield of 12 months treasury bill rate at 2.3558% per annum as per treasury bill auction dated June 12, 2003 and capped at the aforesaid markup rate for an initial period of five years. State Bank of Pakistan vide its letter No. ACD/3104/Loans-15-A/2004 dated December 16, 2004 has agreed with proposed terms except the proposed capping of markup rate which has been fixed on last auction's weighted yield of Government Treasury bill of 12 months maturity on floating basis every year. Since the capping of markup charges at 2.3558% has not been agreed by SBP which is of critical importance for the future financial viability and sustainability of ZTBL, the matter has been referred to Ministry of Finance for considered government decision. However the markup on sub-ordinated debt at the rate of 2.3558% from December 14, 2002 to June 30,2004, 2.1867% from July 01,2004 to June 30, 2005 and 8.4009% from July 01, 2005 to June 30, 2006 has been charged which is subject to adjustment on finalization of debt restructuring/ repricing agreement with State Bank of Pakistan.

9. 9.1

CONTINGENCIES AND COMMITMENTS Contingent assets

The Government of Pakistan has reduced the markup rates on Bank's advances from 14% to 9% vide Presidential Relief Package 2004 w.e.f. July 01, 2004. As per the directive of the bank's Board of Directors, the bank has requested the Ministry of Finance to compensate the loss of revenue due to this reduction in rate of markup. The total claim in this respect has provisionally been worked out at Rs. 5,164 millions for the period from July 01, 2004 to June 30, 2006. However, this amount has not been accounted for in the accounts as the formal approval from Ministry of Finance has not been received by the bank.
Un-audited Audited June 30, 2006 December 31, 2005 Rupees in '000 9.2 9.2.1 9.2.2 9.2.3 Contingent liabilities Contingent liability in respect of 49 cases (December 31, 2005: 15 cases) filed against the Bank by various parties. Contingent liability in respect of 24 cases (December 31, 2005: 05 cases) filed against the Bank in various courts of law by the employees. 11,050,019 3,022 11,307,000 572

Income tax of Rs. 929.632 million was levied by the income tax department for assessment year 2001-2002, against provision of Rs. 326.281million in the books of account of the Bank for that assessment year. The bank has paid Rs. 785,103 million and also filed appeal before the Commissioner of Income Tax ( Appeals) against the aforesaid order. The commissioner has set-aside the aforesaid order. However, the tax department preferred an appeal against the order of CIT(A) before the ITAT which is pending for hearing. Income tax of Rs. 1,928.362 million was levied by the income tax department for assessment year 2002-2003, against provision of Rs. 1,919.929 million in the books of account of the Bank for that assessment year. The bank has paid Rs. 577.092 million against the said demand and also filed an appeal before the Commissioner of Income Tax (Appeals). The commissioner has set-aside the aforesaid order and now tax department preferred an appeal against the order of CIT(A) before the ITAT.

9.3

10.

RELATED PARTY TRANSACTIONS Receivable from Kissan Support Services (Private) Limited
2,889 -

11.

DATE OF AUTHORIZATION FOR ISSUE These financial statements were authorized for issue on ------------------------- by the Board of Directors of the Bank.

12.

GENERAL Figures have been rounded off to the nearest thousand of rupees. Figures of the previous period have been re-arranged where ever necessary for the purpose of comparison.

PRESIDENT

DIRECTOR

DIRECTOR

DIRECTOR