research report

Global consultancy firm Celent finds banks in Asia-Pacific

having a growth trajectory in IT spending:

APAC Banks on IT
T he global IT spending by financial services institutions
is expected to go up by 3.7% in 2011 compared with
2011 reaching figure of $363.8 billion. This is the projection
made by global consultancy Celent in a recent research report.
The report also forecast a global spending on IT products and
services to grow to $393 billion by 2013, which is a 3.9%
CAGR from 2011 to 2013.
“We are not completely out of the woods, but the
good news is that the turnaround has begun. European
institutions are still being hit particularly hard, and many
of these challenges will continue in 2011. The good news is
that growth projections are indicating a positive trend,” the
report, which covered banking, insurance and securities and
investments and authored by Jacob Jegher, said.
While firms in the financial services sector in North
America and Europe account for 34.2% and 33.6%,
respectively, of the global IT investments, those in Asia-
Pacific account for 26.4% and Latin America and Africa for
the remaining 5.8%. However, the report reveals that the
fastest growth will be seen in financial services institutions
in Asia-Pacific region “with IT spending increasing at 6.2%
in 2011 and a CAGR of 6.2% from 2011 to 2013.” The report
also predicts that growth will continue to rise in this region,
and the total spending is expected to reach $108.2 billion
in 2013. North America will see IT spending climbing to
$135.1 billion in 2013, a CAGR of 4.3% from 2011 to 2013
and Europe to $126.7 billion, a CAGR of 1.7%. Latin America
and Africa are expected to grow at a relatively modest rate
US$ BN
through 2013. European banks make up the lion’s share of
bank IT spending at $60.2 billion.
IT spending on insurance and securities and investments
activities are expected to reach $97.9 billion and $75.2
billion, respectively. In the medium term, securities and
investments firms are expected to increase their spending on
IT at a faster rate than the other verticals - 5.9% - compared
with banks at 2.6% and insurance at 1.3%.
The report finds that “although there are many ways to
split the spending pie, the most telling indicator of future
spending and growth relates to investments in new IT
projects. Of the total investment in IT in 2011, a whopping
72.8% goes to maintenance. The percentage of funds
dedicated to maintenance activities is still astronomical but is
slowly coming down; this figure should drop to 70% in 2013.
Unfortunately, economic conditions and the financial crisis
have resulted in a slow moving shift to increased spending
on new investments. This will change as financial services
firms put greater emphasis on innovation. It will, however,
take several years before it has a material impact.”
Total Global IT Spending Snapshot
$450
$400
$23.0
$22.1
$350 $20.4
$21.2
$19.8
$300 $101.9
$108.2
$90.3 $95.9
$85.9
$250

(3.7%) with spending reaching $21.2 billion in 2011.

$200 $123.6 $126.7
$121.9 $121.7 $122.4

BANKING SECTOR TOPS $150

IT spending by the banking sub sector accounted for $100

$124.3 $129.4 $135.1
nearly 50% of the total IT spending by the sector, which the $50 $115.0 $118.5

report estimated, will reach $169.6 billion in 2011. In each $0

2009 2010 2011 2012 2013
region, IT spending by the banking sub sector represents the
North America Europe Asia Pacific The Rest of the World
highest percentage of spending, which trend will continue

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 SPENDING OUTLAYS 2011 IT Spending by Industry and Region
The report distributes IT spending to outlays on hardware, $180

software and technology-related services. The spending $160

encompasses fully loaded expenses for both internal and $140 $56.0
external technology activities. Internal IT spending denotes $120
expenses associated with the internal management, analysis, $100

US$ BN
development, maintenance, support and operation of IT. It $60.2 $24.8
$80
also includes all internal spending on data center operations $15.1
$60
and management of technology personnel. External IT $37.4
$24.8
spending relates to spending on externally provided hardware, $40
$53.4
software and services and includes expenses associated with $20 $35.7 $35.2
the purchase or lease of hardware, software, and services for the $0
Banking Insurance Securi�es & Investments
analysis, development, maintenance, support, and operation North America Europe Asia Pacific
of information technology. This consists of three categories:
spending on hardware, software, and services. It includes all The report observed that while some markets in Asia-
IT expenditures that are in addition to fully loaded internal Pacific are enjoying significant growth, overall IT spending for
technology staffing costs. Asia-Pacific banks will not be as spectacular, because different
Coming specifically to banks, the report says the sum of markets have their own problems to face. “For example, while
bank IT spending across North America, Europe, and Asia-Pacific signs of recovery emerged in the world economy and financial
will grow to $169.6 billion in 2011, which is approximately markets, Japan faced deflationary pressures. Despite growth, the
4.1% higher than $163 billion in 2010. “The majority of the Taiwanese banking sector remained one of the least profitable
growth is coming from Asia-Pacific banks; spending by banks in Asia. In China, the government’s economic stimulus
in this region will grow by 5.9% in 2011 to $56 billion. This will gradually be withdrawn, sharply decreasing lending
growth will continue in 2012, which will be 6% to reach $59.4 opportunities for banks. The growth rate of Japanese bank IT
billion. North American bank spending will grow by a solid spending will continue declining from 2011 to 2013, and the
4% in 2011 to $53.4 billion. This figure will accelerate to
4.6% in 2012 to $55.9 billion. European banks will grow
2.5% in 2011 to $60.2 billion and this growth will remain
constant in 2012 as spending increases by 2.4% to $61.6
billion,” says the report.

