Technology expenses for banks in South and Southeast Asia could continue to increase at 15 percent to 20 percent a year over the next two to three years, according to S&P Global Ratings.

The multilateral assessment agency said regulators in the region are calling on banks to address technology outages or expect firmer penalties.

The Malaysian regulator is the latest to take action against banks following similar moves in Singapore and India.

According to a report published by S&P Global Ratings today, titled, “Tech Crackdown Could Boost Expenses For South And Southeast Asia Banks,” financial institutions in South and Southeast Asia continue to invest in technology to ensure system stability and robust disaster-recovery planning.

Substantial tech spending

S&P Global Ratings analyst Nikita Anand said technology costs formed about 12 percent of operating expenses on average for rated banks.

“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.

The report cited the pandemic-driven surge in demand for online banking services has caused regulators in South and Southeast Asia to increase their scrutiny of banks’ digital infrastructure and response to service disruptions.

S&P Global Ratings anticipates banks’ spending on technology could rise by up to 20 percent a year in the next two to three years.

“This is to ensure system stability and robust disaster-recovery planning,” according to Anand.

Regulators may impose stricter penalties or embargos for recurring issues. Banks face higher reputational risk from the imposition of regulatory actions, she said.