A consortium of international financial institutions, under pressure to be more transparent with a database called GEMs, has released aggregated data on the risk of investment around the world.
Some potential users of the GEMs data quickly dismissed the data as too general to be helpful.
“Lacking granularity so still not useful,” commented one investment portfolio manager, an opinion shared by several others in the private sector.
But another close observer pointed to a finding that counters impressions that lending in Sub-Saharan Africa is risky.
The new report provides information on the recovery rates for defaulted loans, a key point of interest for investors. The data is aggregated by six world regions. Advocates of more transparency want data at the country level, saying that more knowledge about default and recovery rates will encourage more investment.
The recovery rate, as defined in the report, “is the ratio between the discounted cash flows received (or expected to be received) and the outstanding amount at default.” The report provides data on recovery rates for private contracts and contracts of sub-sovereign counterparts. Differences in recovery rates are shown for three sectors: financial, infrastructure and “other.”
GEMs, the Global Emerging Markets Risk Database Consortium, was established in 2009 as a joint initiative between the European Investment Bank Group and the World Bank Group to pool credit risk data. The GEMs consortium comprises 25 member institutions, all multilateral development banks and development finance institutions. The report was based on data from 19 of the institutions.
Finding on Africa Termed ‘Noteworthy’
Despite the regional aggregation, one finding in the report was called “noteworthy” by Karen Mathiasen, project director with the Center for Global Development, a Washington-based think tank that works on development policy and supports more GEMs transparency.
She pointed to a key table in the report showing that the recovery rate for contracts with private counterparts in Sub-Saharan Africa was the highest among the six world regions, at 83.9 percent, above the world average of 74.7 percent.
“It challenges the notion that doing business in Africa is always a highly risk proposition,” she said, “because the recovery rates are high.”
The report is the first GEMs publication focusing on recovery rates. It is based on pooled GEMs data going back to 1994 supplied by 19 of the 25 GEM member institutions and follows a default statistics reports published in the fourth quarter of 2023.
Next Steps Unclear
The GEMs consortium has been considering transparency moves for about a year, though the deliberations are difficult to follow.
A GEMs spokesperson told EYE March 26, “The GEMs Consortium will continue to work with its members on gathering data and harmonizing it, with a view to potentially being able to provide more detailed statistics in the near future for more specific geographic regions.”
The GEMs Steering Committee meeting is expected to meet in Washington during the upcoming WB/IMF Spring Meetings.
“Looking ahead,” the report states, “GEMs will continue building and refining its methodology and processes to maximise the robustness and value of its statistics for member institutions and the wider community. This should enable the ongoing provision of enhanced reporting and new services targeting the scaling up of investment where most needed.”
The GEMs member institutions have access to a deeper breakdown of the data. “Using the detailed GEMs statistics, members can calibrate and benchmark internal models, set pricing and capital requirements, and make informed investment decisions,” according to the report.
The EIB in January denied EYE’s request for access to the minutes of the GEMs key decision-making body, the General Assembly. (See EYE article.)
Readers: For sure notification of new postings please sign up in the “Stay Informed” column to the right. Or follow Eye on Global Transparency via LinkedIn or on X (Twitter) @tobyjmcintosh.
Previous EYE articles on GEMs:
GEMs Overseers Decide Against Moving Database; Still Promise Transparency (Jan. 18, 2024)
Transparency Future for GEMs Database Remains Unclear; Meeting Upcoming, (Oct. 20, 2023)
Disclosure of GEMs Database Still Likely, But When, What, and by Whom Unclear (Oct. 6, 2023)
Past EIB Deal Offers Insights into Value of Nonpublic Database on Lending Risks (June 23, 2023)
GEMs Steering Committee Has ‘Proactive Agenda’ to Disclose Lending Risk Data (April 11, 2023)
Development Banks Considering Transparency for GEMs Database (March 20, 2023)
