Financial Insights Asia/Pacific Foresees A Good Year for Bank IT Spending in the Philippines

Leading independent research and advisory firm, Financial Insights, announced the release of a new report highlighting how Philippine banks are gearing up for a more vibrant banking market by making significant investments in technology. Based on interviews from senor executives of the country’s largest banks, Financial Insights forecasts that Philippine banks will spend approximately US$338 million on IT and related financial technology in 2008, representing a year-on-year growth of 11%. IT spending among banks is projected to grow by a compound annual growth rate (CAGR) of 8.5% from 2007 to 2010.

Michael Araneta, senior research manager for Financial Insights’ Asia/Pacific IT Benchmarking Practice says, “We believe that Philippine banking sector will show one of the highest growth rates in technology investments in the Asia/Pacific excluding Japan (APEJ) region. Even amidst a supposedly slowing global economy, the Philippines will see bright prospects in several business areas such as remittance, consumer banking, and lending to select industries. Banks will strive to gain significant foothold in these areas by improving operational efficiency, scalability and market responsiveness.”

Key areas of spending include channel rollouts, risk management projects, and core banking upgrades. Large banks are expected to focus on getting efficiencies out of their recent investments, finding opportunities for scale, and rationalization. Smaller players, meanwhile, will increase their spending on foundational investments, as well as on discrete projects that will win market share for them. There will also be project related loans origination, remittance, cash management, and payments.

Araneta notes, “We of course note impending mergers involving some of the biggest names in the market. More consolidation will improve the sector’s overall efficiency and productivity. We believe however that consolidation takes a long time to play out. Still, senior executives we spoke to admit to investing especially in channel-related technology to compete more effectively against suddenly larger peers.”

Araneta continues, “If the anticipated round of consolidation proceeds, the banking landscape will be transformed to have groupings around a handful of anchor banks, and then, at the bottom, smaller niche players. We believe that while the fight for scale will be won by those that have built effective distribution channels and good marketing insight and execution, it will ultimately be won by those that have deep pockets to acquire institutions and nerves of steel to pull it through. The more tactical battle will be on those that want to create niche propositions, and already, technology is playing a crucial role in the effort.” The report cites niche businesses being created in wholesale banking and payments.

Financial Insights also observes that while foundational and infrastructure-related projects are prevalent, initiatives that focus on the banking customer have not been so well defined. Araneta states, “There are pockets within banks that are keen to understand the customer more effectively and, from there, craft differentiated response to unique customer requirements. However, these still have to find momentum.”

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