The State Bank of Pakistan (SBP) is the central bank of Pakistan. It was established in 1948 under the State Bank of Pakistan Order and remained virtually unchanged until 1 January 1974, when the bank was nationalized. Its main objective is to provide financial stability for the country by lending and borrowing money. It also manages the country’s money markets.
Functions
The State Bank of Pakistan (SBP) is the country’s central bank, which conducts and formulates monetary policy. Its mandate is to promote economic growth and achieve sustainable monetary policy consistent with the objectives of the Government. These objectives are met through a comprehensive monetary and financial policy, which entails providing credit to priority sectors and developing a capital market.
The State Bank of Pakistan regulates the financial system and provides supervision to safeguard the interest of depositors. In recent years, this task has become more complex due to the rapid development of information technology. The technical base and institutional complexity of banking activities are constantly growing, requiring State Bank of Pakistan to keep up with the ever-changing financial landscape. To achieve this, the SBP has adopted a Risk Based Supervisory approach.
One of its most important functions is to regulate the flow of credit in the economy. It does this through direct and indirect monetary management instruments. In the past, Pakistan’s economy faced severe distortions because of acute segmentation in the credit market. However, the country’s financial sector underwent major reforms in the late 1980s. As a result, the SBP is now undertaking a variety of promotional and developmental tasks. Its monetary policy determines the amount of money that a bank can lend out to consumers and businesses.
Another role of the SBP is to manage the country’s foreign exchange reserves. Its Investment Committee reviews the level of foreign exchange reserves and determines the best investment strategy for the country. It also intervenes in the foreign exchange market when appropriate. To this end, the SBP has set up a Foreign Exchange Dealing Room (FEDR) in the Central Directorate of the State Bank of Pakistan. For this purpose, a Foreign Exchange Expert has been hired to oversee the foreign exchange market intervention.
Structure
The State Bank of Pakistan (SBP) is an important financial institution in Pakistan. It performs both traditional and developmental functions. Traditional functions include issuing notes, regulating and supervising the financial system, advising the government on policy matters, and conducting monetary policy. Secondary functions include managing the public debt and foreign exchange, and maintaining close ties with international financial institutions.
In the past, the SBP was largely subservient to the Ministry of Finance. Its monetary policy was essentially an extension of the country’s fiscal policy. However, in 1993, the government decided to give the SBP greater autonomy. A committee headed by Dr. Yaqoob drafted the autonomy ordinance. The current law places emphasis on the administrative autonomy of the SBP and provides immunity against prosecution for its functionaries.
The Board of Directors of the SBP is composed of eight directors. Each director must have a relevant professional background in banking, economics, or a related field. In addition, the Managing Director is appointed under Section 9 (1) of the SBP-BSC Ordinance 2001. The Board also has an Audit Committee, which assists the Board in audit-related matters.
Aside from independence, the Governor of SBP must be competent, have broad economic knowledge, and be fully informed of upcoming policy decisions. The SBP’s primary objective is to maintain price and monetary stability. The monetary policy adopted by the SBP must promote a more stable economy.
Board of directors
The State Bank of Pakistan is a public institution, whose board of directors is comprised of ten members. Its governor serves as the chairperson. The secretary of finance is a non-voting member of the board. The board also approves the annual budget and report, as well as strategic investment and risk management policies. Members must be qualified to serve as a director.
The State Bank of Pakistan (SBP) is the central bank of Pakistan. It performs both traditional and developmental functions, depending on the mandate and needs of the country. Traditional functions of the bank include the issue of notes, regulation of the financial system, supervision of the financial system, and monetary policy. The bank also performs secondary functions such as managing the public debt and foreign exchange, advising the government on policy matters, and maintaining close relationships with international financial institutions.
The Governor SBP is the principal officer of the bank. He manages the bank’s affairs on behalf of the board. He is appointed by the president of Pakistan for a five-year term. The bank’s other officers include three Deputy Governors appointed by the Federal Government. Each of them oversees a specific area of the bank’s activities.
Pasha Zaidi is a prominent political economist and author. He serves on the board of IBA and ICM, and is the Executive Director of the Institute of Business Administration in Karachi. His background is broad and varied, including serving as Special Assistant to the Finance Minister, Secretary Economic Affairs Division, and Chair of the Pakistan Microfinance Network. He is also an adjunct professor at the Institute of Business Administration.
Historical assets
The State Bank of Pakistan is the central bank of Pakistan. Its mandate is to supervise and regulate the financial system, promote national growth and financial stability, and fully utilize Pakistan’s productive resources. It performs these duties and more through a variety of traditional and modern functions. Its functions include issuing notes, regulating the monetary system, and conducting monetary policy. In addition, the bank is responsible for the management of public debt and foreign exchange.
The SBP Museum exhibits historical material related to money, and aims to further educate visitors about the monetary system. It was first proposed in 2006, and is now located in India House, which was formerly home to the SBP’s library. It is home to several priceless antique pieces related to the monetary system. In addition, the museum houses an art gallery.
Pakistan never received a fair share of the RBI’s assets. In fact, Pakistan has carried IOUs on its balance sheet for almost 70 years. These unpaid liabilities are unlikely to be collected. The 900-page tome also highlights the fact that Pakistan has filtered more Indian rupees into its economy than it ever should.
Licensing framework for digital banks
The State Bank of Pakistan has introduced a new licensing framework for digital banks. It is aimed at facilitating a digital revolution in banking in Pakistan. The new framework provides details on how a digital bank should operate and how it should be regulated. It includes the requirements for licensing, what type of license an applicant must have, and what kind of use-cases it may pursue during the different phases.
The SBP is seeking applications from digital banks that have a compelling value proposition, good technology infrastructure, sufficient financial strength, and an effective risk management culture. These banks will offer services to the retail and corporate segments of the economy. The SBP is looking to license up to five new digital banks.
The SBP has also hosted a webinar to educate and engage stakeholders on the new licensing framework for digital banks. It hopes the new framework will lead to increased access to affordable financial services for people across Pakistan. The goal of the framework is to foster financial inclusion by providing digital financial services to underserved segments of the population.
Impact of amendments to the Banks Nationalization Act
The Banks Nationalization Act has changed the structure of the Pakistani banking system. In the past, the state bank had performed traditional functions, such as issuing notes, regulating the financial system, supervising its operations, and being the lender of last resort. However, the Banks Nationalization Act has changed that structure, and the State Bank of Pakistan has taken on a new role. It now performs nontraditional and developmental functions, and also promotes savings. Furthermore, the state bank has been active in the Islamization of the banking system.
Before privatization, all the banks in Pakistan were state-owned. This caused several problems, such as overstaffing, limited market competition, and high NPL ratios. In response to these challenges, the government decided to implement a privatization policy. The privatization process began in 1990, and two banks were initially privatized. However, the process took several years to complete. The process of privatization of the United Bank Limited was completed in 2002. At that time, domestic private banks held 47% of the banking assets and the state-owned bank, or SBP, owned the remaining 41%.
The amendments to the Banks Nationalization Act will allow the government to increase the autonomy of the State Bank of Pakistan (SBP). While SBP will no longer be completely independent, it will be able to make its own decisions. The finance minister has also clarified that the government will still retain a role in the SBP’s management, but the governor and senior management will be accountable to the parliament.
