The report 'Impact of Financial Crisis on Technology Spending in Banking', says the cutback in spending will be concentrated in European and North American markets, led by the UK, where banking technology spend will have the greatest fall, declining by almost seven per cent.

Datamonitor expects overall technology growth to remain depressed compared to pre-crisis forecasts up to 2012, removing over $40bn from bank IT budgets over the next five years.

The analyst house says that while IT budgets are under pressure, requirements are different to the last downturn following the dot com crash, when technology was particularly targeted for cost reduction.

In the current environment, technology spend will reduce, says Datamonitor, but the need to obtain synergies from recent mergers and drive lower costs/higher productivity elsewhere will protect budgets to some degree.

Looking further ahead, the ongoing financial crisis will force a structural shift in business models that will necessitate spending on IT-dependent transformation projects.

Datamonitor says IT spend in the branch will be maintained as banks look to technology to maintain service levels after headcount reduction, with banking operations (e.g. account administration/loans processing) gaining share of budget as banks look to support greater efficiency and lower the cost base.

Similarly, technology spend to support risk management and compliance will be maintained; however, Datamonitor warns that banks will be looking to re-use existing systems as far as possible, so immediate technology vendor opportunity will be more subdued than many expect.

Datamonitor analyst Daniel Mayo concludes: "2009 and indeed 2010 are likely to be tough years for vendors, but medium and long-term opportunities remain significant for those who can adapt."