Regulators' push to curb tech outages may boost bank expenses by 20%

Banks in South and Southeast Asia must enhance tech systems or face firmer penalties.

Financial regulators’ calls to address tech outages better will drive technology expenses of banks in South and Southeast Asia to rise by up to 20% each year.

"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.

S&P says that banks in the region may see their tech-related expenses increase by between 15% to 20% over the next 2 or 3 years as a result.

Regulators in the region are calling on banks to address tech outages or expect firmer penalties. 

Singapore has imposed fines on DBS and OCBC for recent tech outages and phishing attacks; more recently, Malaysian authorities also recently fined the Bank of China (Malaysia) for its failure to obtain written approval from the central bank before relocating two of its core systems to new data centers.

Indian authorities recently mandated its financial institutions to issue default notices to its borrowers before tagging them as fraud accounts.

Technology costs currently account for 12% of operating expenses on average based on a sample of banks rated by S&P Global Ratings.

Anand believes that the 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.

On the upside, the improvements will ensure system stability and robust disaster-recovery planning in the long run.

"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.