Rule changes propel banks onto list

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Banks and other financial institutions make their first appearance in the R&D Scoreboard this year, thanks to the adoption in Europe of new International Financial Reporting Standards (IFRS) that require more extensive disclosure of research and development activities in annual accounts.

Two UK banks declared the biggest R&D investments. Royal Bank of Scotland spent £329m ($565m, €490m), up 9 per cent on 200-5. HSBC spent £245m, up 34 per cent.

RBS and HSBC appear in 11th and 13th position respectively in the overall UK R&D scoreboard, next to the two oil giants Shell (10th) and BP (12th). Indeed, the scoreboard shows that banks, which devote about 1 per cent of sales to R&D, are much more “R&D intensive” than the oil companies, whose spending is only 0.2 or 0.3 per cent of sales.

Other banks with R&D spending above $50m (€40m, £26m) last year include Banca Intesa and Sanpaolo IMI of Italy, Barclays and Standard Chartered of the UK, Rabobank of the Netherlands and Danske Bank of Denmark. Two UK insurance companies – Royal & Sun Alliance (£122m) and Old Mutual – also appear on the scoreboard.

The banks’ R&D represents in-house software development. “All banks are heavily reliant on IT and historically the vast majority of our IT work is done internally,” says the RBS. The banks have capitalised all their R&D spending, in accordance with IFRS requirements for “R&D with predictable outcomes”.

“The main drivers in banks’ increasing investment in R&D are the use of new technology to deliver services and products in a highly competitive environment, both domestically and internationally, and the streamlining and reducing of costs of regulatory reporting and back office functions,” says the British Bankers’ Association.

For the UK in particular, the large financial sector based in London and Edinburgh is an extremely important centre for software development. RBS and HSBC each spends far more on R&D than any individual software company – no UK software company invests more than £100m a year on R&D. The five UK banks in the scoreboard disclose a total of £705m in R&D in 2005-6, compared with £932m for 119 UK software companies.

The financial sector’s R&D disclosure process is still far from complete, as many companies are still getting used to the new reporting standards. Next year there is likely to be a substantial increase in the banks’ reported R&D.

The retail sector is also beginning to make an impact on the scoreboard, as companies invest in their internet operations. Amazon.com and eBay are, not surprisingly, the top-spending retailers, with R&D investments of $542m and $366m respectively. The top-ranked traditional retailer is the UK supermarket group Tesco (£115m).

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