Banks may book higher opex on tech investment–Moody’s

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The banking industry may book higher operating expenses (opex) in the next few years as it ramps up investment in technology amid the shift to digital, Moody’s Investor Services said.

The debt watcher said the lockdown measures and social distancing practice have prompted the surge in online banking transactions in the past few months.

“Increases in operating expenses are likely to accelerate in the next few years due to investment in technology as the coronavirus outbreak boosts demand for the digitalization of banking services,” it explained.

Moody’s said that demand for digital banking services is likely to be stable as clients become more used to them.

Ultimately, the goal of digitalization is to boost efficiency and cut costs in the long run, but this may not be the case for the banks in the next few years, Moody’s said.

It explained that the savings from the technology might still be used to develop the digital services further.

“While digitalization will help banks improve efficiency because it significantly lowers costs for acquiring customers and processing transactions, we expect any efficiency gains from digitalization to be limited in the next few years because banks will continue to reinvest cost savings in technology development,” the credit rating agency pointed out.

Moody’s said that the increase in operating expenses would partly depend on the depreciation policies for the technological investments.

“Increases in operating expenses will be steeper in underbanked emerging markets because in such markets, physical bank branches will remain important for some customers, particularly those who are less technology savvy, which will make it difficult for banks to cut costs by closing branches,” it added.

The Bankers Association of the Philippines earlier told the BusinessMirror that banks should be able to protect its clients not only in the physical branches but also in digital space as well. The group said that “strong cybersecurity is vital during this time when a substantial shift to digital
transactions is evident.”

In a study by Backbase and IDC Financial Insights, it was noted that 60 percent of the bankable customers in the country are willing to shift to more digital banks. With the increasing presence of neobanks and financial technology, the report said the unbanked and underbanked segments in the Philippines are anticipated to be reduced by half to around 20 percent in five years.

Meanwhile, the Bangko Sentral ng Pilipinas earlier launched a roadmap that aims to increase the digital transaction to 50 percent in the Philippines by 2023.

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