In a move poised to shape the future of AI adoption in Pakistan’s financial services sector, the State Bank of Pakistan (SBP) is in the final stages of formulating comprehensive guidelines for the responsible use of artificial intelligence (AI) by banks and other regulated financial institutions. The central bank’s proposed framework seeks to ensure that AI-driven financial innovations are governed by principles of transparency, accountability, and consumer protection, while also addressing emerging environmental concerns tied to the technology.
The development comes amid a broader global trend of AI integration across various sectors, with the banking industry increasingly leveraging automation and machine learning to enhance operations. According to SBP’s Financial Stability Review 2024, financial institutions in Pakistan are aligning with this trend. Local banks have begun adopting AI technologies for customer service, fraud detection, risk management, and process automation. Commonly used tools include robotics, virtual assistants, and machine learning models designed for structured operational tasks.
To assess the current state of AI deployment, the SBP conducted a detailed survey in 2024 involving 55 regulated entities (REs). These included conventional and Islamic commercial banks, microfinance institutions, digital banks, Electronic Money Institutions (EMIs), and Payment System Operators/Providers (PSOs/PSPs). The findings indicate that around 50% of these entities have either already deployed AI tools in their operations or are in the development phase.
The SBP’s survey highlighted that AI is being used for a variety of applications across the sector—from automating customer service to evaluating credit risk and optimizing marketing strategies. However, the report emphasizes that the use of AI technologies also introduces a range of risks that financial institutions must account for, especially in terms of environmental impact.
“The foremost step is to recognise the potential environmental risks associated with adopting AI systems,” the SBP noted in its report. It emphasized that some of the most widely-used AI technologies in the banking sector are highly energy-intensive due to their need for real-time processing and high computational accuracy. These technologies contribute to a significant carbon footprint, which must now be included as a distinct risk category within banks’ overall risk management frameworks.
The report recommends that banks begin by measuring the carbon emissions associated with the AI systems they employ—throughout the entire lifecycle of these models. It also urges the adoption of energy-efficient AI algorithms and models as part of a broader strategy to minimize the environmental toll of technological advancement.
Aligning with international standards, the report notes that the International Financial Reporting Standards (IFRS) S1 and S2 mandate disclosure of sustainability-related risks, particularly those linked to climate exposure. In Pakistan, the adoption of these standards is expected to roll out gradually, starting with listed companies that meet specific thresholds related to assets, turnover, and workforce size.
The SBP also stressed the importance of defining clear thresholds or tolerance levels for AI’s environmental impact. By doing so, banks can ensure a balanced approach that maximizes operational efficiency without compromising sustainability. Additionally, the central bank warned of systemic risks posed by widespread AI deployment, such as technological concentration, cyber threats, and asset price correlations, which could amplify vulnerabilities across the financial sector.
As the SBP finalizes these guidelines, its objective remains clear: to foster innovation while ensuring that the growth of AI in Pakistan’s banking sector is both responsible and sustainable. This move marks a critical step in regulating next-gen technologies while safeguarding consumer rights and the environment.
