COMPANY REGISTRATION NUMBER: 01719649

ANNUAL REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED

31 DECEMBER 2021

Classification: General Business
 

Financial Statements 2021

Table of Contents Page

Strategic Report 2

Directors' Report 15

Statement of Directors' Responsibilities 23

Independent Auditor's Report to the Members of HBL Bank UK Limited 24

Income Statement 34

Statement of Comprehensive Income 35

Statement of Financial Position 36

Statement of Changes in Equity 37

Notes to the Financial Statements 38

Classification: General Business
Strategic Report

HBL Bank UK Limited Structure

HBL Bank UK Limited is authorised by the Financial Conduct Authority (FCA) and the Prudential
Regulation Authority (PRA) and is supervised by the PRA. The Bank is a wholly owned subsidiary of
Habib Allied Holding Limited (HAHL), which is a non-banking company. The majority, 90.5%, of the
shareholding of HAHL is held by Habib Bank Limited (HBL), one of the largest banks in Pakistan. The
remaining 9.5% shareholding is held by Allied Bank Limited.

Strategy and Objectives

The Bank’s vision and key objectives is to re-position as a niche financial services institution
leveraging our global bank network and name recognition across South Asian clients and geographies
to provide UK based Corporate Lending, International Trade Financing, and Wealth Services, to our
target clients, supported by a Financial Institution Strategy to balance risk and optimize capital use.

Business Model
The Bank’s business model is not complex, and it serves its customers through four main product
areas as follows:

Commercial Banking
The aim of commercial banking is to become a niche corporate bank and focused Corporate Finance
advisor to our target market of blue chip corporate Pakistani resident clients and UK small cap family
owned companies. The product offering includes cross border financing, working capital, trade
financing, targeted private equity placements and associated UK real estate lending.

Further it is also a core supplier of liquidity to the Bank and offers savings and other deposit products,
remittances to its customers through the retail network.

Wealth Management
HBL UK has a well-defined history of attracting affluent to High Net Worth entities, mainly from the
South Asian diaspora. Wealth Management provide clients with personalized investment solutions,
and a flexible approach to managing their wealth and lifestyle, via an Execution Only Services. Under
this Service, clients’ needs, objectives, and risk appetite, as well as suitability and affordability, are
taken into account. However, any decision whether buy or sell of securities, lies solely with our
clients. The aim of Wealth Management is to be the HBL Group’s centre of execution, booking and
settlement of investments, and to service both Group and HBL UK’s clients, as well as Group’s
network treasuries.

Financial Institutions
Financial Institutions business continues to provide the critical role of supporting the businesses by
leveraging on Banks and Non Bank Financial Institutions to balance the risk and opportunities. It
works with its customers and stakeholders to find innovative solutions for optimising the use of the
capital, mitigate risk and support liquidity requirements. It is engaged in providing correspondent
banking relationships, cash management, discounting facilities, syndicated financing and negotiation
facilities among others to its customers.

Treasury
The Treasury business is to support the Bank in ensuring adequate liquidity is available to businesses
through its asset liability management (ALM) function. It supports the customers by providing foreign
exchange and forwards while managing liquidity through its money market activities.

2
Business Review
Business Environment
The pandemic continued to disrupt the businesses during the year and thus the environment
remained challenging both domestically and internationally. However, there is cautious optimism
as the successful deployment of vaccines in the UK resulted in reducing the overall restrictions
and lockdowns. This has provided positive push to the businesses and the economy has started
showing positive momentum.

During the year both Bank of England (BOE) and Federal reserve continued to support the
economies through stimulus packages and lowering of interest rates. However, as the economies
start to rebound, there is rise in inflation resulting in increase in base rates by Central Banks. Thus,
the BOE has recently increased its interest rates to 0.75% from 0.10%. The expectation is for both
the BOE and Federal Reserve to raise the interest rates further. The Bank intends to monitor this
and will continue to support the clients wherever required.

Brexit
The Bank had already taken relevant actions in previous periods such as closure of branches in Europe
to minimise the impact of Brexit. It has had no impact on our Zurich branch which as a part of
refreshed strategy the Board has decided to close in year 2022 and therefore we do not foresee any
further impact from Brexit.

Covid-19
The Bank supported its customers and relevant operations during the Covid-19 pandemic and as
envisaged did not had any further impact on respective operational and business capabilities.

Financial Review
Operating Loss before Tax (£ “000”) 2021 2020
Net Interest 8,972 9,782
Fee and Commission 5,392 4,478
Other Income / (loss) - net 1,412 (576)
Net Operating Income 15,776 13,684
Total Operating Expenses (19,873) (25,705)
Operating Loss before provisions and tax (4,097) (12,021)
Reversal / (Provisions) 312 (2,065)
Operating Loss before tax (3,785) (14,086)

Net Interest Income

The pandemic resulted in lowering of interest rates whose full impact is reflected in the current year.
Thus, despite an increase in the overall earnings assets the net interest income was lower by around
£0.8mn. This is predominantly due to the impact of lower interest rates mitigated by material
reduction in cost of deposits by around 65%. Going forward as the interest rates scenario changes,
the Bank intends to focus more on higher margin commercial business.

Fee and Commission Income

One of the key areas for the Bank is to grow its fee business income. The Bank has been steadily
growing its fee based revenue and this year it has been able to achieved the highest income since
last four years (see trend analysis later) i.e. an increase of around 20% from last year. The Wealth
business has been able to leverage the opportunity of lower interest rates by providing relevant
products and services to high net worth customers. This has resulted in its revenue growing by 19%
year on year to £3mn in current year. Further as the business environment started to improve the
bank was able to enhance the trade volume resulting in around 30% higher commission and
commitment fee income.

3
Other income
Other income includes the impact of translation mismatch due to non-revaluation of other equity
instruments issued in USD as per the accounting rules. Due to favourable exchange rates the impact
was negligible this year compared to a loss of £1.7mn last year.

Operating expenses
The Bank went through a restructuring last year (2020) resulting in closing of some branches and
executing other efficiency strategies. These actions have started showing their positive results and
the overall administrative costs are lower by 23% to £19.9mn this year (2020: £25.7mn). Further the
Bank launched its digital banking application in early 2021 and has been successfully able to migrate
around 35% of the transactional volume and 30% of its customer base on it. This has resulted in
achieving operational efficiencies through lowering volumes at branches and call centres. The focus
will continue to remain on driving cost efficiencies and robustly managing the expenses.

Provisions
There have been no additional impairments charge against loans and advances or investments
during the year.

Operating loss before tax

The Bank has been able to reduce its loss before tax by around 73% to £3.8mn compared to prior
year losses of £14.1mn

Statement of Financial Position (£ “000”) 2021 2020

Cash and balances at central banks 103,943 103,675
Loans and advances to banks and customers 348,209 357,355
Debt Securities 95,586 76,602
Other assets 6,404 11,754
Total Assets 554,142 549,386
Deposit by banks 7,806 5,445
Customer Deposits 469,399 459,261
Other Liabilities 12,423 13,974
Total Liabilities 489,628 478,680
Equity 64,514 70,706
Total Capital and Liabilities 554,142 549,386

Cash and balances at central banks and Debt securities

Due to the uncertainty of the environment the Bank remained adequately liquid and maintained
similar balances with Central Banks around £104mn as last year (2020: £104mn). Further it invested
surplus liquidity in shorter tenor high quality liquid assets resulting in increase in the debt securities
from £77mn last year to £96mn this year.

Loans and advances to banks and customers

The overall earning assets of the Bank slightly increased from last year i.e. £548mn from £538mn
last year. The focus is to grow the lending assets which is around £348mn (including loans to banks)
compared with £357mn last year. The reduction is primarily due to the focus on growing more
commercial assets as per the refreshed strategy which has taken longer than expected. However, the
Bank continues to have a strong pipeline of businesses and expect to enhance the lending assets in
coming year 2022. Further there has been no impairment against loans and advances or investments
during the year reflecting the quality of the asset book.

4
Customer Deposits
The Bank continues to fund itself from customer deposits which have remained stable and resilient
despite the challenging environment. Total customer deposit base of £469mn is higher by around
£10mn from last year (2020: £459mn). Around 80% of the deposits base consists of low cost Current
and Savings Account (CASA) which includes diversified customer base with a lengthy relationship with
the Bank.

Equity
The Bank’s equity consists of shareholder capital of £50mn and additional tier 1 and tier 2
instruments of £20mn. The Bank has adequate surplus capital available against regulatory minimum
capital requirement.

Trend Analysis

The last four years trend analysis based on the data given in the current and previous financial
statements is given below

Earning Assets
700

600

101
500 240 77 96
£ in millions

400

300 345
357 348

200 309

100
132 104 104
57
0
2018 2019 2020 2021

Cash and balances at central banks Loans and advances to banks & customers Debt securities

Deposits
600

500

90
400 182 133
197
£ in millions

44

300 44
43
41

200
335
258 282
241
100

0
2018 2019 2020 2021

Current Savings Term

5
 Net Interest Income
14,000
12,516

12,000
10,772
9,782
10,000
8,972
£ in thousands

8,000

6,000

4,000

2,000

-
2018 2019 2020 2021

* 'Foreign exchange income / (loss) - net' in Income statement includes impact of foreign exchange translation mismatch due
to non-revaluation of other equity instruments as per the accounting rules.

Administrative Expenses
30,000

25,000

20,000
£ in thousands

11,771 9,370
8,454 7,300
15,000

10,000

12,843 13,367 12,184

5,000 11,123

-
2018 2019 2020 2021

Personnel costs Other administrative costs

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Principal Risks and Risk Management
Managing risk is an integral part of the banking business. The Bank is primarily exposed to credit risk,
market risk (including interest, and FX), liquidity risks, operational risk i.e. the risk of loss resulting
from inadequate or failed internal processes, people and systems or from external events (including
risk of non-compliance with regulatory requirements), financial risks from climate change and
reputational risk. All these risks are managed through adherence to documented policies and
procedures together with board level oversight of the bank’s operations.

The Bank has always adopted a strategy to maintain adequate liquidity, both in terms of amount and
quality, to ensure that it continues to meet its obligations as they fall due. The Bank regularly reviews
its asset / liability maturity mismatches and maintains liquidity gaps within prescribed limits as per
the risk appetite statement. Similarly, capital adequacy is also at the core of the strategy to ensure
adequate capital is maintained and yet sufficient to support future growth.

Risk Management
The PRA have concluded that based on the scale and nature of the bank’s UK business, the Bank has
little capacity individually to cause a disruption to the UK financial system. The bank continues to
pursue robust risk management policies. Risk Management at the bank involves identification,
analysis, evaluation, acceptance and mitigation of all financial and non-financial risks that could have
a negative impact on the institution’s performance and reputation. The Board of Directors has overall
responsibility for the establishment and oversight of risk management and continues to maintain an
appropriate risk appetite. The Bank has established Risk Management systems and controls to ensure
that all its principal risks are identified, and that policies and monitoring processes are in place to
mitigate them.

Those risks identified are managed at a level proportionate to current business activities and
operations. The Bank conducts stress tests to test the resilience of its business model in case
liquidity, capital and credit risks materialise. Disaster Recovery Plan (DRP) / Business Continuity Plan
(BCP) testing are also carried out periodically. The results of these tests are used to update business
strategy as well as to incorporate additional mitigating controls including guidance in setting limits
and Early Warning Indicator (EWI) thresholds. Adequacy of stress tests is regularly reviewed, and
new tests are performed as emerging situations are identified. Credit risk is one of the key core risks
that the Bank is exposed to, and considering the underlying market conditions are dynamic, the
controls in this area are being regularly assessed and reviewed. The Board has approved a
comprehensive Operations Risk Management Framework with a view to improve and better
manage the operational risks.

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To ensure that the Bank’s risk profiles are aligned to available financial and non-financial resources,
the Board of Directors has established:
• Defined, clear and coherent Risk Management systems and controls covering various types
of risks to the bank to ensure that all of its principal risks are identified, and that internal
monitoring processes, procedures and controls are in place to mitigate them;

• Bank’s risk appetite statement which sets defined risk limits and tolerance levels for each
underlying risk in relation to Regulatory Limits, Credit and Market risk and in accordance with
the underlying financial resources;

• Adequate systems and controls / risk reporting system to manage and monitor the core risk
related to capital, liquidity and credit;

• Suitable forums for discussing, monitoring and managing these risks;

• A Senior Managers Regime Framework which sets out the constitution, roles and
responsibilities of the Board of Directors, Non-Executive Directors, all the Committees, Chief
Executive Officer and senior management; and

• Forums and processes for reviewing risk management systems and monitoring thresholds.

The Board has established a number of Committees, each with defined terms of reference, scope of
work, roles and responsibilities to prepare the groundwork for decision making and to assist the
Board in monitoring the implementation of the policies, processes and procedures.

All significant matters discussed and decided at each meeting of the Board Committees are reported
to the Board by the Chairman of the respective Committees, namely:
• Board Audit Committee;
• Risk Management Committee;
• Human Resources & Remunerations Committee;
• Compliance & Transformation Committee; and
• Board Nominations Committee.

The Risk Management disclosures as required under the Pillar III guidance are available on the bank’s
website: www.hblbankuk.com. These disclosures under Pillar III include a detailed risk management
analysis, capital management and details of overdue and impairment exposures.

Climate Change
The Bank is committed to providing financing to customers that meet the minimum applicable
requirements in consideration of UK law on climate-related issues and managing climate risks and
adverse impacts arising from the activities of its customers. The Bank is also committed to continually
enhancing its approach to managing the financial risks from climate change in line with regulatory
requirements from the PRA and FCA, on a proportionate basis to the size, scale and complexity of its
business model.

The Bank recognises the need for the wider global economy to reduce the use of fossil fuels and to
transition to a low carbon, climate resilient economy. Therefore, the importance of reviewing our
customers’ climate impact and sensitivity to climate change is acknowledged to understand the
physical and transition risks related to their business models.

In enhancing the risk management framework to integrate climate-related financial risks, the Bank
has recognised that climate change presents risks which cut across multiple traditional risk types.
Climate risk can drive credit risk by causing losses that leave the Bank’s clients unable to meet their

8
obligations to repay and service debt. As the Bank does not engage in any proprietary trading,
therefore climate-related market risk is limited to the debt exposures of sovereign and financial
institution counterparties. Thus, the financial impact is similar to that of credit risk whereby the
effects of climate change can reduce the value of collateral that the Bank can use to secure funding
and access liquidity.

The Bank is specifically managing the financial risks from climate change in four broad areas:
• Governance – clear board-level engagement and responsibility for managing financial risks
from climate change and oversee these risks within the firm’s overall business strategy and
risk appetite.

• Risk Management – addressing risks through the firms existing risk management
frameworks, in line with board approved risk appetite, whilst recognising nature of financial
risk require a strategic approach.

• Scenario Analysis – conducted to inform firms strategic planning and determine impact on
overall business strategy and ICAAP.

• Disclosure – Consider relevance of disclosing information and how these risks are integrated
into the governance and risk management processes.

These board areas have been integrated into the Bank’s existing policies and processes and will
continue to be enhanced as the journey for regulation and global commitment to climate change
evolves.

Internal Controls
An internal control system comprises the whole network of systems established in an organisation
to provide reasonable assurance that organisational objectives will be achieved. The Management
assumes the responsibility for establishing and maintaining adequate internal controls and
procedures, while the Board of Directors is ultimately responsible for the internal control systems.
For this purpose, the bank has Management level committees which are chaired by the Chief
Executive Officer.

The Bank has developed procedure manuals that are followed when conducting the various banking
transactions and other functions. These manuals are reviewed regularly and updated as and when
required.

The bank’s system of internal control includes appropriate levels of authorisation, segregation of
duties and limits for each aspect of business. There are established procedures and management
information for internal monitoring and regular reporting of financial information. Financial
performance reports are presented to the Board in each of its meetings detailing results and other
performance data.