TRENDS IN ASIA-PAC
The report lists the following top trends in retail and
corporate banking in the Asia-Pac region:
• Banks catching up to the smart phone
• Mobile contactless payments becoming a reality
• Social media emerging as a new marketing tool
• Regional banks continuing international
expansion initiatives
• Expansion of foreign banks into emerging
Asian markets
• Putting the plow to rural banking
• Accelerating shift to SME banking
• Recovery in the wealth management market
• Making IT slimmer and smarter
• Smaller banks turn to outsourcing and BPO
Stating that the effect of the financial crisis on banks
in the region has not been as serious as for the American
or European banks, the report cites growth in profits in
Chinese banks at 14.6% year-on-year in 2009, which is
estimated to rise to around 20% in 2010, while Indian
banks clocked a profit of 25.7% in 2009, while Taiwanese
banks had a 147.4% growth in profits.

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 Bank IT Spending Snapshot related business such as dealing, brokerage and investment
$200
$180
management. The smallest of the three categories at 14.1%
$160
of total bank IT spending in the region, capital markets
$62.8
$56.0
$59.4 spending is estimated to reach $7.9 billion in 2011 for a 6.0%
$140 $52.9
$50.6
increase over 2010.”
$120
US$ BN

$100
$60.2 $61.6
$80 $58.0 $58.7
$60
$40
$51.4 $53.4 $55.9
$50.3
$20
$0
2009 2010 2011 2012
North America Europe Asia Pacific
big Chinese banks will finish their large projects by 2012. As
a result of these and other trends in major markets, Celent
believes that total bank IT spending will grow somewhat
more modestly than the headline-grabbing growth statistics
for the region may lead one to expect.”
MAJOR DRIVERS
The report lists the major drivers of spending to include new
customer-centric core banking systems, more sophisticated
risk management systems, multichannel capabilities and
international expansion at the regional banks. The hot
fields of investment include cash management systems,
customer-centric core banking systems, remote channels
(especially mobile banking and Internet banking), credit card
and debit card systems, wealth management systems and
risk management.
“Broken down by business line, IT spending on retail
banking initiatives will account for 57.8% of total bank IT
spending in the region, or $32.4 billion, in 2011, for a CAGR of
6.4% over 2010. Spending will grow to $34.6 billion in 2012,
a 6.9% year-on-year increase, and to $37.0 billion in 2013, a
5.8% CAGR. Major drivers of IT spending in the Asia-Pacific
retail banking sector include international expansion, online
banking, mobile banking, payments tools, and wealth and
investment-related projects. At the same time, some banks
in Asia-Pacific who focused on corporate banking before may
enter the retail banking business, such as some foreign banks
in China, including Japanese banks and Taiwanese banks,”
says the report.
It adds: “Technology spending in the corporate banking
sector is estimated to be $15.8 billion in 2011, a 4.8%
increase over 2010. The spending on corporate banking
technology will rise to $16.4 billion in 2012, a 4.0% year-
on-year increase. A major driver of spending in corporate
banking is the international expansion strategies of banks
from mature markets such as Australia, Japan, and Singapore
and, perhaps surprisingly, emerging markets of China and
India. SME banking and transaction banking are also major
areas of focus. ‘Other’ spending consists of capital markets-
$63.6 SPENDING ON HARDWARE
Celent also says spending on hardware by Asia-Pacific
banks is relatively high, reflecting the emerging nature
$58.3 of much of the region and the need to build out essential
infrastructure. Banks will spend $27.3 billion on hardware
2013 in 2011, a 5.1% increase compared to 2010, driven by the
recovery from the financial crisis. The proportion of hardware
to total IT spending is decreasing, and should continue to
decrease over the next few years. There are also some drivers
for hardware spending, such as new business requirements
including derivatives business and mobile banking, capacity
expansion, international expansion, and the construction of
new data centers.
It points out that banks in Asia-Pacific prefer to develop
software in-house, especially the large banks, such as major
Japanese banks and the big Chinese banks. As a result,
internal spending should stay steady at the fairly large
proportion of 28.9%, or $16.2 billion, in 2011, for a CAGR
of 4.0%. This will expand to $16.6 billion in 2012 and $17.2
billion in 2013.
What could be the outcome of such development of
technology? Celent believes that as technology develops,
banking services and vendors become more modern, and
medium-size and small banks mature, more banks begin to
turn to external software and services providers, including
global vendors. In addition, banks have started to rely on
BPO during the last few years; for example, more than 70
banks outsourced their credit card operations in China. As
a result, spending on external software is expected to rise
to $6.9 billion in 2011, to $8.1 billion in 2012, and to $9.4
billion in 2013. Similarly, competitive needs are creating
greater demand for external services. Spending on external
services by banks in Asia-Pacific is estimated at $5.7 billion
in 2011, expanding to $6.7 billion in 2013.
What actually contributed to the growth of the Asia-
Pac banks? The major drivers for this growth, adds the
report, include economic growth, a trend that is expected
to continue in the future; expansion by existing banks into
new lines of business, including from corporate banking to
retail banking in emerging regions, as well as new products
and services such as mobile payments in mature markets;
regional movement, including international expansion
of Asian banks and foreign banks to Asia-Pacific, and new
systems to support business and compliance requirements
for such greenfield banking operations.
mohan@bankingfrontiers.com

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