Technology spending by banks in South and Southeast Asia could continue to grow by 15 to 20 percent annually over the next two to three years following a recent crackdown in the technology sector, S&P Global Ratings said on Monday.

In a statement, the rating agency said regulators in the region were urging banks to address technical outages or face tougher penalties.

It was noted that the Malaysian regulator was the latest action against banks, following similar moves in Singapore and India.

“We see banks in South and Southeast Asia continuing to invest in technology to ensure system stability and robust disaster recovery plans,” said Nikita Anand, analyst at S&P Global Ratings.

According to S&P, technology costs at the banks it rated averaged about 12 percent of operating expenses.

“Although these investments are costly, they are necessary. Otherwise, banks face stricter measures – such as bans on new business areas or additional capital requirements.

“This could have a significant impact on growth and profitability and in turn impact ratings,” Anand said.

Overall, S&P believes that a pandemic-related increase in demand for online banking services is causing regulators in South and Southeast Asia to take a closer look at banks’ digital infrastructure and how they respond to service disruptions.

In addition, banks’ spending on technology is expected to increase by up to 20 percent per year over the next two to three years to ensure system stability and robust disaster recovery planning.

It was also noted that regulators may impose stricter penalties or embargoes in case of recurring violations.

The introduction of regulatory measures poses a higher reputational risk for banks, it said.

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