The Internal Audit function of the Bank reviews the adequacy and operating effectiveness of internal
controls on a regular basis. Deficiencies that are identified are reported and remediation actions
followed up until the deficiencies are addressed. The status of the unresolved significant issues is
reviewed by the Board Audit Committee (BAC) at each of its meetings. An audit program is agreed
annually with the BAC and the Head of Internal Audit presents a summary of audit reports completed
during the period, with a summary of the key points.

9
Financial Crime Prevention
Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF)
The bank endeavors to maintain the highest standards of regulatory compliance and industry best
practice. As part of its risk-based approach to prevent financial crime, the bank has documented
policies and procedures in place to combat money laundering and terrorist financing, monitored
by the Money Laundering Reporting Officer (MLRO) and the bank’s Compliance Department. All
employees, at regular intervals, and new employees at the time of joining the bank receive Anti-
Money Laundering training to ensure that they remain vigilant and aware of their legal obligations
in identifying and preventing the risk of money laundering and terrorist financing in their daily
activities, including the consequences for them and for the bank if they fall short of that
expectation.

The Bank maintains appropriate due diligence procedures including real time payment
screening, to further enhance our financial crime control framework.

The Bank has an automated transaction monitoring system that monitors customer transactions to
identify any potential suspicious transactions that are not in accordance with the customer’s ‘Know
Your Customer’ profile. Alerts are reviewed and investigation is undertaken to confirm the legitimacy
of the transaction or raise a Suspicious Activity Report.

The Bank maintains robust systems and controls through its Payment Screening Unit (PSU) and the
Correspondent Bank Query Unit (CBQU) which is an additional defense in its effort to mitigate the
risk of financial crime.

The Bank continues to:

• Further enhancing the robustness of the financial crime and compliance framework in line
with regulatory expectations
• Improving the control environment to be at par with best market practice;
• Achieving robust control to ensure compliance with regulatory requirements; and
• Streamlined and consistent journey for our customers.

Anti-Bribery and Corruption Policy

Maintaining a solid reputation in the market as well as with our shareholders and customer is of
paramount importance to the bank. The Board, senior management and every employee plays a
role in maintaining and promoting the bank’s reputation for honesty, integrity and fair play in
dealing with fellow employees, customers, regulators, suppliers and the general public. The bank
expects all employees to conduct themselves in accordance with the highest standards of
personal and professional integrity and to comply with all laws, regulations, corporate policies
and procedures.

The Bank has a robust Anti-Bribery Policy in place, that has been embedded in the organisation.
The bank has zero-tolerance towards any policy breaches.

Conduct Risk
The Bank recognises that the conduct of firm, its staff and the culture that is embedded within the
organisation is of critical importance, including the tone from senior management and the board.
The Bank endeavors to have a fair outcome for the customer in all their dealings with the bank. The
Bank is also mindful of ensuring that its actions do not disrupt the orderly workings of the market in
which they operate, and that there is always a transparency to their operations.

Whistleblowing
Policies and procedures are in place to guide all employees in understanding how they can raise
concerns without fear of repercussion. Details of the anonymous hotline is made available

10
throughout the bank, including at all branches, where posters are in prominent positions and
encourage employees to share their concerns. The Non-Executive member of the Board has oversight
and accountability to ensure that all whistle-blowing reports made are dealt in a confidential manner.

Complaints
The Bank has a complaint handling procedure and encourages customers to report instances where
its services are not as expected. Details of the complaints made are tracked and monitored by the
management committee and further escalated to the Board.

Data Protection
The Banks nominated Data Protection Officer (DPO) is a member of the Compliance Department and
has responsibility for monitoring the bank’s performance against the regulations of the Data
Protection Act 2018, which sits alongside the UK GDPR regulations. The DPO is also responsible for
ensuring that the Bank responds to any Data Subject Access Requests in the manner defined in the
rules and within the set timeframes.

Operational Resilience
Throughout the year due to pandemic, the Bank continued its services without fail to the customers
by allowing employees working remotely. However, there was significant focus on the potential
operational risks arising from the change in working practices. The regulators also released new
Operational Resilience recommendations through a policy update. The Management also focused
heavily to develop a new operational resilience framework to ensure that planning, controls, and
operational activities remained robust and appropriate.

Cyber risk
As the bank makes progress in digitising its operations through launching of new Digital Banking
Application, the threat level of Cyber Risk is also increased for the Bank within its operational risk
management processes. It is the risk that the Bank is subject to some form of disruption arising from
an interruption to its IT and data infrastructure. The Bank regularly tests the infrastructure and
systems to ensure that it remains robust to a range of threats and has continuity of business plans in
place including a business continuity and disaster recovery plan.

London Interbank Offered rate (LIBOR)

In 2017, the Financial Conduct Authority (FCA) announced that it had reached an agreement with
LIBOR panel banks to contribute to LIBOR until the end of 2021, after which there would be a transition
from LIBORs to risk-free rates (RFRs). The regulators directed that certain non-US dollar LIBOR tenors
would cease at the end of 2021 while certain US dollar LIBOR tenors are to cease by the end of June
2023, and restrictions have been imposed on new use of US dollar LIBOR.

The Bank’s main lending product primarily uses the Bank of England (BOE) rate as benchmark which
is not affected by the LIBOR transition. A small number of customers were however historically linked
with GBP LIBOR which have now been successfully transferred to BOE benchmark. For any new US
dollars based lending products the Bank intends to use the Secured Overnight Financing Rate (SOFR)
benchmark instead of US dollars LIBOR.

Russian and Ukraine Exposure

The Bank has performed a detail analysis of its exposure to Russia and Ukraine. As both countries are
not primary markets, the Bank does not have any material exposure to them. Further the Bank is
continuously monitoring other emerging risks such as higher inflation and oil prices so that proactive
action can be taken when required.

Section 172 statement by the Directors

The Board considers the matters set out in Section 172 of the Companies Act 2006 in all its discussions

11
and decision making. That includes:
• the likely consequences of any decision in the long term
The Board after detail deliberate discussions have recently approved a refreshed five-year
strategy for the Bank. This long term plan includes detail road map of the type of businesses to
consider, introduction of new products for customers, efficiencies required, and the resources
to achieve it. The Board deliberation considered the impact of this strategy on its customers,
regulators, employees, and other stakeholders.

• the interests of the Bank’s employees

The Board understands that the employees are key to our success and are always considered
before taking any major decision. The Human Resources (HR) committee ensures that all key
matters relating to employees are discussed at the Board level. Policies, conduct rules and
continuous training program are among the many trainings and upskilling events that are
undertaken to support them. The robust and progressive performance appraisal system has
been fully operational, and we have been holding regular town hall meetings to ensure that
employees are fully engaged. Further the health, safety and wellbeing of employees is always
one of the primary concerns in all the decisions being considered by the Board and its
Committees. During the pandemic the employees were provided all the support including
infrastructure and equipment to ensure that they can work from home without major
challenges. As the lockdown have eased, we have changed to a hybrid model where employees
are now required to be in the office for some days of the week.

• the need to foster the Bank’s business relationships with suppliers, customers, and others
The customers remain at the heart of every major decision being taken and reviewed by the
Board. Board understands the impact of the customers on the long-term success of the Bank
and therefore ensures that the customers’ interests are catered for in decisions. The Bank’s
conduct policy ensures that all the customers are treated fairly. During the pandemic last year
and in line with regulation and the government guidelines, we have offered our customers
payment deferrals facilities if required in line with industry practices. The bank continued to
operate all its services to the customers through fully operational branches, call centres, and
centralised processes. The operational effectiveness has been monitored closely with
management sharing regular information.

We have continued to be effective in our responses with the regulator. Our various board
committees regularly receive updates from different management interaction with Regulators
and ensure robust compliance is made of any actions that are required. Simultaneously, we
have ensured ongoing mandatory compliance processes and procedures training for all staff,
ensures strong and effective lines of defence throughout the bank. We will continue to engage
with regulators on key matters to keep abreast of evolving challenges and to ensure we are fully
embedding practices and mitigating risk across the Bank.

• the impact of the Bank’s operations on the community and the environment
The Bank’s operations have limited direct impact on the environment. However, the bank is
aware of the part it plays in the community and has encouraged and supported its staff to
engage in charitable events at local and international level. It is also keen to play its role in
addressing the important factor of climate change and has enacted a phased plan to achieve
it. Further the Board has approved the Social and Environmental Management System (SEMS)
Policy which ensures that credit decisions consider the impact of environment, health, safety
and social issues before providing credits.

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 • the desirability of the Bank maintaining a reputation for high standards of business conduct
The Bank expects its staff to maintain the highest standards of business practice and conduct
both internally and externally. The bank abides by and clearly communicated a refreshed set
of core values which include integrity, customer centricity, value people, progressive, and
excellence.

• the need to act fairly between members of the Bank

The Bank has only one shareholder and therefore ensures that matters are referred to it
according to the Articles of Association and other relevant laws.

Principles Decisions – Examples

Below is the example of how the Board considers the interests of its stakeholders while deliberating
the decisions:
Decision Stakeholder How Stakeholder Interests are Considered
Refreshed five-year Customers The Board reviewed that the products
strategy being offered, and investment being made
After the restructuring of revolves around ease of doing business by
last year, the Board has customers.
reviewed and approved a Employees The Board understands that being a smaller
refreshed strategy to turn organisation sometimes resources are
around the Bank. stretched. Thus, it has reviewed and agreed
to a plan of strengthening the
infrastructure and investments in
technology to simplify and automate the
tasks wherever possible.
Regulators The Board ensured that regulators are
made aware of the changes being made in
the strategy and their observations, if any,
are addressed.
Shareholder The Board reviewed and ensured that the
strategy included the balance between the
requirement of return by the shareholder
and the sustainability of the franchise in the
long term.
Premises for Operations Customers The Board through the management
Area ensured that the strategy to shift the
As part of the premises premises and infrastructure relating to
strategy the Board had to Operations is managed on seamless basis
review the effective with minimal impact on customers. The
utilisation of Bank’s plan was executed efficiently with no
premises. During this impact on the customers.
review it was decided to Employees A change, specially after a long time is
move the Operations sometimes not desirable by all. However,
personnel primarily the Board ensured that there was an
involved in back office adequate strategy to manage and address
functions to move to a the employees’ comments, anxiety, and
more central location observations. Further the management
within London ensured that the new premises included
the infrastructure and support required by
the relevant personnel.

13
Future Development
As the business environment starts to improve and the pandemic related lockdowns start becoming a
thing of the past there is cautious optimism. However, the continuing increase in the inflation and
rising interest rates may dampen some of the economic activity. The Bank will thus continue to monitor
the environment minutely and take proactive actions where necessary.

Our parent bank is one of the largest banks in Pakistan with a network in multiple countries. The Bank
till now has not been able to successfully leverage this strength of the parent bank to support the
customers. However we now have a working strategy where both the commercial banking and wealth
teams will work more closely with the parent bank network to provide support to the customers
through provisions of new and innovative products. This will not only enhance and provide more
opportunities for our customer base but will also increase the revenues of the Bank. Focus will be to
expand the commercial banking and wealth management by providing unique and new products such
as corporate advisory, export insurance to support the customer base both in and outside UK. The
wealth business has already grown and its revenues even in current year have increased by around
19%.

Further the Financial Institutions business has started building partnerships with various multilateral
development companies to provide new capital relief products. Thus, freeing up our capital to conduct
more commercial banking business within and outside UK. It also continues to support the deployment
of liquidity through its various products such as discounting and syndicated financing.

The cost base is continuously being reviewed for efficiencies. In the coming year 2022 we intend to
take further steps to rationalize the cost base which includes closure of the branch in Zurich,
Switzerland, and other key measures. The exit from Zurich is part of the refreshed strategy to transform
the Bank into a sustainable franchise. These measures along with the year 2020 restructuring benefits
will ensure that the efficiencies are channeled in the right manner and impact the bottom line
positively. For our employees we have also adapted a flexible working policy in line with government
guidelines where employees will be working from both the office and home.

We are excited about the opportunities that our newfound relationship with the parent bank network
will open and believe this will propel the business forward creating a sustainable, profitable customer
centric bank.

The Board of Directors also considered, at length, the impact of pandemic and other areas on the
bank’s capital, liquidity and operational resilience as part of the going concern assessment. The
Directors are satisfied that the going concern basis remains appropriate in preparing these financial
statements of the bank. Further disclosures on the going concern basis can be found in note 2 (b) to
the financial statements.

Approved by the board of directors and signed on its behalf by

David J. Blatchford
Director
HBL Bank UK Limited
9 Portman Street
London W1H 6DZ
Dated: 06 April 2022

14
DIRECTORS’ REPORT

The Directors of HBL Bank UK Limited ("the Bank") have pleasure in presenting their annual report and
financial statements for the year ended 31 December 2021.

The Bank is a wholly owned subsidiary of Habib Allied Holding Ltd (HAHL).

Principal Activities
The principal activities of the Bank are set out in the business model section of the Bank’s Strategic
report on page 2.

Management
The management team of the Bank consists of seasoned professionals with diverse but
complementary skills in various backgrounds as well as depth of experience in their respective areas
of operations. Over the years they have brought their knowledge, experience and leadership to bear
on the development and delivery of solutions to meet the needs of the Bank’s customers and, in the
process, contributing to sustaining the performance of the Bank.

Financial Performance – Results

The financial statements for the year ended 31 December 2021 are set out in detail on pages 34 to 57
The loss on ordinary activities before tax for the financial year amounted to £3.79mn (2020: £14mn).

The Directors do not propose the payment of a dividend for the year (2020: Nil).

Financial review and future developments

The Bank's detailed financial review and future developments are set out in the Strategic Report on
pages 2 to 14.

Existence of Branches outside UK

The Bank has only one branch outside of the UK in Zurich, Switzerland. The Board, however,
has decided to exit from Zurich, Switzerland. Management has initiated necessary steps
subsequent to the year end to implement this strategy.

Share Capital
Allotted, called up and fully Paid-up Capital of the Bank at the end of the year was £50.32mn (2020:
£50.32mn) and Total Equity of £64.5mn (2020: £70.71mn).

The Bank’s financial statements have been prepared on the going concern basis as the Directors are
satisfied that there are no material uncertainties that may raise significant doubt about the Bank’s
ability to continue as a going concern.

Directors
As per Bank’s Articles of Association, unless otherwise determined by ordinary resolution, the number
of directors (disregarding alternate directors) must not be less than five and not more than ten. All
the Directors are nominee directors of the shareholder.

As at the end of the year under report, Board of Directors (the Board) includes four independent
directors. The Board represents the right balance of professional and financial skill, expertise, breadth
of knowledge, diversity, and experience within the Board relevant to the Bank’s business. During the
year under report, the Board held five meetings (2020: 7).

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The Directors who held the office up to the date of signing and during the year are as follows:

David J. Blatchford Chairman / Independent Non-Executive Director

Rayomond Kotwal Non-Executive Director
Faisal N. Lalani Non-Executive Director
Sagheer Mufti Non-Executive Director
Allan J. Hirst Independent Non-Executive Director
Juliet Wedderburn * Independent Non-Executive Director
Sian Herbert Independent Non-Executive Director
Andreas Ponce de Leon CEO / Director

* Joined on 1 January 2021

None of the Directors holds or has held shares of the Bank or its parent company HAHL.

Directors' Interests
None of the Directors who held office at the end of the financial year under review holds or has held
shares of the Bank or its parent company HAHL and had any disclosable interest in the shares of the
Bank or the Group as a whole. No contract of significance in relation to the Bank's business in which
a director of the Bank has a material interest, whether directly or indirectly, subsisted at the end of
the year or at any time during the year other than contracts entered in the normal course of business
on an arm's length basis or under a service contract.

Directors’ indemnification
An insurance policy is maintained by the Bank and HAHL which indemnifies the Directors against
certain liabilities arising in the conduct of their duties. Such indemnity has been in place during the
period and remain in force at the date of this report.

Directors’ remuneration report

The single total figure of remuneration including Pension contributions for Directors including
Executive Directors of the Bank as a whole for the year ended 31 December 2021 was £0.87mn (2020:
£1.39mn).

