Technology expenses for banks in South and Southeast Asia could continue to increase at 15 percent to 20 percent a year over the next two to three years following a recent tech crackdown, S&P Global Ratings said Monday.
The rating agency said in a statement that regulators in the region are calling on banks to address tech outages or expect firmer penalties.
It noted the Malaysian regulator is the latest to take action against banks following similar moves in Singapore and India.
“We see banks in South and Southeast Asia continuing to invest in technology to ensure system stability and robust disaster-recovery planning,” said S&P Global Ratings analyst Nikita Anand.
According to S&P, technology costs formed about 12 percent of operating expenses on average for its sample of rated banks.
“Although costly, such investments are necessary. Otherwise, banks face stricter actions–such as bans on new businesses or additional capital requirements,
“This could have a material impact on growth and profitability, and in turn affect ratings,” Anand said.
Overall, S&P believed a pandemic-driven surge in demand for online banking services is causing regulators in South and Southeast Asia to increase their scrutiny of banks’ digital infrastructure and response to service disruptions.
It also anticipated banks’ spending on technology could rise by up to 20 percent a year in the next two to three years. This is to ensure system stability and robust disaster-recovery planning.
It also noted regulators may impose stricter penalties or embargos for recurring issues.
Banks face higher reputational risk from the imposition of regulatory actions, it added.