Bank IT spending to be 'rocky' through 2013

IT spending by banks will grow to $173.3 billion this year, up just 2.8% over 2011 and well short of an earlier forecast that pegged growth at 4.3% in 2012, according to research firm Celent. In fact, IT spending in banking is expected to be weak over the next couple of years.

In a new report, Celent said the tumultuous state of the banking industry since 2009 continues to affect tech spending. For instance, when Celent published its report on worldwide banking last year, it appeared that a turnaround had begun. "This is no longer the case; there is still plenty of uncertainty," Celent stated.

"From an IT spending perspective, the next couple of years are going to be rocky," Celent said.

U.S. banks are reporting more dismal results than other industries. North American bank spending will grow by a mere 2.4% in 2012 to $54.7 billion; that will increase to a 2.9% growth rate in 2013 to $56.3 billion, according to Celent's report.

Spending in 2011 was $168.5 billion, an increase of 3.4% over 2010.

The good news, however, is that a slight turnaround is in sight when considering all three banking regions in the report: North America, Europe and Asia-Pacific.

Celent found that a whopping 77.6% of tech spending by banks goes toward IT maintenance; while "astronomically" high, those spending levels should drop to 76.9% in 2014. Celent attributed a lack of growth in new IT projects to poor global economic conditions and uncertainty. European banks are struggling more than North American or Asian-Pacific banks in trying to shift spending from maintenance to new projects, according to Celent.

Financial services firms are expected to put greater emphasis on innovation in the future, but it will take several years before there is a material impact on spending, Celent said.

The majority of the IT spending growth is coming from Asia-Pacific banks; spending by banks in that region will grow by 6% in 2012 to $59.4 billion, and by another 5.9% in 2013 to $62.3 billion.

New investment spending at North American banks is growing much slower than it did in 2011. Asia-Pacific banks are slowly ramping up new investment spending, too, while European banks are stagnating.

According to Celent, IT spending by European banks will grow only 0.3% in 2012 to $59.2 billion. European spending growth will continue to be largely flat through 2013, when spending is expected to rise by just 0.4% to $59.5 billion.

"Banks will need to spend on new investments, at least partly as a result of needed system upgrades," Celent stated. "Frequently, financial institutions are running systems that are too obsolete, too slow, and inflexible. Systems like these are impediments to achieving optimum operational efficiency as well as to developing products. Slowly but surely, many financial services firms that rely on technologies that are nearly 30 years old are realizing the competitive advantage of modernizing their core systems and byzantine legacy systems."

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