KARACHI: State Bank of Pakistan (SBP) Governor Dr Reza Baqir has said the central monetary authority is trying to figure out how best to ensure a level playing field between the “incumbent” banks and the new entities that will soon be set up under the recently introduced framework for digital banks.

Addressing a webinar on Thursday, Dr Baqir said the SBP is closely watching the experiences of other central banks that have issued licences for digital banks in their respective jurisdictions.

With the objective of delivering banking services to the under-served segments of society, the SBP issued a licensing and regulatory framework for digital banks at the beginning of 2022. The SBP is initially issuing up to five digital bank licences. It’s accepting applications until the end of this month.

“In this goal of ensuring a level playing field, how much should the regulator get involved?” he asked. Another question that the SBP is grappling with relates to the measures that the regulator must take at the licence-giving stage to ensure digital banks indeed deliver the promises and timelines that they commit to while submitting their applications, he said.

“What is the appropriate background for management and boards of digital banks to make them a success? Should there be techies? Should there be bankers? Should there be some combination?”

The new kind of banks will operate mainly through digital channels and allow customers “easier access to financial services” like saving, borrowing and payment products “at competitive rates and competitive customer services”, he said.

“Our goal is to give control of financial needs back to the customer with this framework,” the governor said, adding that the licensing framework has a special category for a “digital retail bank” that will cater only to small and medium enterprises (SMEs) and retail customers.

“This will address a key problem that we face currently: access to credit. The sole focus on retail and SMEs also means that digital retail banks will have to make it easier for customers to apply for loans and access personal bank services,” he said.

The SBP governor mentioned that he and his colleagues have been doing a “study” of a central bank digital currency. Dr Baqir first commented on the matter of digital currency in April last year during a CNN interview.

“It’s something that we are studying and (are) engaged in a conversation with other central banks. Our faster payment system that we’re rolling out, we believe, puts us in a position where we can seriously consider the pros and cons of (a) central bank digital currency and its appropriate design features for Pakistan,” he said.

Published in Dawn, March 4th, 2022