There are no performance targets in place for the non-executive directors and there are no benefits
(pension, bonus, long term incentive plan, exit payments etc.) in place for the non-executive directors.

Political and Charitable Contributions

During the year, the Bank has made no charitable contribution (2020: £4,000) and political
contribution (2020: £Nil).

Engagements with Suppliers, Customers and Others

Engagements with suppliers, customers and others are covered in the section 172 statement by the
directors given in the Strategic Report.

Corporate Governance
The Bank is authorised by Prudential Regulation Authority (PRA) and regulated by Financial Conduct
Authority (FCA) and PRA.

The Bank is a wholly owned subsidiary of Habib Allied Holding Limited (HAHL), which is a non-banking
company registered in England & Wales. The Bank has its independent Board of Directors and all the
directors are nominee directors of the shareholder. Board has delegated various authorities and

16
responsibilities to the CEO to manage the day-to-day business and affairs of the Bank. The Bank has
four major segments which are Commercial Banking, Wealth Management. Financial Institutions and
Treasury. These segments are supported by operating functions such as core operations, human
resources, technology, compliance and other functions.

The Board of Directors (the Board) are responsible for the overall governance and are ultimately have
responsibility for the overall leadership, controls, operations and financial soundness of the Bank.
Further they support in creating and delivering sustainable shareholder value through the prudent
management of the business. The Board, therefore, determines the strategic objectives and policies
to deliver long term value, protecting the reputation, integrity, safety, soundness, and interest. The
primary role and responsibilities of the Board include:
• Setting the Bank’s strategy taking into account stakeholder interests;
• Ensuring that the business has an effective system of internal control and management of
business risks is conducted in accordance with the FCA’s and PRA’s Principles for Business;
• Monitoring financial information of the Bank and reviewing overall financial condition and its
position as a going concern;
• Reviewing market, credit and liquidity risks and exposures with additional oversight and
control over credit risk management;
• Reviewing the application of stress tests as appropriate; and
• Supervisory management, exercising business judgement, and acting in good faith.

Board meets regularly to discharge its responsibilities and review all important aspects of the Bank’s
affairs. It provides objective advice on the activities of the Bank including monitoring performance,
considering major strategic issues, approving strategies, annual budget, business plans, risk control
framework and risk appetite to support the strategy.

The Board is firmly committed to the highest standards of corporate governance which is directed not
only towards regulatory and legal requirements but also towards adherence to sound business
practices, transparency and disclosures to shareholder. In dealing with its borrowers, depositors,
shareholder and other stakeholders, the Bank always ensures that the fundamental principles of
corporate governance – that of integrity, transparency and fairness is always maintained. This
provides an enabling environment to harmonise the goals of compliance with the regulatory/legal
framework, maximises shareholder value and support in maintaining a customer centric focus.

The corporate governance framework of the Bank is based on an effective and independent Board
which is not involved in day-to-day management. The position of the Chairman of the Board and CEO
are held by separate individuals. Board meetings are held at least four times a year and if required,
additional meetings can be held to discuss any specific item of critical importance. The Company
Secretary in consultation with the CEO and Chairman prepares a detailed agenda for the Board
meetings. Agenda papers and other explanatory notes are circulated to the directors in advance. The
Directors have complete access to all information and are free to recommend inclusion of any matter
in the agenda for discussion. Senior management is also invited to attend the Board meetings as and
when required to provide additional input to the items or issues being reviewed or discussed by the
Board.

To enable a better and more focused attention to the affairs of the Bank, the Board has put in place
five Board Committees, including the Nominations Committee which was added this year. The
Committees, have been delegated specific responsibilities with defined terms of reference, scope of
work, roles and responsibilities to prepare the groundwork for decision making and to assist the Board
in monitoring the implementation of the policies, processes and procedures.

17
The Board Committees review various MIS and policies to ensure that activities of the Bank are always
conducted in accordance with appropriate and required standards. The membership of the Board
Committees is drawn from the Directors.

All significant matters discussed and decided at each meeting of the Board Committees are reported
to the Board by the Chairman of the respective Committee. Approved minutes of the Board
Committees are reviewed and adopted by the Board in its following meeting. The principal Board
Committees are:
• Board Audit Committee (BAC);
• Risk Management Committee (RMC);
• Human Resources and Remuneration Committee (HR&RC);
• Compliance and Transformation Committee (CTC); and
• Board Nominations Committee (BNC).

Board Audit Committee (BAC)

The Bank has an independent Audit function with the Head of Audit reporting directly to the Chairman
of the BAC who is a Non-Executive Director and an approved person by the FCA. Following are the
core areas of Board Audit Committee responsibilities:
• Oversight of external audit including review of external audit findings, key judgements, level
of misstatements;
• Oversight of internal audit including but not limited to monitor and review the effectiveness
of the internal audit activities;
• Review the internal control and risk management systems (unless expressly addressed by
separate board risk committee) and following up on actions that have been or are being taken
to remedy any significant failings or weaknesses; and
• Ensure that appropriate arrangements are in place to address whistle-blowing and fraud
related matters.

The Committee apprises the Board of Directors of any significant issues and the corrective measures
initiated. The Committee also follows up implementation of its various suggestions / decisions on a
regular basis.

Risk Management Committee (RMC)

The RMC is responsible for ensuring appropriate governance and oversight in relation to all the risks
in the Bank such as credit risk, liquidity risk, market risk, operational risk, and reputational risk. RMC’s
main responsibilities include:
• monitoring the independence and performance of risk function in accordance with FCA/PRA
guidelines;
• setting out the nature, role, responsibility and authority of the risk management function and
outline the scope of risk management and reporting requirements;
• review and assess the integrity of the risk control systems and ensure that the Bank’s risk
policies, procedures and strategies are effectively managed through reporting;
• ensure that the Bank has clear, comprehensive and well documented policies and procedures,
guidelines relating to the risk management for all major risks;
• ensure that the Bank’s risk management policies and framework are adequate to support its
overall business strategy;
• ensure that the Bank's risk appetite is well articulated and captures the strategic focus of the
Bank;
• periodically, review the Bank’s overall risk appetite to ensure that it is commensurate with the
latest business strategy of the Bank;
• update the Board on any material discussions held or decisions taken in the RMC;

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• deliberate and review the tolerance limits in respect of credit, market, liquidity, conduct,
counterparty and operational risk; detailed review of the overall portfolio, large exposures,
concentrations e.g. geographical, sectors wise risks etc.;
• determine the credit approval process, and large exposure, country risk exposures and loan
provisioning policies of the Bank;
• establish overall lending policies through credit policy manual (CPM), credit risk appetite and
guidelines;
• ensure portfolio performance is in line with the set benchmarks and determine that overall
provisions are adequate;
• review and discuss the results of the stress testing of the asset book; and
• to consider and recommend to the Board for approval of the Bank’s recovery and resolution
plan (RRP); internal capital adequacy assessment process (ICAAP) & internal liquidity adequacy
assessment process (ILAAP).

Human Resources and Remuneration Committee (HR&RC)

The HRRC key duties and responsibilities are to:
• Develop of and implement the Bank’s remuneration policies and practices in accordance with
SYSC 19D (Remuneration Code).
• Consider and approve contents of the remuneration Policies and practices and periodically
review their adequacy and effectiveness and compliance with the FCA/PRA Remuneration
Code.
• Ensure that remuneration decisions properly reflect the importance of delivering standards
set in respect of robust risk management and adheres to regulatory remuneration principles.
• Ensure independence, autonomy and effectiveness of Bank’s policies and procedures on
whistleblowing, including the procedures for protection of staff who raise concerns from
detrimental treatment.
• Approve HR policies and practices including staff professional development, establish and
ensure implementation of appraisal process, internal promotions, and recruitment policies.
• Review and approve employee benefits plans, Pension Policy of the Bank, and the extent of
employer pension contributions.
• Satisfy itself that the Bank follows all relevant employment laws and regulations.
• Review and agree the principles and aggregate amounts of increase in the annual salary of the
staff and aggregate amount of annual performance bonuses.
• Oversee any significant matters of employee relations.
• Consider and approve redundancy packages of staff members.
• Approve principles of any employee reward program.
• Periodically review and obtain approval of the Board to update its own terms of reference to
reflect emerging legislation, codes of conduct and best practice.

Compliance and Transformation Committee (CTC)

The CTC support the Board in inculcating compliance and conduct culture into the Bank. It guides the
design of Bank-wide compliance program, review measures instituted by the management to develop
business responsibility and monitoring the Bank’s compliance with legal and regulatory requirements
and internal policies and procedures including code of conduct.

Since compliance and conduct are Bank-wide considerations, relevant committees of the Board
notably CTC, Board Audit Committee, Human Resource & Remuneration Committee and Risk
Management Committee, actively coordinate with each other and achieve overall objectives of
improving compliance and conduct environment.

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Board Nominations Committee (BNC)
The BNC was established to lead the appointment process for members of the Board.

The key duties/responsibilities of the Committee are to:

• Regularly review the structure, size, and composition (including the skills, knowledge,
experience, independence, and diversity) of the Board as a whole, and make
recommendations to the Board, and the Board of the parent company, regarding any changes
considering any legislative or regulatory requirements.
• Give full consideration to succession planning for Non-Executive Directors including the length
of service of members and the need to regularly refresh Board membership, taking into
account the challenges and opportunities facing the Company, its strategic priorities and the
main trends and factors affecting the long-term success and future viability of the Company,
and what skills and expertise are therefore needed on the Board in the future;
• Be responsible for identifying and nominating for the approval of the Board, and Board of the
parent company, candidates to fill board vacancies as and when they arise.
• Before an appointment is made, evaluate the balance of skills, knowledge experience,
diversity, and length of service on the Board, and the range of critical skills of value to the
Board relevant to the challenges and opportunities facing the Company. In the light of this
evaluation prepare a description of the role and capabilities required for an appointment.
• Keep under review the leadership needs of the Bank, including the benefits of a diverse
pipeline for appointments with a view to ensuring the continued ability of the Bank to
compete effectively in the marketplace.
• Formulating plans for succession for Non-Executive Directors, and for the key role of
Chairman, considering contingency, medium and long-term planning.
• Membership of the Board Committees, including the technical skills and knowledge required,
in consultation with the chairmen of those committees.
• Recommend to the parent company an extension of terms, or the re-appointment of any Non-
Executive Director at the conclusion of their specified term of office. This will be done giving
due regard to their performance and ability to continue to contribute to the Board considering
the knowledge, skills and experience required.

The CEO, who reports to the Chairman and the Board, is empowered by the Board of Directors for all
operational issues and day-to-day management of the Bank. In carrying out his duties he is assisted
by Senior Management and the following committees:
• Asset and Liability Committee (ALCO);
• Management Committee (MC);
• Credit Risk Committee (CRC);
• Operational Risk Management Committee (ORMC); and
• Compliance and Reputational Risk Committee.

Code of Ethics
The standards of ethical conduct which the Bank expects from its employees are laid down in the
Bank’s Code of Ethics and Business Conduct to safeguard their ethical values and guide them in
discharging their duties. These are a set of principles that reinforce the Rules and Regulations
reflected in the Bank’s Policies and Procedures. The Code of Ethics and Business Conduct for
employees ensures that the employees conduct themselves with dignity and integrity and build
customer confidence.

Code of Conduct
The Bank has adopted FCA Code of Conduct - Conduct Rules for Senior Managers and the Conduct
Rules for Individual Staff members. Code of Conduct embodies honesty, integrity, quality and trust

20
and other principles and standards to which management, officers and other employees are expected
to adhere. Senior Manager Conduct rules are applicable to staff members approved by FCA/PRA under
the Senior Manager Regime i.e. Senior Managers or SMFs and must be observed by them. Individual
Conduct rules are applicable to all the staff members of the Bank irrespective of their position whether
in Senior Manager Regime, Certification Regime or otherwise and are required to be observed by
them.

Going concern
The Directors recognise their responsibility to make an assessment of the Bank’s ability to continue as
a going concern, for a period of at least twelve months from the date the financial statements are
approved. The assessment is based on the Bank having sufficient liquidity and capital and include
consideration of its funding and the ILAAP and ICAAP approved by the Board. The Directors are
satisfied that having considered the Bank’s objectives, risk management policies, capital and liquidity
management, nature of exposures, revenue and expenditure projections, the Bank has adequate
financial resources, appropriate capital and a suitable management structure in place to manage its
business risks successfully and continue in operational existence and that the going concern basis
remains appropriate in preparing these financial statements of the Bank.

The details of key assumptions considered in the going concern assessment are disclosed under
the heading of Key sources of estimation uncertainty in note 2(b) of the financial statements.

Employees
As at 31 December 2021 the Bank had 135 employees including our Zurich Branch (2020: 149).
1 Defined contributory pension scheme with 5% employer contribution of the basic salary
towards this;
2 Group life insurance cover of 4 times their annual salary in the event of death in service; and
3 Private Health Insurance.

Acknowledgement
The Board of Directors takes the opportunity to express its thanks and gratitude to all stakeholders
including the Bank’s customers for their continued support and cooperation without which the
business growth of the Bank would not have been possible. We remain committed to our strategy and
believe our customer focus and business model will continue to provide best opportunities for future
success.

The Board of Directors also records its appreciation to the Management and Staff for their continued
hard work, dedication, commitment, and teamwork.

Financial risk management objectives and policies

The disclosures required to be included in the Director's report in respect of the Bank's exposure to
financial risk and its financial risk management policies are given in note 28 of the financial statements
and set out in the strategic report page 2 to 14. The Bank's Pillar III disclosures are available on the
Bank's website at www.hblbankuk.com.

Research and Development

The Bank is not involved in any research and development activities during the year.

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Post Balance Sheet Events
There are no unadjusted or reportable events subsequent to the balance sheet date apart from as
disclosed in Note 30.

Directors’ Representation
The Directors who held office at the date of this Directors’ Report confirm that:
a) so far as each of the Directors is aware, there is no relevant audit information of which the
Bank’s auditor is unaware: and
b) each of the Directors has taken all steps that he ought to have taken as a Director in order to
make himself aware of any relevant audit information and to establish that the Bank’s auditor
is aware of that information.

The above confirmation is given and should be interpreted in accordance with the provisions of section
418(2) of the Companies Act 2006.

The Directors are not aware of any material events that have occurred since the end of the financial
year to the date of signing this report that could impact the financial health of the Bank.

Auditors
Deloitte LLP have expressed their willingness to continue in office as auditors and a resolution to
appoint the auditors will be considered at the forthcoming annual general meeting.

Approved by the Board of Directors and signed on its behalf by:

David J. Blatchford
Director
HBL Bank UK Limited
9 Portman Street
London W1H 6DZ

Dated: 06 April 2022

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Statement of Directors’ Responsibilities

The directors are responsible for preparing the Annual Report and the financial statements in
accordance with applicable law and regulations.

Company law requires the directors to prepare financial statements for each financial year. Under
that law the directors have elected to prepare the financial statements in accordance with United
Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and
applicable law), including FRS 102 “The Financial Reporting Standard applicable in the UK and Republic
of Ireland”. Under company law the directors must not approve the financial statements unless they
are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit
or loss of the company for that period.

In preparing these financial statements, the directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgements and accounting estimates that are reasonable and prudent;

• state whether applicable UK Accounting Standards have been followed, subject to any
material departures disclosed and explained in the financial statements; and

• prepare the financial statements on the going concern basis unless it is inappropriate to
presume that the Company will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and
explain the Company’s transactions and disclose with reasonable accuracy at any time the financial
position of the Company and enable them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence
for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The directors are responsible for the maintenance and integrity of the corporate and financial
information included on the Company’s website. Legislation in the United Kingdom governing the
preparation and dissemination of financial statements may differ from legislation in other
jurisdictions.

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INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF HBL Bank UK
LIMITED

Report on the audit of the financial statements

1. Opinion
In our opinion the financial statements of HBL Bank UK Limited (the ‘Bank’):

• give a true and fair view of the state of the Bank’s affairs as at 31 December 2021 and of its loss for the
year then ended;

• have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice,
including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and
Republic of Ireland”; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements which comprise:

• the Income Statement;

• the Statement of Comprehensive Income;
• the Statement of Financial Position;
• the Statement of Changes in Equity; and
• the related notes 1 to 30.

