GEMs’ Enhanced Recovery Statistics Are Yet To Provide Sufficient Transparency And Quality For Detailed Analysis

PARIS (S&P Global Ratings) June 4, 2024–For the first time, the Global Emerging Markets Risk Database (GEMs) Consortium has released its default and recovery figures publicly. S&P Global Ratings’ cross-practice working group on blended finance and the climate finance gap has analyzed the report, which was published March 25 and compiled using data and disclosures from multinational lending institutions (MLIs) that are members of GEMs Consortium. We find the recently enhanced disclosure of recovery data, which complements previously released default statistics, to be a welcome step. However, in our view, the data in the report is insufficient to allow for the type of in-depth analysis that forms part our credit rating process.

We see, among other things, a lack of disclosure about the impact of guarantees and other forms of credit support on the probability of defaults and recoveries, which still limits our ability to interpret the data. Moreover, the data breakdown lacks sufficient granularity, in our view. It uses asset class definitions and geographic breakdowns that we believe are too broad to be informative for the specific types of entities and issues we rate.

We met with GEMs Consortium’s management team to clarify aspects of the historical dataset and explore possibilities to receive additional disclosures. We understand the Consortium’s teams are actively working on the database to allow enhanced disclosures that better address market participants’ needs. A future edition of the report may provide meaningful additional disclosure by the type of infrastructure, country, and financing (for example, whether secured or unsecured).

At the same time, we acknowledge the challenges of collecting data from 25 institutions operating in different countries and, in some cases, using different accounting standards. Thus, we will continue to assess any new information that is made available by the GEM Consortium to assess whether it can inform our rating calibrations, especially in low- and middle-income countries where data availability is scarcer than in developed nations.

Despite the uniqueness of MLIs’ risk profiles, which benefit from preferred creditor status for loans to sovereigns and have lower risk exposure to the private sector than average financial institutions, future data releases could be useful in assessing the probability of default, recovery expectations, and overall creditworthiness across asset classes and geographies. This would be the case for both individual projects and entity types that we rate, as well as for pooled exposures in entities and structures such as funds and collateralized loan obligations.

This report does not constitute a rating action.

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