KUALA LUMPUR (Aug 28): Malaysian banks, along with other lenders in South and Southeast Asia, may be forced to spend more on technology systems amid a crackdown and heightened scrutiny by authorities, S&P Global Ratings flagged.
Banks' technology spending could rise by up to 20% a year in the next two to three years, S&P Global said in a note. In Malaysia, technology costs grew by an average 13% in 2023-2022 for select banks, and the share as a portion of total operating expenses has risen in the past two years, the rating agency noted.
“Regulators may impose stricter penalties or embargos for recurring issues,” S&P warned. “Banks face higher reputational risk on imposition of regulatory actions.”
Bank Negara Malaysia is the latest to take action against banks following similar moves in Singapore and India in recent months.
The comment comes after Malaysia’s central bank imposed penalties on the country’s top two banks for prolonged service disruptions in breach of financial services laws. Malayan Banking Bhd (KL:MAYBANK) was fined RM4.32 million, while CIMB Group Holdings Bhd (KL:CIMB) was asked to pay RM760,000.
The Monetary Authority of Singapore in May imposed additional capital requirements on DBS Bank Ltd for operational risks on top of an earlier move in November 2023, which banned the lender from making new acquisitions for six months or closing branches after grappling with several service disruptions.
The Reserve Bank of India announced in April that Kotak Mahindra Bank Ltd would not be allowed to onboard new customers through online and mobile banking channels or issue new credit cards following outages of several core systems.
While relatively meagre, the fines imposed by Malaysian authorities on Maybank and CIMB highlight that regulators expect a more resilient digital infrastructure for banking services and better accounting and ownership of service disruptions by banks, S&P said.
“We believe the rapid scale-up of digital transactions, precipitated by the pandemic, has added to the motivations of regulators to pursue tougher actions aimed at improving banks' technology infrastructure and reducing downtime faced by customers,” the agency said.
That means regulators will keep a close eye on banks’ ability to prevent further disruptions, with threats of a more severe punishment, S&P said. For banks, such regulatory actions also raise reputational risk and inaction could have implications for their ratings, the agency cautioned.