The financial reporting framework that has been applied in their preparation is applicable law and United
Kingdom Accounting Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard
applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice).

2. Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and
applicable law. Our responsibilities under those standards are further described in the auditor’s
responsibilities for the audit of the financial statements section of our report.

We are independent of the Bank in accordance with the ethical requirements that are relevant to our audit of
the financial statements in the UK, including the Financial Reporting Council’s (the ‘FRC’s’) Ethical Standard as
applied to public interest entities, and we have fulfilled our other ethical responsibilities in accordance with
these requirements. We confirm that we have not provided any non-audit services prohibited by the FRC’s
Ethical Standard to the Bank.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.

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3. Summary of our audit approach

Key audit matters The key audit matter that we identified in the current year was:

• loan loss provisioning on loans and advances to customers.

Within this report, key audit matters are identified as follows:

Newly identified
Increased level of risk
Similar level of risk
Decreased level of risk

Materiality Materiality determined for the current year amounted to £1.94m (2020: £2.12m)
which has been determined based on 3% (2020: 3%) of net assets.

Scoping Audit work to respond to risks of material misstatement was performed directly by
the audit engagement team in the UK for all branches with the exception of the
branch in Zurich where a component audit team in Switzerland was engaged.

Significant changes in There have been no significant changes in our audit approach compared to prior
our approach year.

4. Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of
accounting in the preparation of the financial statements is appropriate.

Our evaluation of the directors’ assessment of the company’s ability to continue to adopt the going concern
basis of accounting included:

• We evaluated management’s going concern assessment paper to assess whether it appropriately captures
all key business risks, such as operational, financial, liquidity and capital risks;

• We assessed the operational resilience of the Bank under current economic circumstances by evaluating
the Bank’s recovery plan and mitigating procedures in place;

• We challenged the assumptions used in the five year profitability plan of the Bank. We involved back
testing approach where the audit team compared the actual results reported in 2021 with the forecasted
performance to identify any significant variation.

• With the involvement of our prudential risk specialists, we read the most recent ICAAP and ILAAP
submissions, considered management’s capital and liquidity projections, assessed the results of
management’s stress testing on the liquidity reserve position and the surplus capital position, and
evaluated key assumptions and methods used in the liquidity and capital stress testing;

• We read correspondence with regulators to understand the capital and liquidity requirements imposed by
the Bank’s regulators, and evidence any changes to those requirements;

25
• With the involvement of our prudential risk specialists, we read the Skilled Person report, who was
appointed by the regulator under section 166 of the Financial Services and Market Act 2000 to review the
Bank’s credit risk management, regulatory reporting and governance arrangements around credit risk, to
consider whether the findings raised by the Skilled Person have any impact on our audit;

• We held bilateral discussions with the Skilled Person to understand and discuss their findings on the Bank’s
risk management practices and the risk governance process to determine whether the findings have any
impact on our audit;

• We held bilateral discussions with the regulator to understand their view of the Skilled Person report and
the Bank’ overall risk rating to consider any impact on our audit; and

• We assessed the appropriateness of the disclosures made in the financial statements in view of the
requirements of applicable financial reporting framework.

Based on the work we have performed, we have not identified any material uncertainties relating to events or
conditions that, individually or collectively, may cast significant doubt on the Bank’s ability to continue as a
going concern for a period of at least twelve months from when the financial statements are authorised for
issue.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the
relevant sections of this report.

5. Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the financial statements of the current period and include the most significant assessed risks of
material misstatement (whether or not due to fraud) that we identified. These matters included those which
had the greatest effect on the overall audit strategy, the allocation of resources in the audit; and directing the
efforts of the engagement team.

These matters were addressed in the context of our audit of the financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.

5.1. Loan Loss Provisioning on loans and advances to customers

Key audit matter As at 31 December 2021, the Bank had an outstanding balance of loans and advances
description to customers, net of provision, amounting to £178m (2020: £196m) (see note 21)
with the total impairment provision balance being £3.4m (2020: £7.9m) (see note
16). These loans are measured at amortised cost using the effective interest rate
method less allowance for impairment as required under IAS 39 ‘Financial
Instrument: Recognition and Measurement’. The provision balance for loan losses
has decreased by 57% primarily due to write-off of fully impaired loan accounts in
2021 amounting to £4.3m on their net settlement. Additionally, the Bank has
recorded a reversal of provision charge of £0.2m from net settlement of fully
impaired loan accounts during the year ended 31 December 2021.

The level of impairment against loan and advances portfolio is one of the most
significant estimates made by the Bank’s directors and management in preparing
financial statements. The accounting policy relating to impairment losses on loans

26
 and receivables is in Note 2(f), judgements in applying accounting policies and critical
accounting estimates in Note 2(d), and provision for impairment losses on loans and
advances to customers in Note 16 of the financial statements.

The significant judgements include the identification of loans where impairments

may have occurred, the calculation of provisions to be recognised on the watch-
listed and defaulted borrowers and the calculation of the collective impairment
across the portfolio. Due to the prevailing uncertainty in the macro-economic
environment as a result of the COVID-19 pandemic, the complexity in estimating
loan loss provisioning has increased, including the valuation of collateral. There is a
potential risk of fraud due to significant judgements applied.

Accordingly, we have identified that the risk of material misstatement is most

significant in the individual impairment assessment of the watch-listed borrowers.
This category includes borrowers that indicate a potential increase in credit risk and
are closely monitored by management for any potential impairment risk.

How the scope of our As part of our response to the identified key audit matter, we performed the
audit responded to the following procedures on the watch listed loan population:
key audit matter
• Obtained understanding of the relevant controls related to the Bank’s loan
loss provisioning process. This included an assessment of the credit
sanctioning, credit monitoring, credit provisioning of Loans and advances to
customers and any changes to these processes as a result of COVID-19;

• Scrutinised the Credit Risk Committee minutes to identify problematic

borrowers and any recent decision made in respect of internal risk rating that
may impact impairment provision recognised in the Bank’s record;

• Tested the impairment assessment performed by management on watch-

listed loans. This involved assessing the impairment methodology and
reviewing key assumptions used in the assessment;

• Assessed the completeness of the provision balance by obtaining the list of

all loans held by the Bank where no specific provision was made. For a
sample of these loans, tested the key loan characteristics such as contracts,
collateral valuations and coverage, payment delinquencies, customer
financials and loan covenant compliance to assess for potential impairment
indicators under IAS 39;

• Challenged management on key inputs and judgement used in impairment

assessment by evaluating payment history, collateral valuation and
underlying supporting documents;

• With the involvement of our property valuation specialist, we assessed the

latest collateral valuation report for properties that underlie loans, where
properties had not been valued recently or do not have any offer available
to support market price;

• Inspected the correspondence (including post year end correspondence)

27
 with borrowers to identify any risk factor that may require adjustment in the
provision recognised against watch listed borrowers as on 31 December
2021; and

• Assessed the appropriateness of the disclosures made in the financial

statements in view of the requirements of applicable financial reporting
framework.

Key observations We conclude that the provisioning on loans and advances to customers, and the
related disclosures are reasonable.

6. Our application of materiality

6.1. Materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable
that the economic decisions of a reasonably knowledgeable person would be changed or influenced. We use
materiality both in planning the scope of our audit work and in evaluating the results of our work.

Based on our professional judgement, we determined materiality for the financial statements as a whole as
follows:

Materiality £1.94m (2020: £2.12m)

Basis for 3% of Net Assets (2019: 3% of Net Assets)

determining
materiality

Rationale for the Net Assets is a key metric within the financial statements on which the users, being the
benchmark owner of the Bank, lenders, and regulatory body tends to focus and is a good proxy for
applied regulatory capital. The Bank is balance sheet driven and it is their significant deposit and
loan positions that drive their income and expenses.

28
 Materiality £1.94m

Component materiality range

Net Assets £64.51m £0.91m to £1.09m

Net Assets Materiality Board Audit Committee

reporting threshold £0.10m

6.2. Performance materiality

We set performance materiality at a level lower than materiality to reduce the probability that, in aggregate,
uncorrected and undetected misstatements exceed the materiality for the financial statements as a whole.
Performance materiality was set at 70% of materiality for the 2021 audit (2020: 70%). In determining
performance materiality, we considered the Bank’s control environment, and the low level of corrected and
uncorrected misstatements identified in previous audits.

6.3. Error reporting threshold

We agreed with the Board Audit Committee that we would report to the Committee all audit differences in
excess of £0.10m (2020: £0.11m), as well as differences below that threshold that, in our view, warranted
reporting on qualitative grounds. We also report to the Board Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial statements.

7. An overview of the scope of our audit

7.1. Scoping
Our audit was scoped by obtaining an understanding of the Bank and its environment, including
internal controls, and assessing risks of material misstatements. The Bank has five branches, four in
the United Kingdom, and one overseas (Zurich). Audit work to respond to risks of material
misstatement was performed directly by the audit engagement team in the UK for all branches with
the exception of the branch in Zurich where a component audit team in Switzerland was involved. The
Zurich team were provided with detailed instructions and the UK team maintained frequent
communications with them throughout the audit. The UK team also reviewed their work with any
findings presented to the Board Audit Committee.

7.2. Our consideration of climate-related risks

In planning our audit, we have considered the potential impacts of the climate-related risks identified
by management on the Bank’s business and its financial statements.

The Bank has set out its strategic ambition on climate and the related risks and governance processes
on pages 8-9 of the annual report. Management have identified that climate-related risks could have a
material impact on the strategy and operations of the Bank, and the timing and ultimate impact of
these risks contain an inherent level of uncertainty.

29
 As part of our audit, we have made inquiries of management to understand their process for
considering the impact of climate-related risks including their qualitative loan sector analysis. In
addition, we consider whether information included in the Bank’s climate related disclosure in the
front half of the annual report is materially consistent with the financial statements or knowledge
obtained in the audit.

8. Other information
The other information comprises the information included in the annual report, other than the financial
statements and our auditor’s report thereon. The directors are responsible for the other information
contained within the annual report.

Our opinion on the financial statements does not cover the other information and, except to the extent
otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in the course of the audit, or
otherwise appears to be materially misstated.

If we identify such material inconsistencies or apparent material misstatements, we are required to determine
whether this gives rise to a material misstatement in the financial statements themselves. If, based on the
work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact.

We have nothing to report in this regard.

9. Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the
preparation of the financial statements and for being satisfied that they give a true and fair view, and for such
internal control as the directors determine is necessary to enable the preparation of financial statements that
are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Bank’s ability to continue
as a going concern, disclosing as applicable, matters related to going concern and using the going concern
basis of accounting unless the directors either intend to liquidate the Bank or to cease operations, or have no
realistic alternative but to do so.

10. Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free
from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our
opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the basis of these financial statements.

A further description of our responsibilities for the audit of the financial statements is located on the FRC’s
website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
30
11. Extent to which the audit was considered capable of detecting irregularities,
including fraud
Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design
procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of
irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities,
including fraud is detailed below.

11.1. Identifying and assessing potential risks related to irregularities

In identifying and assessing risks of material misstatement in respect of irregularities, including fraud and non-
compliance with laws and regulations, we considered the following:

• the nature of the industry and sector, control environment and business performance including the
design of the Bank’s remuneration policies, key drivers for directors’ remuneration, bonus levels and
performance targets;
• results of our enquiries of management and the Board Audit Committee about their own
identification and assessment of the risks of irregularities;
• any matters we identified having obtained and reviewed the Bank’s documentation of their policies
and procedures relating to:
o identifying, evaluating and complying with laws and regulations and whether they were aware of
any instances of non-compliance;
o detecting and responding to the risks of fraud and whether they have knowledge of any actual,
suspected or alleged fraud;
o the internal controls established to mitigate risks of fraud or non-compliance with laws and
regulations;
• the matters discussed among the audit engagement team, including component audit team, and
relevant internal specialists, such as Tax specialists, regulatory specialists, IT risk specialists and Real
Estate specialists, regarding how and where fraud might occur in the financial statements and any
potential indicators of fraud.

As a result of these procedures, we considered the opportunities and incentives that may exist within the
organisation for fraud and identified the greatest potential for fraud in the area of loan loss provisioning on
loans and advances to customers. In common with all audits under ISAs (UK), we are also required to perform
specific procedures to respond to the risk of management override.

We also obtained an understanding of the legal and regulatory frameworks that the Bank operates in, focusing
on provisions of those laws and regulations that had a direct effect on the determination of material amounts
and disclosures in the financial statements. The key laws and regulations we considered in this context
included the UK Companies Act, tax legislation and the Capital Requirements (Country-by Country Reporting)
Regulations 2013.

In addition, we considered provisions of other laws and regulations that do not have a direct effect on the
financial statements but compliance with which may be fundamental to the Bank’s ability to operate or to
avoid a material penalty. These included the Bank’s compliance with the Prudential Regulation Authority (PRA)
Rulebook and the Financial Conduct Authority (FCA) Handbook.

11.2. Audit response to risks identified

As a result of performing the above, we identified loan loss provisioning on loans and advances to customers
as a key audit matter related to the potential risk of fraud. The key audit matters section of our report explains

31
the matter in more detail and also describes the specific procedures we performed in response to that key
audit matter.

In addition to the above, our procedures to respond to risks identified included the following:

• reviewing the financial statement disclosures and testing to supporting documentation to assess
compliance with provisions of relevant laws and regulations described as having a direct effect on the
financial statements;
• enquiring of management, the Board Audit Committee and legal counsel concerning actual and
potential litigation and claims;
• performing analytical procedures to identify any unusual or unexpected relationships that may
indicate risks of material misstatement due to fraud;
• reading minutes of meetings of those charged with governance, reviewing internal audit reports and
reviewing correspondence with FCA and PRA; and
• in addressing the risk of fraud through management override of controls, testing the appropriateness
of journal entries and other adjustments; assessing whether the judgements made in making
accounting estimates are indicative of a potential bias; and evaluating the business rationale of any
significant transactions that are unusual or outside the normal course of business.

We also communicated relevant identified laws and regulations and potential fraud risks to all engagement
team members including our internal specialists and component audit team, and remained alert to any
indications of fraud or non-compliance with laws and regulations throughout the audit.

Report on other legal and regulatory requirements

12. Opinions on other matters prescribed by the Companies Act 2006

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors’ report for the financial year for which the
financial statements are prepared is consistent with the financial statements; and
• the strategic report and the directors’ report have been prepared in accordance with applicable legal
requirements.

In the light of the knowledge and understanding of the Bank and its environment obtained in the course of the
audit, we have not identified any material misstatements in the strategic report or the directors’ report.

13. Opinion on other matter prescribed by the Capital Requirements (Country-by-

Country Reporting) Regulations 2013

In our opinion the information given in note 29 to the financial statements for the financial year ended 31
December 2021 has been properly prepared, in all material respects, in accordance with the Capital
Requirements (Country-by Country Reporting) Regulations 2013.

32
14. Matters on which we are required to report by exception
14.1. Adequacy of explanations received and accounting records
Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not received all the information and explanations we require for our audit; or
• adequate accounting records have not been kept, or returns adequate for our audit have not been
received from branches not visited by us; or
• the financial statements are not in agreement with the accounting records and returns.

We have nothing to report in respect of these matters.

14.2. Directors’ remuneration

Under the Companies Act 2006 we are also required to report if in our opinion certain disclosures of directors’
remuneration have not been made.

We have nothing to report in respect of this matter.

15. Other matters which we are required to address

15.1. Auditor tenure
Following the recommendation of the Board Audit Committee, we were appointed by Board of Directors of
the Bank on 21 July 2016 to audit the financial statements for the year ending 31 December 2016 and
subsequent financial periods. The period of total uninterrupted engagement including previous renewals and
reappointments of the firm is 6 years, covering the years ending 31 December 2016 to 31 December 2021.

