Bank spending on technology to rise

Bank spending on technology to rise

Financial services firms in the UK will continue to invest in technology despite the on-going impact of last year's global credit crisis, according to a survey by the Confederation of British Industry (CBI) and PricewaterhouseCoopers (PwC).

Although the report paints a bleak picture of the industry - with the two-year run of strong growth in the sector slowing and business volumes falling at their fastest rate since March 1991 - CBI says capital investment plans for IT "are at their strongest since September 1997".

The main spur to invest remains to increase efficiency, says the the CBI, with fewer respondents to the financial services survey saying they are investing in technology to expand capacity.

CBI says the planned increase in IT investments is an "indication of the resilience of the sector" following the slowdown caused by the credit crunch.

"The credit squeeze has delivered a sharp shock to business volumes over the past three months, and it seems that difficulties are likely to persist for some time yet," says Ian McCafferty, chief economic adviser, CBI. "This is however a very resilient sector that sees better prospects over the horizon, and it is encouraging that profitability, job creation and investment plans are all still positive."

The research found big differences in the impact of the credit crisis on volumes and profitability by sub-sector, says CBI. The slowdown was felt most keenly by securities traders and building societies. While banks saw business fall quite sharply and profitability dip slightly, fund managers and insurance brokers fared much better.

But the report found encouraging signs in some sectors, such as building societies which plan to spend much more on IT and plan to increase headcount in the coming year.

Fund managers also reported "very strong" investment plans for IT in the year ahead. Despite the financial climate the sector is reporting robust growth in business volumes, fees, commissions, employment and profitability.

But this improved picture is at odds with a lack of optimism prevalent in the fund management sector, which reflects the greater volatility and more turbulent outlook for financial markets, says CBI.

Spending on IT by insurance firms is also expected to increase over the next year in order to improve efficiency and profitability. CBI says survey results have caught the first sign of a major new stream of regulatory spending by the sector, which is likely to be based primarily on Solvency ll and IFRS Phase ll.

Research released by European research outfit Pierre Audoin Consultants in December predicted that UK bank expenditure on software and IT services will grow at a compound annual growth rate of 7.7% between 2007 and 2011, despite the economic uncertainty.

But as a result of the market pressures banks will be seeking to do more with the same resources and budget, which will lead to increased demand for offshoring services, the consultancy said.

However fears that banks will cut back on IT spending have been growing since the credit crisis in August last year.

The first signs of a possible tail-off emerged in early September, when dealing room vendor Tibco warned of a sudden drop in license sales at the end of its third quarter. This prompted some analysts to suggest that that the ongoing credit crunch may be hitting bank IT spending budgets.

In November UBS analysts downgraded UK banking systems vendor Misys from 'neutral' to 'sell' following concerns that financial firms are reviewing IT budgets.

UBS analysts said banks are reviewing all spending programmes closely and forecast a 20% decline in treasury and capital markets licence sales in the first half of 2008.

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