Bank spending on credit risk technology is set grow at a compound annual growth rate of seven per cent to hit $7.96 billion by 2010, according to a study by Chartis Research.
The credit risk technology market will be fuelled by the growth in credit risk derivatives and by Basel II, says the report.
Chartis says the pure credit risk software market - estimated to be $1.2bn in 2006 - will continue to grow at a healthy 11% compound annual rate to reach $1.8bn by 2010. The company ranks Algorithmics, Fermat, Reveleus, SAS and SunGard as the leaders in this space.
Helen Townsley, director of research at Chartis, says: "The growth in the credit risk technology market is fuelled by Basel II, the growth in credit risk derivatives and the increasing use of economic capital for managing financial performance."
Townsley says there will also be increased demand for credit risk technology from the emerging markets such as Asia Pacific, Middle East and Eastern Europe.
Expenditure will come in waves as focus shifts from regulatory compliance to value-adding performance management, says Chartis, and the 'beyond-Basel II spend' will be driven by the growing need for risk-based performance management systems.
According to the report, Basel II is also acting as a catalyst for moving financial institutions toward an integrated enterprise risk management system. As there are significant overlaps between credit and market risk management, operational risk management, financial management and IAS/IFRS initiatives, many firms are opting to invest in systems and processes for ERM.