15.2. Consistency of the audit report with the additional report to the Board Audit Committee
Our audit opinion is consistent with the additional report to the Board Audit Committee we are required to
provide in accordance with ISAs (UK).

16. Use of our report

This report is made solely to the Bank’s members, as a body, in accordance with Chapter 3 of Part 16 of the
Companies Act 2006. Our audit work has been undertaken so that we might state to the Bank’s members
those matters we are required to state to them in an auditor’s report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Bank
and the Bank’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Atif Yusuf FCA (Senior statutory auditor)

For and on behalf of Deloitte LLP
Statutory Auditor
London, United Kingdom
06 April 2022

33
 Financial Statements 2021

Income Statement
For the year ended 31 December 2021
Note 2021 2020
£'000 £'000

Interest receivable

  Interest receivable and similar income arising from debt securities 1,015    1,481

  Other interest receivable and similar income 3 8,569    10,082
9,584    11,563

Interest payable 4 (612)    (1,781)

NET INTEREST RECEIVABLE 8,972    9,782

Fees and commissions receivable 5 5,392    4,478

Foreign exchange dealing profit / (loss) - net 687    (1,207)

Other operating income 725   631

NET OPERATING INCOME 15,776    13,684

Administrative expenses 6 (19,484)   (22,737)

Restructuring cost -    (2,530)
Depreciation and amortisation 7 (389)    (438)

TOTAL OPERATING EXPENSES BEFORE PROVISIONS (19,873)   (25,705)

OPERATING LOSS BEFORE PROVISIONS AND TAX (4,097)   (12,021)

Provisions for loan losses reversal / (charge)- (net) 16 188    (985)

Reversal of provision / (charge) for diminution in the value of  investments 10 124    (1,080)

LOSS BEFORE TAX (3,785) (14,086)

Tax (expense) / credit on loss on ordinary activities 8 (1,906)    1,891

LOSS AFTER TAX (5,691)   (12,195)

There are no recognised gains and losses other than the loss for the year except as reported above and in Statement of Comprehensive Income.

The notes on pages 38 to 57 form part of these financial statements.

The registered number of company is 01719649.

Classification: General Business 34
  Financial Statements 2021

Statement of Comprehensive Income

For the year ended 31 December 2021
Note 2021 2020
£'000 £'000

Loss for the year (5,691)   (12,195)

Other comprehensive (loss) / income

Items to be reclassified to Income Statement in subsequent periods:

(Loss) / Gain on revaluation of investments 10 (262)   215

Current tax related to available for sale debt securities -   142

Deferred tax related to available for sale debt securities 8b 56   (12)

Effect of movements in exchange rates on retained earnings / other movement (10)    (185)

(216)   160

Total Comprehensive Loss for the Year (5,907)   (12,035)

Classification: General Business 35
  Financial Statements 2021

Statement of Financial Position

As at 31 December 2021

Note 2021 2020

£'000 £'000

ASSETS
Cash and balances at central banks 22 103,943    103,675
Loans and advances to banks 22 169,942    161,163
Loans and advances to customers 22 178,267    196,192
Debt securities 10 95,586    76,602
Fixed assets 11 1,618    2,006
Other assets 13 2,067    4,735
Accrued income 416   860
Deferred taxation 12 2,303    4,153

TOTAL ASSETS 554,142    549,386

LIABILITIES
Deposits by banks 7,806    5,445
Customer accounts 14 469,399    459,261
Other liabilities 15 12,423    13,974

TOTAL LIABILITIES 489,628    478,680

EQUITY
Shareholders' funds
Share capital 17 50,315    50,315
Profit and loss account (6,191)   131
Revaluation reserve (97)   109
44,027    50,555
Other equity instruments 18 20,487    20,151

TOTAL EQUITY 64,514    70,706

TOTAL LIABILITIES & EQUITY 554,142    549,386

The notes on pages 38 to 57 form part of these financial statements.
The registered number of company is 01719649.

These financial statements were approved by the Board of Directors and authorised for issue on 06 April 2022 and were signed on its behalf by:

David J. Blatchford
Director

Classification: General Business 36
 Financial Statements 2021

Statement of Changes in Equity

For the year ended 31 December 2021

Other
Share Share Profit and Revaluation
Equity Total
capital premium loss account reserve
instruments
£'000 £'000 £'000 £'000 £'000 £'000

At 1 January 2020    50,315    15,602    19,118    (1,936)  (236) 82,863

 

Total comprehensive loss for the year

Loss for the year    -    -    -    (12,195)   - (12,195)

Other comprehensive income    -    -    -  (185)   345 160

   -    -    -    (12,380)    345    (12,035)

Contributions by and distributions to owners

Transfer of share premium to distributable reserve -   (15,602)  -  15,602    - -

-
Issuance of Additional Tier 1 Capital    -    -    7,595    -    - 7,595
-
Repayment of Tier II Capital    -    -    (6,562)    -    - (6,562)
-
Interest on Equity instruments classified as equity    -    -    -    (1,155)   - (1,155)
-   (15,602)    1,033    14,447  - (122)
 

At 31 December 2020 50,315 - 20,151 131 109 70,706

Total comprehensive loss for the year

Loss for the year    -    -    -    (5,691)   - (5,691)

Other comprehensive loss    -    -    -  (10)  (206) (216)

- - - (5,701) (206) (5,907)

Contributions by and distributions to owners

Transfer of share premium to distributable reserve    -    -    -    -    - -

Issuance of Additional Tier 1 Capital    -    -    2,190    -    - 2,190

-
Repayment of Tier II Capital    -    -    (1,854)    -    - (1,854)

Interest on Equity instruments classified as equity    -    -    -  (621)   - (621)

- - 336 (621) - (285)

At 31 December 2021 50,315 - 20,487 (6,191) (97) 64,514

Classification: General Business 37
  Financial Statements 2021

Notes to the Financial Statements

For the year ended 31 December 2021

1 THE BANK AND ITS OPERATIONS

HBL  Bank  UK  Limited  ("  the  Bank")  is  a  private  company  limited  by  shares.  The  bank  is  incorporated  in  England  and  Wales  and  is  engaged  in 
commercial  banking services and  is a  wholly  owned subsidiary  of Habib  Allied Holding  Limited (HAHL) which is a non-banking private company 
and  limited  by  ordinary  shares.  The  registered  office  of  the  Bank  and  HAHL  is  at  9  Portman  Street,  London,  W1H  6DZ.  The  Bank  operates  5 
branches (2020: 5) including 1 branch (2020: 1) outside UK.

2 Accounting policies

A summary of the accounting policies is set out below. Except where indicated, they have been applied consistently throughout the current and 
preceding year.

(a) Statement of Compliance

The  financial  statements  have  been  prepared  under  the  historical  cost  convention,  modified  to  include  certain  items  at  fair  value,  and  in 
accordance with Financial Reporting Standard 102 (FRS 102) issued by the Financial Reporting Council.  The financial statements are presented in 
Pounds Sterling which is the functional currency of the Bank.

The  financial  statements  of  the  Bank  for  the  year  ended  31  December  2021  have  been  prepared  in  accordance  with  the  Financial  Reporting 
Standard applicable in the  United Kingdom and Republic of Ireland (FRS 102) issued by the Financial Reporting Council. 

The  financial  statements  contain  information  about  HBL  Bank  UK  Limited  as  an  individual  company  and  do  not  contain  consolidated  financial 
information as the parent of a group. The Company is exempt under FRS 102, Section 9 - Consolidated and Separate Financial Statements from 
the  requirement  to  prepare  consolidated  financial  statements  as  the  Company  and  its  subsidiary  are  included  by  full  consolidation  in  the  FRS 
102 consolidated financial statements of its parent, Habib Allied Holding Limited.

(b) Going concern

In carrying out their duties in respect of going concern, the directors have carried out a review of the Bank’s financial position for a period of 12 
months from the date of signing these financial statements.

The  directors  have  reviewed  the  detailed  forecasts  for  the  period  of 12 months  from  the  signing  of  the  financial  statements.  The  forecasted 
position have been further stress-tested by a range of pessimistic scenarios for both Capital and Liquidity.

These scenarios have been derived with reference to internal risk appetite and current economic conditions.

In the base case forecast the directors have considered the below key assumptions:
• Bank’s operational continuity;
• Executing refreshed strategy relating to wealth, commercial & financial institution business;
• Potential impact of the branch closure;
• Issuance of better quality capital in 2021;
• Increase in interest rates;
• Strong creditability of the Bank’s loan book; and
• Assessment and probable control measures to limit cost.

Based on the above assumptions and conditional to no other uncertainties, the bank will go through the consolidation phase in next 12 months 
and anticipate sustainability in the Bank’s interest income and increase in non-funded income.

Sensitivity analysis:
The forecasted position is sensitive to the changes in Bank’s risk based capital and liquidity surplus. Bank projects adequate capital and liquidity 
surplus in the next 12 months from signing date of the financial statements. 

However,  the  directors  on  a  prudent  basis have  applied  further  stress to  the base  case scenario  to assess  the potential  impact on  the Bank’s 
future capital and liquidity position.

Capital assessment:
To test Bank’s capital adequacy, management has applied  four  different stress scenarios to  its loan  book in  line with  the Bank's  credit policy. 
Scenarios are based on specific assumptions and the most severe stress scenario has been applied on the Bank’s capital resources. Based on the 
severe stress parameters existing capital is sufficiently adequate to absorb additional losses under stress scenario.

Liquidity assessment:
The Bank has applied both base case and combined stress scenario on the forecasted balance sheet of the Bank.

Base case scenario : 

The normal scenario reflects that the Bank has adequate liquidity available in the next 12 months. 

Classification: General Business 38
  Financial Statements 2021
Combined stress scenario:
This stress test is the combination of Idiosyncratic and Market wide stress whereby it is assumed that the Bank will be suffering simultaneous
liquidity stress from its counterparties and depositors as well as from an overall systemic and cyclical financial markets crisis. 

The results of stress scenarios in relation to capital and liquidity assessments demonstrate that the Bank is likely to meet its obligations for a
period of at least 12 months from the date of signing of these financial statements.

(c) Disclosure exemptions

The Bank meets the definition of qualifying entity and has therefore taken advantage of the disclosure exemptions available to it.  

In accordance with disclosure exemptions available under FRS 102 as set out in paragraph 1.12 following disclosures are not included in the
Bank's financial statement where as these disclosures are included in the consolidated financial statements of HAHL in which the Bank's results
are consolidated which may be obtained from Companies House: 

(i) Cash flow statement.
(ii) A reconciliation of the number of shares outstanding at the beginning and at the end of the year. 
(iii) Key management compensation.  

(d) Critical accounting judgements and key sources of estimation uncertainty

The preparation of the Bank’s financial statements requires management to make judgements, estimates and assumptions that affect the
reported amount of revenues, expenses, assets and liabilities, and the accompanying disclosures. Uncertainty about these assumptions and
estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
The estimates and underlying assumptions are reviewed on an ongoing basis.  

Critical judgements in applying Bank's accounting policies

 The critical accounting judgements are noted below.

(i) Impairment losses on loans and advances
The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of
causing a material adjustment to the carrying amounts of assets within the next financial year includes impairment losses on loans and advances
to customers. The Bank based its assumptions and estimates on parameters available when the financial statements were prepared. Existing
circumstances and assumptions about future developments, however, may change due to market changes or circumstances beyond the control
of the Bank. Such changes are reflected in the assumptions when they occur. (Refer to impairment allowances and collectively assessed
impairment allowances in note 2f and note 16). The Bank has also performed sensitivity analysis by applying four stress scenarios on the credit
portfolio in-line with Bank's credit policy. Whilst a range of outcomes is reasonably possible, however in the worst scenario the impairment loss
on the credit portfolio was increased by £1.1mn.

(ii) Deferred Taxation
Judgement is involved in determining the period of time over which it is probable there will be sufficient future taxable profits against which the
unutilised losses can be used. The Bank perform its assessment over a period of five years. This includes making judgements on the impact of
future economic conditions.

Key sources of estimation uncertainty

(i) Deferred taxation
The Bank's accounting policy for deferred tax is set out in note 2(i) and details of  Bank’s deferred tax assets and liabilities are set out in note 12.

Estimates of the level of future profitability are made in determining the amount of deferred tax asset on unutilised losses to recognise at the
reporting date.

(e) Fixed Assets

Fixed assets are shown at cost less accumulated depreciation and impairment, if any, and reviewed for impairment if necessary. Depreciation is
provided on these assets at rates calculated to depreciate the cost, less estimated residual value of each asset on a straight line basis over its
expected useful life, as follows:

Nature of assets Rate of depreciation

Buildings: Freehold properties 5%
Leasehold improvements 10% & over lease period
Furniture, fixtures and office equipment 10 - 20%
Computer hardware  20 - 33%
Software development cost 10%

(f) Financial assets and liabilities

The Bank has adopted the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement (as adopted
for use in the EU) and the disclosure requirements of Section 11 Basic Financial Instruments and Section 12 Other Financial Instruments. The
scope of IAS 39 applies to account for all of the Bank’s financial instruments at balance sheet date.

Classification: General Business 39
  Financial Statements 2021

Financial assets

The Bank classifies its financial assets in four categories:

• Financial assets at fair value through income statement.
• Loans and receivables (measured at amortised cost).
• Held to maturity investments (measured at amortised cost).
• Available for sale financial assets (measured at fair value with fair value changes recorded in other comprehensive income).

Financial assets at fair value through Income Statement

(i) acquired principally for the purposes of selling or repurchasing in the near term, including marketable securities;
(ii) part of a portfolio of identified financial assets that are managed together and for which there is evidence of a recent actual pattern of short-
term profit-taking; and
(iii)  a derivative contract.

Financial assets included in this category are recognised initially at fair value and transaction costs are taken directly to the income statement.
Gains and losses arising from changes in fair value are included directly in the income statement. Purchases and sales of financial assets held for
trading are recognised on trade date, being the date on which the Bank commits to purchase or sell the asset.

Loans and Receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and
which are not classified as available for sale.

Loans and advances to customers are initially recognised at transaction price less attributable transaction costs. They are subsequently valued at
amortised cost, using the effective interest method less allowance for impairment.

Impairment Allowances

Loans and receivables are assessed regularly during the course of the year to determine whether there is an evidence of impairment on the
accounts which are problematic.

An impairment loss is calculated as the difference between an asset’s carrying amount and the present value of the estimated future cash flows
discounted at the original effective interest rate. Generally the Bank's portfolio is secured by charge on residential / commercial properties. As
per the Bank's policy, valuation of collaterals are used as the proxy of future cash flows. Losses are recognised in income statement and reflected
in an allowance account. When the Bank considers that there are no realistic prospects of recovery of the asset, the relevant amounts are
written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the
impairment was recognised, then the previously recognised impairment loss is reversed through income statement.

Collectively assessed impairment allowances

Individually assessed loans for which no evidence of impairment has been specifically identified on an individual basis are grouped together
according to their credit risk characteristics. A collective impairment allowance is calculated to reflect impairment losses incurred at the balance
sheet date which will only be individually identified in the future.

The collective impairment allowance is determined by taking into account: 
• historical loss experience in portfolios of similar credit risk characteristics;
• the estimated period between impairment occurring and the loss being identified and evidenced by the establishment of an appropriate
allowance against the individual loan; and
• Management’s experienced judgement as to whether current economic and credit conditions are such that the actual level of inherent losses is
likely to be greater or less than that suggested by historical experience.

Held to maturity investments

Held to maturity investments are non-derivative financial assets including debt securities with fixed or determinable payments that the
management has the positive intention and ability to hold to maturity. Held to maturity assets are initially recognised at fair value including
direct and incremental transaction costs and are subsequently measured at amortised cost, using the effective interest rate method, less any
impairment losses.

If there is objective evidence that an impairment loss on a financial asset classified as held to maturity has been incurred, the amount of
impairment loss is measured as the difference between the assets carrying amount and the present value of future estimated cash flows.
Impairment losses are recognised in the income statement and the carrying amount of the financial assets is reduced by establishing an
allowance for impairment losses. If, in a subsequent period, the amount of the impairment loss reduces and the reduction can be related
objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed by adjusting the
allowance account. The amount of the reversal is recognised in the income statement.

