Global crisis hits Asian finance tech

Technology departments in region's financial sector are affected by "extremely lengthy internal approval" of corporate budgets, says industry observer.
Written by Sol E. Solomon, Contributor

With Asia's financial sector intrinsically linked to the global economy, IT operations within this sector in the region are feeling the ill effects of the credit crunch, observers say.

Ben Watson, managing director of project management company PTS Consulting, said, financial services companies are experiencing a reduction of non-critical capital expenditure and facing an "extremely lengthy internal approval process" on corporate spending, including IT budgets.

Internal service level agreements will need to be measured and improved to satisfy not only internal businesses, but also external regulators in the more supervised environment.

Malcolm Lister, CA AP/Japan

"In addition, we're seeing hiring freezes and senior management already starting to 'red pen' 2009 budgets now being put forward for approval," Watson said in an e-mail interview.

In the medium term, as organizations struggle financially and have limited access to the credit required for investments, Watson expects a significant reduction in application development and application deployment projects. Such initiatives, he noted, often represent large capital investments and require considerable manpower.

"Large-scale IT projects generally deliver medium- to long-term returns on investment and during times like these, any investment must represent immediate cost savings," he said.

Better IT governance
Malcolm Lister, CA's Asia-Pacific and Japan vice president of alliances and industry solutions, said an "aftershock" of the current crisis is that the global financial sector is heading into an increasingly regulated climate. He explained that banks will be battling with a number of key issues, including issues related to governance, risk management and compliance (GRC).

In this new environment, Lister said in an e-mail to ZDNet Asia, the capital and risk management strength of a financial institution will be its "foundation stone" for success. Among such efforts, banks will be looking to rebuild their capital through "injection of sovereign wealth and stock offerings", acquiring weaker financial institutions and increasing their focus on cost control, he said.

A key component will be the new level of transparency in corporate governance demanded by regulators, investors, and particularly, the banks' management teams and executive boards, Lister added.

To build an open, secure IT environment, he noted that greater levels of flexibility will be needed, and security will be critical to maintain customer and investor confidence.

"In the more challenging post-financial crisis world, it will be essential to provide scalability to manage increased volumes of transactions, information and decisions," he added. "High availability is a must; monitoring and management of the systems that have already become even more extensive, will need greater levels of integration with partners, outsourcers and the other banks."

According to PTS Consulting's Watson, three common traits will be heightened in terms of governance, risk management and compliance: - need for information to be shared in a transparent fashion; - need to manage information flows; and - need to provide an audit trail of information flow, and any subsequent approval or rejection of that information.

"Ensuring the correct technology is in place to facilitate these requirements will be key, and IT departments' interaction with the overall business will need to be as close as ever to understand these changing requirements and deliver upon them," he said.

Essentially, Watson added, process management tools will have to be implemented or tweaked.

"The overall knock-on effect is that organizations will eventually become even more dependent on technology and infrastructure than they already are today," he noted. "Data storage, data mining and workflow automation platforms will become more sophisticated, and the underlying technology infrastructure will have to become increasingly reliable and robust to ensure 24/7 availability."

However, Lister said, current IT infrastructures in the financial sector are not designed for enterprise-wide data management. This will pose a number of major challenges as the new "mega" banks--borne of market consolidation--start to manage their even more complex environments, he said.

Further consolidation expected
Lister expects the current financial crisis to drive further mergers and acquisitions between banks in the region.

In the last five to 10 years, Asian countries had carefully managed consolidation of their banks, he said. However, he noted that several of these consolidations occurred largely "in name" and have yet to be accompanied by full integration of the underlying IT and operating environments.

"Many Japanese and Korean banks, for example, are today highly complex organizations--owned by a single holding company," Lister explained. "In the new [post-financial crisis] environment, transparency and efficiency is going to be required to enable effective management and decision making."

Watson advised that given the sensitive nature of two merging banks having to work together for the first time--coupled with potential power struggles--such organizations should engage an external, independent resource project management and IT consulting team that is "purely focused on getting the job done" to oversee tech integration work.

"This may seem like a trivial issue but from PTS Consulting's experience, the inability of internal groups to work together is probably the biggest single cause of project failures," he said.

He added that the primary reason behind consolidation is to drive economies of scale.

"So while integration projects place huge demands on technology-related operations, companies should not lose sight of the original purpose--cost savings," Watson explained. "We should expect to see systems and platform consolidations, which in turn reduce data center real-estate requirements as well as the overall number of support personnel required."

In addition, Lister said it is likely the changes in the sector will accelerate the move to greater levels of shared services and outsourcing in the region. IT will need to be managed as an internal IT services unit that will be even more closely aligned with business objectives and operations, he said.

"Internal service level agreements will need to be measured and improved to satisfy not only internal businesses, but also external regulators in the more supervised environment," Lister said.

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