IT spend by banks in N America, Europe to fall

The credit crunch and looming economic uncertainty could mean lower information technology (IT) spends by North American banks in 2008.

Banks, small and big, are slashing budgets and placing significant emphasis on keeping costs under control, says a report by Boston-based Celent - a financial research and consulting firm.

The report, titled IT Spending in Financial Services: A Global Perspective, said banks in Europe would also not fare well in terms of growth.

However, the banking, financial services and insurance (BFSI) vertical would be among the fastest growing in the Asia-Pacific region, the report said.

The findings of the report are crucial for IT vendors, both in India and abroad, as the BFSI segment is the largest IT spender. For Indian vendors, a big chunk of their revenues, 30-40 per cent, comes from the segment and the US is a crucial market.

According to the report, spending by European banks will grow 3.4 per cent in 2007 to $60.2 billion and a mere 2.3 per cent in 2008 to touch $61.6 billion. Spending by North American banks will grow a modest 3.6 per cent in 2008 to $49.7 billion.

The global IT spending by financial services institutions will reach $342.1 billion in 2007. The report says that while this represents an increase of 5.9 per cent over 2006, it is much lower than the 8.7 per cent growth achieved in 2006.

"Growth rates have dropped across all regions, contributing to the lower total. US financial institutions have been hit particularly hard and challenges in the region are contributing to growth declines. The credit crunch and looming economic uncertainty (in the US) will have North American financial institutions tightening their belts. Ripples from the US sub-prime crisis are likely to have a dampening effect on other regions as well," said Jacob Jegher, senior analyst in Celent's banking group and co-author of the report.

With IT spend increasing 7.6 per cent in 2007 and at a CAGR of 9.3 per cent from 2007 to 2009, the fastest growth will be seen in financial services institutions in Asia-Pacific. Growth will continue to rise in the region, and total spend in the region is expected to reach $94.5 billion in 2009.

Banks in Asia-Pacific will spend $12.9 billion on new projects in 2007, a significant 28.7 per cent of overall IT spending, but only a 3.5 per cent increase over 2006. These banks will spend $45 billion on IT in 2007, a 4.7 per cent increase over 2006.

This, however, signals a slowdown in spending, following several years of high growth, as major banks in emerging markets, China and India in particular, complete major infrastructural upgrades and banks in developed markets such as Japan, Australia, and Singapore wind down a rash of new projects focussed on risk management, channel delivery, and other strategic areas.

Asia-Pacific banks still spend the most on hardware. Spending on hardware will be $23.9 billion in 2007, but this is only a 1.8 per cent increase over 2006.

Banks in a number of markets, including China, India and Vietnam, are also installing new core systems as a cornerstone of their modernisation strategies. These trends are driving rapid growth in spending on external software, which will reach $3.8 billion in 2007, an 18.6 per cent increase over 2006.

LOSING CONFIDENCE

Global IT spend by banks to increase by 5.9% in 2008

North American banks spending will grow by a mere 3.6% in 2008t

European banks spending to rise 2.3 per cent

Asia-Pacific Banks IT spend to grow at a CAGR of 9.3 per cent from 2007 to 2009