Classification: General Business 40
  Financial Statements 2021
Available for sale financial assets

Available for sale financial assets are non-derivative financial assets that are designated as available for sale and are not recognised into any of
the other categories described above. They are initially recognised at fair value including direct and incremental transaction costs. They are
subsequently held at fair value. Gains and losses arising from changes in fair value are included in a fair value reserve until sold when the
cumulative gain or loss is transferred to the income statement. When a decline in the fair value of an available for sale financial asset has been
recognised in Statement of Comprehensive Income and there is objective evidence of impairment, the cumulative loss, being the difference
between the asset’s acquisition cost (net of amortisation) and its current fair value is removed from equity and recognised in the Income
Statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases, and the increase can be
related objectively to the cessation of impaired event, the previously recognised impairment loss is reversed. The amount of the reversal is
recognised in the Income Statement.

Purchases and sales of financial assets available for sale are recognised on trade date, being the date on which the Bank commits to purchase or
sell the asset. 

Financial liabilities

Financial liabilities are initially measured at the transaction price (including transaction cost), except for financial liabilities held for trading,
which are measured at fair value through income statement. All financial liabilities (including other payables) are subsequently measured at
amortised cost using the effective interest rate method.

Derivative financial instruments

The Bank makes use of derivative financial instruments, i.e. forward foreign exchange contracts and cross currency swaps, to manage exposures
to foreign currency risks and balance sheet gap management. The derivative financial instruments are initially recognised at fair value on the
date on which a derivative contract is entered into and are subsequently remeasured at fair value at market prices. Derivatives are carried as
financial assets when the fair value is positive and as financial liabilities when the fair value is negative.

Any gains and losses arising from changes in fair value on the derivatives during the year are taken directly to the income statement. 

Derecognition of financial assets and financial liabilities

A financial asset is derecognised where: 
• the rights to receive cash flows from the asset have expired;
• the Bank has transferred its right to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without
material delay to a third party; and
(a) the Bank has transferred substantially all the risks and rewards of the asset, or
(b) the Bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred
control of the asset.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

(g) Investment in Subsidiary

Investment in subsidiaries are stated at cost less impairment. Impairment loss is recognised if the carrying amount exceeds its recoverable
amount.  Recoverable amount is higher of fair value less cost to sell and its value in use.

(h) Taxation

Current tax, including UK corporation tax and foreign tax, is provided at amounts expected to be paid (or recovered) using the tax rates and laws
that have been substantially enacted by the balance sheet date.

(i) Deferred Taxation

Deferred taxation is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date where
transactions or events that result in an obligation to pay more, or a right to pay less, tax in the future have occurred at the balance sheet date.
Deferred tax is measured at the tax rates that are expected to apply in the periods in which timing differences reverse, based on tax rates and
laws enacted or substantively enacted at the balance sheet date. Deferred tax assets are recognised only to the extent that the Directors
consider it more likely than not that there will be suitable taxable profits from which the future reversal of the underlying timing difference can
be deducted.

(j) Pension Costs

The Bank operates a defined pension contribution arrangement and cost is recognised as and when contributions are made. Pension benefits
are provided through a defined contribution scheme to which the Bank contributes an amount as per the fixed percentage on each member’s
earnings. Differences between contributions payable in the year and contributions actually paid are shown as accruals in the balance sheet.

Classification: General Business 41
  Financial Statements 2021
(k) Revenue recognition

Interest income / expense

For all financial instruments measured at amortised cost and interest bearing financial assets classified as available for sale, interest income or
interest expense is recorded using the effective interest method. The effective interest rate is a method of calculating the amortised cost of
financial instruments and of allocating the interest income/expense over the relevant period using the estimated future cash flows. The
estimated future cash flows used in this calculation include those determined by the contractual terms of the instruments, all fees that are
considered to be integral to the effective interest rate, direct and incremental transaction costs and all other premiums or discounts.

Once an impairment loss has been recognised on a loan or financial debt instruments, the accrual of interest is re-assessed in accordance with
the contractual terms.

Fee, Commission and Other Income

Fee, commission income and other operating income (excluding capital gain or loss on sale of available for sale investment) is recognised in
income statement when the related services are provided. Fee and commission comprises of commission on letter of credits / guarantees,
commitment and loan processing fee, remittance income, fiduciary income and wealth management income.

Capital gain or loss is recognised on realisation of sale proceed of available for sale investment.

(l) Provision and Contingent Liabilities

Provisions are recognised if the Bank has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow
of resources will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. If these conditions
are not met, no provision is recognised. The amount recognised as a provision is measured at the best estimate of the consideration required to
settle the obligation as of the balance sheet date, the expense is recognised in the income statement, taking into account the risks and
uncertainties surrounding the obligation.

Contingent liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where
the transfer of economic benefit is uncertain or cannot be reliably measured. Contingent liabilities are not recognised but are disclosed unless
they are remote.

(m) Restructuring cost

Provisions for costs associated with restructuring programmes are recognised when a detailed formal restructuring plan has been approved and
communicated. Examples of restructuring-related costs include employee redundancies, write off of tangible assets, dilapidation provision and
provision for onerous lease contracts. Redundancy cost comprises of agreed termination cost, payment in lieu of notice and accrued leaves.

(n) Foreign Currency Translation

The financial statements are presented in Pound Sterling, which is the functional currency of the Bank. Items included in the financial statements
are measured using their functional currency, being the currency of the primary economic environment in which the Bank operates. Monetary
assets and liabilities denominated in foreign currencies at the year end are reported in the functional currency at the rates of exchange
prevailing at the year end. 

For the purpose of presenting financial statements, the assets and liabilities of the Bank's foreign branch operations are translated at exchange
rates prevailing on the reporting date. Income and expense items are translated at the average exchange rates for the period, unless exchange
rates fluctuate significantly during that period, in which case the exchange rates at the date of transaction are used. Exchange differences
arising, if any, are recognised in Statement of Changes in Equity as exchange translation reserve.

The impact of foreign exchange difference on translation of foreign operations to presentation currency in the current period is not material to
the financial statements and therefore not been disclosed separately as foreign currency reserve.

(o) Leases

The Bank enters into operating leases as referred to in note 7. Rentals under operating leases are charged on a straight line basis over the lease
term. The Bank has not entered into any finance leases during the year.

(p) Fair Value

Where the recognition of a financial instrument requires it to be stated at fair value, this is determined by reference to the quoted price in an
active market wherever possible. Where no such active market exists for the particular asset or liability, the Bank uses a valuation technique to
arrive at the fair value including the use of prices obtained in recent arms-length transactions, discounted cash flow analysis and other valuation
techniques commonly used by market participants. Where appropriate, valuations are adjusted to account for various factors including time
value, volatility factors and underlying prices. For each class of financial assets and/or liability recognised at fair value, the company utilises the
following hierarchy:
Level 1: Quoted prices (unadjusted) in active markets for identical assets and liabilities.
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
(that is, as prices) or indirectly (that is, derived from prices).
Level 3: Inputs for the asset or liability that are not based on observable market data (unobservable inputs).

Classification: General Business 42
  Financial Statements 2021

(q) Offsetting financial assets and financial liabilities

Assets and liabilities, which are considered to be financial assets and liabilities for the purposes of FRS 102, are offset and the net amount
reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to either settle
on a net basis, or realise the asset and settle the liability simultaneously.

(r) Fiduciary Activities

The Bank commonly acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals and
other institutions. Assets held in trust and fiduciary accounts do not become assets or liabilities of the Bank and are segregated from the Bank's
assets.

(s) Segmental Reporting

A segment is a distinguishable component of the Bank which is specific to either the type of product or service (business segment), or to
products and services provided within a particular economic environment (geographical segment), where the risks and rewards are different
from those of other segments.

Currently, the directors consider that the Bank's services comprise one business segment (being the provision of banking services).

2021 2020
£'000 £'000
3 OTHER INTEREST RECEIVABLE AND SIMILAR INCOME

Interest earned on loans and advances to customers 6,576    6,084

Interest earned on bills discounted 1,765    3,285
Interest earned on bank deposits and placements 228   713
8,569    10,082

4 INTEREST PAYABLE

Interest on customer deposits 516    1,502

Interest on inter-bank borrowings 96   279
612    1,781

5 FEES AND COMMISSIONS RECEIVABLE

Commission on Letter of Credits and Guarantees 1,300    1,055

Commitment and Loan processing fees   489   292
Remittance income 486   465
Fiduciary income 26   62
Wealth Management income 3,091    2,604
5,392    4,478

6 ADMINISTRATIVE EXPENSES

Staff costs:
Wages, salaries and allowances 10,656    11,613
Social security costs 1,084    1,257
Other pension costs 444   497

Other administrative expenses 7,300    9,370

19,484    22,737

The total average number of persons employed during the year was 135 (2020: 149).

The average number of persons (including part-time employees) employed by the Bank as at 31 December are as follows: 

2021 2020
Managers and above 65 67
Non-management 70 82
135 149

Classification: General Business 43
  Financial Statements 2021

Note 2021 2020

7 LOSS ON ORDINARY ACTIVITIES BEFORE TAX £'000 £'000

Loss is stated after
Charging:
Auditor's Remuneration
Audit of the Bank's financial statements 120   89
Fee for audit of branches outside UK 50   50
All other audit related assurance services 125   129
Other non-audit assurance services 50   65
Operating lease rentals
Buildings 1,062    1,228
Motor vehicle 10   10

Depreciation and amortisation 11 389   438

Provisions for loan losses (reversal) / charge - net (188)   985

Reversal of provision / (charge) for diminution in the value of  investments (124)    1,080

2021 2020
8 TAXATION £'000 £'000

(a) Analysis of tax credit for the year

Current tax:
UK corporation tax for the year   -   (16)
Foreign tax for current year 8   3
Adjustments in respect of prior periods (8)   (92)
Current tax charge /  (credit)  -    (105)

Deferred tax:
Origination and reversal of timing differences 2,463    (1,517)
Impact of change in tax rate (527)    (276)
Prior year adjustment in respect of timing differences (30)    7
Total deferred tax charge / (credit) 1,906    (1,786)
Tax charge / (credit) 1,906    (1,891)

(b) Tax recognised in the Statement of Other Comprehensive Income

Current tax:
UK corporation tax on profits for the year -   16
Total current tax -   16
Deferred tax:
Origination and reversal of temporary differences (50)   10
Effect of tax rate change (6)   2
Total deferred tax (56)   12

Total tax (credit) / charge recognised in other comprehensive income (56)   28

(c) Factors affecting tax credit for the year

Loss on ordinary activities before tax (3,785)   (14,086)

Loss on ordinary activities multiplied by standard rate of corporation tax in 
the UK of 19% (2020: 19%) (719)    (2,676)
Effects of:
Difference in overseas tax rates (9)   17
Expenses not deductible for tax purposes 6   54
Deduction due to reclassification of other equity  (118)    (220)
Prior year adjustment (39)   (85)
Movement in unrecognised deferred tax on losses 3,267    1,226
Rate change adjustment (527)    (276)
Non-qualifying depreciation/disposals 45   69
Total tax charge / (credit) for the year 1,906    (1,891)

In the March 2021 UK Budget, it was announced that the UK rate of corporation tax will increase from 19% to 25% effective 1 April 2023. The
change was enacted on 10 June 2021. As a result, existing timing differences on which deferred tax has been provided may unwind in periods
subject to the 25% rate. The deferred tax in relation to these timing differences have been recognised at the rates at which they are expected to
unwind. 

Classification: General Business 44
  Financial Statements 2021

2021 2020
£'000 £'000
9 DIRECTORS' EMOLUMENTS

Directors' fees and emoluments  850    1,390

Pension contributions 18    8
868    1,398

The total remuneration and benefits of the highest paid director were 505    993

Benefits under defined contribution pension arrangements accrued during the year to one director (2020: two directors).

2021 2020
£'000 £'000
10 DEBT SECURITIES

Investment securities - Held to Maturity

Government securities -   -
Others  -    3,661
-    3,661
Investment securities - Available for Sale

Government securities 88,149    46,556

Others  11,463    30,273
99,612    76,829
(Deficit) / Surplus on revaluation on available for sale investments (125)   137
Provision for diminution in the value of investment 10.1 (3,901)    (4,025)
95,586    76,602

10.1 Provision for diminution in the value of investment

At 1 January 4,025    2,945

Impairment (reversal) / charge for the year (124)    1,080
At 31 December 3,901    4,025

Market value of held to maturity investments as at 31 December 2021 is Nil (2020: £3.66mn). All debt securities as at 31 December 2021 and
2020 are traded in active markets (Level 1).

Unrealised revaluation loss for the year on available for sale investments amounted to £0.26mn (2020: Gain of £0.22mn).

11 FIXED ASSETS
Freehold Leasehold Software Computers, Total
property improve- develop- furniture,
ments ment cost fixtures &
equipment
£'000 £'000 £'000 £'000 £'000
Cost
At 01 January 2021 1,249    3,071   985    4,459 9,764
Additions   -    -   -   59 59
Disposals   -    -   -    - -
Write-offs   -    -   -    - -
Effect of movements in exchange rates/other adjustments    -    -   (51)   (30) (81)
At 31 December 2021 1,249 3,071 934    4,488 9,742

Accumulated depreciation
At 01 January 2021   819    2,389   598    3,952 7,758
Disposals   -    -   -    - -
Write-offs   -    -   -    - -
Charge for the year    62    152   48    127 389
Effect of movements in exchange rates/other adjustments   -    -   -   (23) (23)
At 31 December 2021   881    2,541   646    4,056 8,124

Net book value at 31 December 2021 368 530 288 432 1,618

Net book value at 31 December 2020 430    682   387    507    2,006

Classification: General Business 45
 

 Financial Statements 2021

2021 2020
£'000 £'000
12 DEFERRED TAX ASSET

At beginning of year 4,153           2,379

Adjustment in respect of prior years (income statement) 30                 (7)
(Charge) / Credit in the year (income statement) (1,936)           1,793
 Capitalise / (Released) in the year (other comprehensive income) 56               (12)
At 31 December 2,303           4,153

Deferred tax asset is made up of:
Accelerated capital allowances 471              292
Losses carried forward 1,639           3,764
Available for sale assets 31               (26)
Other temporary differences 162              123
2,303           4,153

Factors that may affect the future tax charge

As at 31 December 2021, based on the business plan for five years to 31 December 2026 which demonstrates that the Bank will be profitable 
over that period, the directors have decided that they should only recognise a total deferred tax asset of £1.6mn in respect of existing carried 
forward losses. 

The total net unrecognised deferred tax asset as at 31 December 2021, which comprises of losses, is £13.78mn (2020: £7.33mn).

Note 2021 2020

£'000 £'000
13 OTHER ASSETS

Prepaid expenses 600              447

Trade finance fee receivables 52                55
Corporation tax receivable -              108
Unrealised gain on forward exchange contracts 964           3,402
Other receivables 451              723
2,067           4,735

14 CUSTOMER DEPOSITS

Current 335,208       282,048

Savings 43,807         44,474
Term 90,384       132,739
469,399       459,261

2021 2020
£'000 £'000
15 OTHER LIABILITIES

Provision for restructuring 15(a) -           1,637

Accrued expenses 1,404           1,481
Corporation tax payable 7               -
Unrealised loss on forward exchange contracts 1,868           1,662
Other liabilities 9,144           9,194
12,423         13,974

15(a) The restructuring provision related to redundancy and other restructuring cost i.e. dilapidation and onerous lease, have been fully utilised
during the year.

