IBS Journal - News

China-based IT vendor, Longtop Financial Technologies, saw a dip in its share price following recent press reports that one of its key customers, China Construction Bank (CCB), is considering moving its IT development and maintenance in-house, as a result of a change in the IT leadership at CCB and a change of strategy. If so, this would directly affect Longtop as it supplies the data warehouse and analytical software to CCB (IBS, April 2009, CCB warehouse project in next phase with Longtop). Another potential loser was believed to be Longtop's domestic rival, Yucheng Technologies. According to an analyst report by Kaufman Bros, CCB's annual spending on both vendors totals around $60 million. A number of international companies have also listed CCB as their customer, such as FIS for its Systematics retail banking system, Misys for its Opics Plus treasury and capital markets software, Surecomp for Imex (trade finance), Thomson Reuters for K+TP (treasury) and Fiserv for Signature (retail banking) at CCB's operations in Hong Kong.

Analyst reports

However, investors' concerns appear to be unfounded. Neither party was available to provide IBS with commentary regarding this story, but a number of analysts have published their findings, the main theme being that there has been no confirmation or even indication from the bank that the technology strategy in relation to Longtop and Yucheng is about to be amended. Furthermore, the changes in IT management at the bank are not recent but took place last year.

A report from Kaufman Bros quotes the CFO of Yucheng, Steve Dai, as stating he was not expecting any 'dramatic changes' (although Yucheng's revenue from CCB has been in decline for a number of years and continues to be so). Meanwhile, Longtop's executives held a meeting with CCB's IT team and also subsequently reported no changes to their relationship. A note from Deutsche Bank on Longtop affirms this and adds that CCB's only concern was a potential lack of Longtop's resources due to the vendor's present rapid growth of business. Another analyst firm, Jeffries & Company, reports that the bank wanted more resources from the vendor for business intelligence (BI) projects.  

The analysts point out that moving the technology in-house at CCB would take considerable time and effort, as the bank has been a long-standing user of third party software. The lack of a relevant talent pool in China has also been flagged as a major obstacle to bringing core IT competencies in-house.

China's Big Four banks

CCB is one of four banks that constitute China's Big Four, with the other three being Agricultural Bank of China, Industrial and Commercial Bank of China (ICBC) and Bank of China.

Similar to CCB, Agricultural Bank of China relies heavily on third party vendors for its technology needs. Its suppliers include Longtop (IBS, February 2009, Longtop develops treasury technology for ABC) and Temenos, which signed the bank for its high-end retail core system, TCB, in 2009 (IBS, May 2010, Agricultural Bank of China implements Temenos TCB).

Meanwhile, ICBC tends to carry out most of its key IT work in-house, although it has some external input, such as Teradata's enterprise data warehouse (IBS, July 2008, Teradata completes EDW project for ICBC), Misys' Summit wholesale system and Smartstream's TLM Corona for reconciliations.

Bank of China also crops up on user lists of international vendors, including TCS, which won a top-end deal with its Bancs retail core system at the bank in 2006 (IBS, February 2007, TCS/FNS win top-end selection). The system has since gone live. Misys claims Bank of China as a user of Opics Plus and the vendor's confirmation matching service. Sophis has its Risque portfolio and risk management solution running at the bank's Hong Kong location and mainland China.

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Unlike some 'news' sites, IBS Intelligence never copies press releases. This article has been written by our independent reporters to provide a concise, researched story that gets straight to the point.