16 PROVISION FOR LOAN LOSSES

Loans & advances 2021 2020
Specific Collective Total Total
£ '000 £ '000 £ '000 £ '000
At 1 January 7,220 650 7,870         20,519

Charge during the year                -                - -           1,186

Provision reversals during the year             (188)                - (188)             (201)
Provision taken to income statement (net)             (188)                - (188)              985
Written off against provision during the year          (4,318)                - (4,318)       (13,629)
Effect of movements in exchange rates                -                - -                 (5)
At 31 December 2,714 650 3,364           7,870

Classification: General Business 46
  Financial Statements 2021

17 SHARE CAPITAL 2021 2020

£'000 £'000
Authorised

15,000,000 ordinary shares of £5 each  (2020: 15,000,000 ordinary shares of 
£5 each) 75,000    75,000

Allotted, called up and fully paid

10,063,081 ordinary shares of £5 each (2020: 10,063,081 ordinary shares of £5 
each) 50,315    50,315

Note 2021 2020

£'000 £'000
18 OTHER EQUITY INSTRUMENTS

(a) 9,785    7,595

(b) 10,702    12,556
20,487    20,151

(a) In 2020, the bank has created an Additional Tier 1 instrument of $30mn with an ability to issue it in tranches as and when required. First tranche
of $10mn (equivalent to £7.60mn) has been issued on 12 November 2020 and second tranche of $3mn(equivalent to £2.19mn) has been issued
on 22 September 2021 to support the capital resources of the bank particularly the overall Tier 1 capital resources. Prior approval from the PRA
was obtained on 17 August 2020 for the issuance of this instrument. The Bank utilised the proceeds of this issuance to fully and partially repay
the Tier II capital issued in 2013 and 2012 respectively. These notes are perpetual and are repayable at the option of the bank after five years
have passed from the date of issuance. This equity instrument is subordinated to the claims of depositors and other creditors. The PRA classify
this as CRD compliant Additional Tier 1 Capital and approval from them is required prior to any repayment. Interest is payable on a six monthly
basis at the rate of 4.75% above six month LIBOR (2020: 4.75% above six month LIBOR).

Interest is required to be paid from distributable reserve of the bank, however if on any date when a payment of interest would otherwise be
due and the Bank has insufficient profits, payment of such interest shall be delayed until such time as the bank has sufficient profits for that
purpose.

(b) Due to transfer of the business from HAHL to HBL UK Limited, equity instruments of $53mn were transferred on 15 December 2014 which were
issued by HAHL to HBL. In 2016, CRD IV non-compliant portion of the equity instruments of $33mn was repaid after obtaining prior approval
from the PRA. Out of the remaining part of the equity instruments of $20mn (equivalent to £12.56mn) which is classified as CRD IV complaint
Tier II capital a further $10mn was repaid to HBL on 27 September 2021 after taking approval from the PRA. As of 31 December 2021 $17mn
(equivalent to £10.70mn) is outstanding. These notes are perpetual and are repayable at the option of the Bank after five years have passed
from the date of issuance. These equity instruments are subordinated to the claims of depositors and other creditors. Interest is payable on a six
monthly basis at the rate of 4% above six months LIBOR (2020: 4% above six months LIBOR).

Classification: General Business 47
 Financial Statements 2021

2021 2020
£'000 £'000
19 CONTINGENCIES AND COMMITMENTS

(a) Commitments
(i) Annual commitments under non-cancellable operating leases 
Operating leases which expire:
Not later than one year 110    348
Later than one year and not later than five years; and 198    283
Later than five years 764    607
(ii) In respect of forward foreign exchange contracts:
Purchase 21,825    19,543
Sale 21,811    19,534
(iii) In respect of forward cross currency swaps:
Purchase 65,722    52,140
Sale 66,638    50,408
(iv) In respect of undrawn credit facilities 15,089    14,136

(b) Contingencies:
Acceptances and endorsements 16,539    14,117
Guarantees 7,545    5,478

Contingent liabilities including guarantees and commitments to extend credit are mainly credit exposures which represent the amounts at risk
should contracts be fully drawn upon and clients default. Since a significant portion of contingent exposures and commitments are expected to
expire without being drawn fully upon or be covered by cash lien, the total of the contractual amounts is not representative of future liquidity
requirements.

20 FOREIGN EXCHANGE

The Bank’s net open foreign exchange positions are monitored daily basis and managed by the treasury front office. As most of the transactions
are back to back therefore the Bank is not exposed to material FX risk. The Bank’s net open position (NOP) as at 31 December 2021 was £0.027m
(2020: £0.011m)
2021 2020
Currency £'000 £'000

USD (162)    (380)

EURO 6    1
AED 25    10
CHF (4)    8
PKR 120    316
Other currencies 42    57

21 CONCENTRATION OF CREDIT RISK

2021
Balances at Loans to Loans and Debt Contingen Derivative Total
central customers advances to securities cies & Others
banks Banks
Sectoral concentration: £'000 £'000 £'000 £'000 £'000 £'000 £'000
Automobile and transportation  - - - 3,710 - - 3,710
Chemicals and Pharmaceuticals - - - - - - -
Financial 103,291 - 169,942 3,827 2,155 679 279,894
Food, Tobacco and Beverages - 12,848 - - 1,637 - 14,485
General traders - 3,723 - - 1,681 - 5,404
Government - - - 88,049 - - 88,049
Shipping - 3,007 - - - - 3,007
Hotel and Hospitality - 10,585 - - - - 10,585
Retail and wholesale trade - 334 - - - 285 619
Metal and Allied - 825 - - - - 825
Printing and Packaging - 427 - - - - 427
Textile - 9,277 - - 3,292 - 12,569
Property Investments - 114,334 - - - - 114,334
Individual - 14,619 - - - - 14,619
Others - 8,288 - - 15,319 919 24,526
103,291 178,267 169,942 95,586 24,084 1,883 573,053

Classification: General Business 48
 

Financial Statements 2021

2021
Balances at Loans to Loans and Debt Contin- Derivative Total
central customers advances to securities gencies & Others
banks Banks
Geographical concentration: £'000 £'000 £'000 £'000 £'000 £'000 £'000
Europe 103,291 142,475 53,349 7,423 23,419 1,598 331,555
North America - 1,188 40,514 68,748 - - 110,450
Asia Pacific (including South Asia) - 12,591 22,712 7,578 336 - 43,217
Africa - 7,979 24,072 6,499 329 - 38,879
Middle East - 14,034 29,295 5,338 - 285 48,952
103,291 178,267 169,942 95,586 24,084 1,883 573,053

2020
Balances at  Loans to  Loans and  Debt  Contin- Derivative &  Total
central  customers advances to  securities gencies Others
banks Banks
Sectoral concentration: £'000 £'000 £'000 £'000 £'000 £'000 £'000
Automobile and transportation                  -                  4              -            7,626                -                -           7,630
Chemicals and Pharmaceuticals                 -              106              -                -               293                -              399
Financial        103,015               -      161,163         19,463          11,709            3,307       298,657
Food, Tobacco and Beverages                 -           6,196              -                -               101                -           6,297
General traders                 -           1,624              -                -                 66                -           1,690
Government                 -         15,377              -         46,746                -                -         62,123
Shipping                 -           4,650              -                -                -                -           4,650
Hotel and Hospitality                 -         14,759              -                -                -                -         14,759
Retail and wholesale trade                 -              557              -                -                -                 95              652
Metal and Allied                 -              439              -                -               366                -              805
Printing and Packaging                 -              455              -                -                -                -              455
Textile                 -           8,663              -                -            3,399                -         12,062
Property Investments                 -       118,432              -                -               112                -       118,544
Individual                 -         17,126              -                -               202                -         17,328
Others                 -           7,804              -            2,767            3,347            1,638         15,556
       103,015       196,192      161,163         76,602          19,595            5,040       561,607

2020
Balances at   Loans to  Loans and   Debt  Contin- Derivative &   Total 
central  customers  advances to  securities  gencies Others
banks Banks

Geographical concentration: £'000 £'000 £'000 £'000 £'000 £'000 £'000

Europe        103,015       140,060        37,501         36,214          17,624            4,722       339,136
North America                 -           1,246        28,253         22,602                -                -         52,101
Asia Pacific (including South Asia)                 -         24,494        32,445            7,444            1,859                -         66,242
Africa                 -         12,680        17,412               766               112                -         30,970
Middle East                 -         17,712        45,552            9,576                -               318         73,158
       103,015       196,192      161,163         76,602          19,595            5,040       561,607

22 MATURITY ANALYSIS OF FINANCIAL INSTRUMENTS

Financial instruments maturities at the end of the year were:

2021
On Demand 3 months Over 3 Over 1year Greater Total
or less but months but but less than 5 years
not on less than 1 than 5 years
demand year
£'000 £'000 £'000 £'000 £'000 £'000

Cash and balances at central Banks 103,943 - - - - 103,943

Loans and advances to:
Banks;
 - Parent and connected  881 6,307 532 - - 7,720
 - Others 33,614 78,538 49,353 717 - 162,222
Customers 28,238 12,488 12,362 97,248 27,931 178,267
Debt securities               - 54,351 17,200 24,035 - 95,586
Other financial assets               - 503 416 - - 919
Derivative financial assets               - 887 77                -                - 964

166,676 153,074 79,940 122,000 27,931 549,621

Classification: General Business 49
 Financial Statements 2021

2021
On Demand 3 months Over 3 Over 1 year Greater Total
or less but months but but less than 5 years
not on less than 1 than 5 years
demand year
£'000 £'000 £'000 £'000 £'000 £'000
Deposits by:
Banks;
- Parent and connected 3,191 - - - - 3,191
- Others 3,131 1,484 - - - 4,615
Customers 379,015 61,188 28,153 1,043 - 469,399
Other financial liabilities 852 - 9,696 - - 10,548
Derivative financial liabilities - 1,780 88 - - 1,868

386,189 64,452 37,937 1,043 - 489,621

Net gap (219,513) 88,622 42,003 120,957 27,931 60,000

All financial assets and  financial liabilities are measured at amortised cost except for:
(1) Available for sale investments which are measured at fair value through other comprehensive income; and
(2) Derivatives which are measured at fair value through income statement.

2020
On Demand 3 months  Over 3  Over 1year  Greater  Total
or less but  months but  but less than  than 5 years
not on  less than 1  5 years
demand year
£'000 £'000 £'000 £'000 £'000 £'000

Cash and balances at central Banks    103,675    -    -    -    -    103,675

Loans and advances to:
Banks;
- Parent and connected    786    2,897    1,329    -    -    5,012
- Others    24,685    50,623    80,843    -    -    156,151
Customers    16,542    6,945    29,078    70,326    73,301    196,192
Debt securities -   22,030    29,426    25,146  - 76,602
 
Other financial assets -  778
     860    -    -   1,638
Derivative financial assets -   2,859    543    -    -   3,402

   145,688    86,132    142,079    95,472    73,301    542,672

Deposits by:
Banks;
- Parent and connected    2,492   -    -   -    -    2,492
- Others    1,129   1,465    359   -    -    2,953
Customers    327,162   97,095   34,501   503   -   459,261
Other financial liabilities    1,044  -  11,268   -    -   12,312
Derivative financial liabilities  -  1,428   234   -    -    1,662

   331,827   99,988   46,362   503   -   478,680

Net gap   (186,139)   (13,856)   95,717    94,969   73,301    63,992

The maturities of loans, debt securities and deposits have been shown according to their contractual maturities except for impaired assets which 
have been classified in greater than 5 years net of their provision.

Expected maturity dates do not differ significantly from the contract dates except for the maturity of £319.80mn (2020: £312.10mn) of deposits
representing retail deposit accounts considered by the Bank as a stable source of funding of its operations.

Classification: General Business 50
 Financial Statements 2021

23 INTEREST RATE SENSITIVITY GAPS

Interest rate risk primarily arises on the mismatching of the Bank's assets with its funding. Interest rate sensitivity gaps in the Bank at the end of
the year were:
2021
Not more More than More than More than 1 Greater Non Total
than 3 3 months 6 months year but not than 5 years interest
months but not but not more than 5 bearing
more than more than years
6 months 1 year
£'000 £'000 £'000 £'000 £'000 £'000 £'000
Cash and balances at central Banks 103,291 - - - - 652 103,943

Loans and advances to:

Banks 96,241 36,132 4,101 -   - 33,468 169,942
Customers 170,645 1,068 - - - 6,554 178,267
Debt securities 63,056 14,851 2,349 15,330 - - 95,586
Other financial assets - - - - - 1,883 1,883
Other non-financial assets - - - - - 4,521 4,521
433,233 52,051 6,450 15,330 - 47,078 554,142
Deposits by:
Banks - - - - - 7,806 7,806
Customers 105,636 4,038 23,475 1,042 - 335,208 469,399
Other financial liabilities - - - - - 12,416 12,416
Other non-financial liabilities - - - - - 7 7
Total Equity - 20,487 - - - 44,027 64,514
105,636 24,525 23,475 1,042 - 399,464 554,142

Overall gap 327,597 27,526 (17,025) 14,288 - (352,386) -

Cumulative gap 327,597 355,123 338,098 352,386 352,386 - -

2020
Not more  More than  More than  More than 1  Greater  Non interest  Total
than 3  3 months  6 months  year but not  than 5 years bearing
months but not  but not  more than 5 
more than  more than1  years
6 months year

£'000 £'000 £'000 £'000 £'000 £'000 £'000

Cash and balances at central Banks   103,015   -   -    -   -    660    103,675

Loans and advances to:
Banks   56,808    29,417   38,442    -   -   36,496    161,163
Customers   186,846   -   -    -   -    9,346    196,192
Debt securities   30,574    21,026   8,400   16,602   -    -    76,602
Other financial assets    -   -   -    -  -   5,040    5,040
Other non-financial assets    -   -   -    -  -   6,714    6,714
  377,243    50,443   46,842   16,602  -  58,256    549,386
Deposits by:
Banks   -  1,823   -    -   -    3,622    5,445
Customers   142,403  8,990   25,317    503  -  282,048    459,261
Other financial liabilities    -   -   -    -  -  13,974    13,974
Other non-financial liabilities    -   -   -    -  - -   -
Total Equity   - 20,151
    -    -  -         50,555    70,706
  142,403    30,964   25,317    503  -  350,199    549,386

Overall gap   234,840    19,479   21,525   16,099  -  (291,943)   -

Cumulative gap   234,840    254,319   275,844   291,943    291,943    -   -

Non interest bearing items comprise total equity, provisions, tangible & intangible assets, impaired assets and other assets and liabilities not
subject to interest.

Classification: General Business 51
  Financial Statements 2021

24 RELATED PARTY TRANSACTIONS

The Bank is a wholly owned subsidiary of HAHL of which 90.50% is controlled by HBL, its immediate parent, which is in turn a subsidiary of The
Aga Khan Fund for Economic Development (AKFED) SA, the ultimate controlling party and ultimate parent undertaking of the Bank and its
registered office is in Geneva, Switzerland. The Bank has related party relationships with its immediate parent, subsidiaries and associates of the
immediate parent, and key management personnel of the Bank and its immediate parent.

Transactions with related parties are executed on the same terms, including interest rates (deposits/advances) and collateral, as those prevailing
at the time for comparable transactions with unrelated parties other than those under the terms of employment and loans provided to
employees under the staff loan scheme. Pension contributions are made in accordance with the terms of the pension contribution plan. 

2021 2020
£'000 £'000
The details of balances with the related parties are as follows:

Borrowing / deposits / other equity instruments
Immediate parent and associates 23,678    22,643
Key management personnel 66    64
Loan receivable from:
Immediate parent and associates 7,836    5,362
Key management personnel 1,794    1,906
Interest Income
Immediate parent and associates 164    395
Interest Expense/Paid
Immediate parent and associates 638    1,161

25 FAIR VALUE OF FINANCIAL INSTRUMENTS

The table below provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into
Levels based on the degree to which the fair value is observable as given in note 2 (p).

2021
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets available for sale 95,586 - - 95,586
Derivative financial instruments - assets - 964 - 964
Total 95,586 964 - 96,550

Derivative financial instruments - liabilities - 1,868 - 1,868

Total - 1,868 - 1,868

2020
Level 1 Level 2 Level 3 Total
£'000 £'000 £'000 £'000
Financial assets available for sale    72,941    - -    72,941
Derivative financial instruments - assets  -  3,402 - 3,402
 
Total    72,941    3,402 -  
76,343

Derivative financial instruments - liabilities -  1,662 - 1,662

 
Total -  
1,662 -  1,662

For financial assets and liabilities carried at amortised costs (including loans and advances and customer deposits), the directors do not
anticipate the fair values to be materially different from the book values considering the underlying nature of the portfolios except as disclosed
in note 10.

26 ULTIMATE PARENT UNDERTAKING AND PARENT UNDERTAKING OF LARGER GROUP OF WHICH THE BANK IS A MEMBER

The smallest and largest group in which the results of the Bank are consolidated is headed by HAHL and AKFED, respectively. AKFED is registered
at Avenue de la Paix, 1-3, CH-1211, Switzerland. The registered office of HAHL is at 9 Portman Street, London, W1H 6DZ. HAHL financial
statements are available at companies house.

27 INVESTMENT IN SUBSIDIARY

HBL UK Nominees Limited (formerly known as Habibsons Nominees Limited) is 100% owned subsidiary of the Bank with its registered office
located at 9 Portman Street, London, W1H 6DZ. There has been no trading or business activity in this company since its incorporation on 10
January 2013.  One ordinary share of £1 each has been issued which is the total investment of the Bank at cost which is not impaired.

Classification: General Business 52
 

 Financial Statements 2021

28 RISK MANAGEMENT FRAMEWORK - (RMF)

Salient features of the RMF are summarised below:

Credit Risk

Credit risk is the risk of loss due to the failure of a counterparty to meet their credit obligations in accordance with agreed contract terms.

Credit risk makes up the largest part of the Bank’s risk exposures. The Credit risk policies are established by the Risk Management Committee
(RMC) and are approved by the Board. The RMC is responsible for ensuring appropriate governance and oversight in relation to all the risks in
the Bank i.e. credit risk, market risk, operational risk, liquidity risk and reputational risk. In terms of credit risk the RMC’s responsibilities include:-

- to determine the policies and processes for credit approval, large exposures, country risk exposures and provisioning;
- to establish overall lending policies and guidelines;
- to monitor effective implementation of policies and consider any desirable amendments in the light of market conditions;
- to ensure the credit exposures of the Bank are at all times in compliance with any legal or regulatory requirements or restrictions;
- to ensure portfolio performance is in line with the set benchmarks and determine that overall provisions remain at required levels; and
- to review the Large Exposures portfolio.

The Bank's strategy for managing its different type of credits is as per the risk appetite statement. The below table provides gross balances of
maximum exposures for each class of financial assets. 

Credit risk on financial instruments

31 December 2021 Neither Past due Impaired Impairment Total
past due not allowances
nor impaired
impaired
£(000) £(000) £(000) £(000) £(000)
Financial Assets at Amortised Cost
  Balances at Central Banks      103,291                -                -                -       103,291
  Loans and advances to Banks      169,942                -                -                -       169,942
  Loans and advances to customers      171,713            3,687            6,231 (3,364)       178,267
  All other financial instruments             919                -                -                -              919
445,865 3,687 6,231 (3,364) 452,419
Financial assets at fair value through Income Statement
  Unrealised gain on forward exchange contracts             964                -                -                -              964
964 - - - 964
Available for sale Financial Assets
  Debt securities        95,586                -            3,901 (3,901)         95,586
95,586 - 3,901 (3,901) 95,586
Total financial instruments 542,415 3,687 10,132 (7,265) 548,969

31 December 2020

Financial Assets at Amortised Cost

  Balances at central Banks       103,015                 -                -                -       103,015 
  Loans and advances to Banks      161,163                -                -                -       161,163 
  Loans and advances to customers      187,496            2,329          14,237 (7,870)       196,192 
  All other financial instruments          1,638                -                -                -           1,638 
     453,312            2,329          14,237          (7,870)       462,008
Financial assets at fair value through Income Statement
  Unrealised gain on forward exchange contracts          3,402                -                -                -           3,402 
         3,402                -                -                -           3,402
Available for sale Financial Assets
  Debt securities        76,602                -            4,025 (4,025)         76,602 
       76,602                -            4,025          (4,025)         76,602

Total financial instruments      533,316            2,329          18,262        (11,895)       542,012

Quality of loans and advances exposure to banks

An analysis of the exposures to banks as per Credit Quality Step (CQS) based on credit ratings provided by external rating agencies is as follows:

2021 2020
£’000 £’000
CQS
1 61,031         43,742
2 26,113         37,117
3 9,584         12,080
4 6,896         29,291
5 66,318         33,922
6 -           5,011
169,942       161,163

Classification: General Business 53
  Financial Statements 2021

Credit quality of loans and advances portfolio

The definition of internal risk rating for the loans and advances are given below:
Grade 1-6 :     Performing
Grade 7   :     Watch-list
Grade 8 :     Impaired accounts

The Bank’s internal risk rating scale is a measure of relative credit worthiness and does not map exactly with that of external rating agencies.

Internal risk rating of loans and advances to customers 2021 2020

£’000 £’000
Rating
Grade 1 to 6 142,962 167,305
Grade 7 32,438 22,520
Grade 8 6,231 14,237
Total Gross Amount 181,631 204,062
Allowance for impairment (individual and collective) (3,364)    (7,870)
Total 178,267 196,192

Due to the pandemic in 2020 the Bank had provided support to its customers in the form of Covid -19 repayment deferral scheme for loans as
per the PRA guidance issued on 26 March and 4 June 2020, much of the portfolio that was impacted at the time was regularised by the end of
2020. 

2021 2020
£’000 £’000
Concentration of past due and impaired exposure

UK 11,543 18,347
AFRICA 2,276 2,244
13,819 20,591

Loans and advances past due by more than 90 days are considered as non-performing.

The table below provides the gross value of collaterals including cash and financial collaterals held by the Bank:

Collateral type:
Cash collateral 18,166 19,032
Residential real estate 82,362 84,911
Commercial real estate 231,281 236,867
Others including shares and  debt securities 61,888 69,775
Total collateral value 393,697    410,585

Gross loans and advances to customers 181,631    204,062

As at 31 December 2021 Bank's maximum exposure towards credit risk is approximately £573mn (2020: £583mn). This represents funded and
non-funded exposures towards sovereign, Banks, financial institutions and other customers. 

The collateral value in the above table excludes the value of such collateral which the Bank may accept to manage its risks more effectively such
as personal guarantees. 

Debt securities

An analysis of the Bank's debt securities portfolio as per Credit Quality Step (CQS) based on credit ratings provided by external rating agencies is
as follows:
2021 2020
£’000 £’000
CQS
1 76,177    52,850
2 -    4,432
3 3,974    9,914
4 7,092    5,026
5 8,343    4,380

95,586    76,602

No debt securities  are pledged as collateral to secure liabilities under repurchase agreement (2020: nil).

Classification: General Business 54
 

 Financial Statements 2021

Financial Risks from climate change

The Bank is committed to providing finance to customers that meet the minimum applicable requirements in consideration of UK law on climate-
related issues and managing climate risks and adverse impacts arising from the activities of its customers. The Bank is also committed to
continually enhancing its approach to managing the financial risks from climate change in line with UK regulatory requirements from the PRA
and FCA (including PRA SS3/19), on a proportionate basis to the size, scale and complexity of its business model.

The Bank recognises the need for the wider global economy to reduce the use of fossil fuels and to transition to a low carbon, climate resilient
economy. Therefore, the importance of reviewing our customers’ climate impact and sensitivity to climate change is acknowledged to
understand the physical and transition risks related to their business models.

In enhancing the risk management framework to integrate climate-related financial risks, the Bank has recognised that climate change presents
risks which cut across multiple traditional risk types. Climate risk can drive credit risk by causing losses that leave the Bank’s clients unable to
meet their obligations to repay and service debt. For example, if rising sea levels force a retail or textiles business to abandon one of its major
warehouses, the supply chain related losses could leave the business unable to repay its corporate bonds or loans. 

The Bank does not engage in any proprietary trading, therefore climate-related market risk is limited to the debt exposures of sovereign and
financial institution counterparties. Thus, the financial impact is similar to that of credit risk whereby the effects of climate change can reduce
the value of collateral that the Bank can use to secure funding and access liquidity.

Liquidity Risk

Liquidity Risk arises from the maturity profile, and type and nature of the Bank’s assets and liability mix. If not satisfactorily controlled the Bank
could be faced with being unable to meet customer demands for repayment of deposits, which can lead to a run on Bank deposits.

The Bank’s liquidity policy is to ensure the Bank at all times maintains solvency through a prudent funding profile and appropriate mix of assets
to ensure compliance with the overall liquidity adequacy principle as defined in the CRD guidelines. The Bank’s solvency has to be achieved on a
self-sufficiency basis. 

The policy document sets out the overall liquidity policy, liquidity risk appetite, thresholds and tolerance levels, and systems and controls. Senior
management is responsible for regularly reviewing this policy document and for recommending changes, if any, to the Board in a timely manner.

The Bank will continue to evolve its liquidity risk management arrangements based on feedback from the FCA / PRA experience, and from
developments in market and industry best practices. 

The Assets and Liabilities Committee (ALCO) has responsibility for the formulation of the overall strategy and oversight of the asset liability
management function. 

Market risk

Market risk is the risk of loss due to adverse movements in market rates or prices, such as foreign exchange rates, interest rates and equity
prices. The Bank does not maintain an active trading book.

(i)  Interest rate risk

Interest rate risk arises when there is a mismatch between positions which are subject to interest rate adjustments within a specific period. A
substantial part of the Bank’s assets and liabilities are subject to floating rates and hence are re-priced simultaneously. However, the Bank is
exposed on a portion of its assets and liabilities and the result of mismatches is reflected in the banking book.

The Bank manages its interest rate exposure through an interest rate gap report whereby assets and liabilities are allocated into an appropriate
time band, based on the next interest re-fix date.

The interest risk is then calculated as a 2% impact on earnings of the resulting net position for each time band, in line with the Basel
Committee’s recommendation.

Interest sensitivity

The impact of 100bps would have had an impact of £3.01mn (2020: £2.24mn) on net interest income for the year ended 31 December 2021.
Bank has more interest sensitive assets as compared to interest sensitive liabilities within 1 year and consequently movement in interest rate
would have positive impact if interest rate rises and negative impact if interest rate decline.

(ii)  Foreign exchange risk
The Bank’s assets are typically funded in the same currency as that of the business transacted in order to eliminate foreign exchange exposure.
Foreign currency transactions are undertaken only on behalf of customers who are covered from the market on the same day. Therefore, the
Bank has not performed the foreign exchange sensitivity analysis, as the risk is not material which is also evident from note 20.

The Bank's foreign exchange risk appetite is defined by ALCO and monitored on a daily basis.

The foreign exchange position risk is calculated as 8% higher of the net overbought or oversold position in foreign currencies.

Classification: General Business 55
  Financial Statements 2021

Operational risk

Operational risk is the risk of loss resulting from weaknesses in systems, procedures and people or from external events. The Bank has adopted
the ‘Basic Indicator Approach’, in line with regulations and results in the operational risk capital requirement under Pillar 2A which is equal to
15% of the three-year average of the sum of (a) A firm’s net interest income; and (b) A firm’s net non-interest income.       

The Operational RMF will reduce any operational risk to a minimum, although in view of the number of unknown external factors, the
framework is regularly reviewed and overall risk management is kept at a high profile within the business to ensure any unmitigated operational
risk is identified at an early stage.

The data available to the Bank since its inception shows that the Bank has made insignificant operational losses during the period to date. The
level of complaints received are minimal and insufficient to identify any particular trends or weaknesses.

Counterparty risk

Counterparty credit risk (CCR) is the risk to the Bank that a counterparty to a transaction could default before the final settlement of the
transaction’s cash flows. In the normal course of business the Bank enters into foreign exchange contracts on behalf of its customers which are
generally covered by entering into reciprocal transactions with other Banks in the market on a daily basis to avoid position risk. Counterparty
credit risk emanating from these transactions is managed by maintaining appropriate collateral from customers to mitigate customer default
exposure at the time of settlement. Exposures on Banks which are other counterparties to these transactions are managed within overall limit
allocations determined as part of the Bank's credit assessment of such institutions.

Capital management

The Bank is managing and monitoring its capital resources as per the Total Capital Requirement (TCR) in addition to the Pillar 2B requirements as
set out by the PRA. The Bank’s capital resources consist of paid-up capital, retained earnings additional Tier 1 and Tier II capital. There are no
terms and conditions attached to the Bank’s Tier I capital resources. 

The firms own assessment of the capital required to hold against its risks is known as ICAAP (Internal Capital Adequacy Assessment Process) and
the SREP (Supervisory Review and Evaluation Process) is the qualitative and a quantitative assessment of the ICAAP.

Bank has a robust Capital Planning and Management process embedded within the culture. This process addresses Capital Adequacy and
ensures compliance with the principle threshold conditions. The core objective of an effective capital planning process is to assess the adequacy
of capital against a forward looking forecast, market events, stress scenarios and transaction booking. The viability and sufficiency of the Capital
model is also periodically tested against different stress scenarios. In addition the forward looking capital planning process in place is to ensure
that the Management and the Board are at all times taking the available capital into consideration when taking any business decision that could
impact and affect the Bank’s solvency. 

The Board has set Capital monitoring limits to ensure capital adequacy is maintained and capital coverage, capital surplus remains within the
predetermined thresholds at all times. The Bank’s Capital management and monitoring system also entails sequence of processes that manages
and monitors the capital adequacy frequently. 

The disclosures under Pillar III include a detailed risk management  analysis, Capital Management and details of overdue and impaired exposures 
and are available on the Bank’s website: www.hblbankuk.com.

29 COUNTRY-BY-COUNTRY REPORTING AS AT 31 DECEMBER 2021

HBL Bank UK Limited is an authorised credit institution and provides a wide range of Banking and financial services including Retail and
Commercial Banking, Wealth Management, Financial Institution and Treasury services. The Bank is a wholly owned subsidiary of Habib Allied
Holding Limited and is headquartered in London, United Kingdom and provides services to its clients through branches in United Kingdom and
Switzerland.

Subsidiaries

HBL UK has the following subsidiary incorporated and located in England and Wales:

- HBL UK Nominees Limited (formerly known as Habibsons Nominees Limited).

Turnover

The net operating income of HBL Bank UK Limited for the year ended 31 December 2021 was £15.78mn  (2020: £13.69mn).

Average number of employees

The average number of employees was 135 for the year ended 31 December 2021 (2020: 149).

Classification: General Business 56
  Financial Statements 2021

Country-by-country breakdown 2021

Type of operation Turnover Loss before Corporation Average Public

tax tax paid number of subsidies
employees received

£’000 £’000 £’000 £’000 £’000

United Kingdom Retail and Commercial Banking (RCB), 
Wealth Management(WM), Financial 
13,309 (3,801) 78 126 -
Institution (FI) and Treasury services 
(TS)
Switzerland RCB and WM 2,467 16 (6) 9 -
Netherlands RCB - - 40 - -
15,776 (3,785) 112 135 -

Country-by-country breakdown 2020

Type of operation Turnover Operating  Corporation  Average  Public 

profit  tax paid number of  subsidies 
/(Loss)  employees received
before tax
£’000 £’000 £’000 £’000 £’000

United Kingdom Retail and Commercial Banking (RCB), 

Wealth Management(WM), Financial 
   11,650   (13,531)  (568) 138
     -
Institution (FI) and Treasury services 
(TS)
Switzerland RCB and WM    2,034  (555)  (7)    11    -
Netherlands RCB    -    -  83    -    -
   13,684   (14,086)  (492) 149
     -

30 EVENT AFTER BALANCE SHEET DATE

The Board of Directors has approved the strategy to exit from Zurich, Switzerland and closing down the branch. The management 
has started to initiate the process and has announced the decision to the wider group subsequent to the year end. Therefore the 
directors have concluded that this is a non-adjusting subsequent event. Further the Bank has immaterial indirect exposure to Russia 
and Ukraine as these are not its prime markets. Both of these events do not require any adjustments. 

Classification: General Business 57