重新評估新興市場貸款的風險

nternatina

Financecorporation

FC''IFCResearchNote

ByFedericoGaliziaandSusanLund1

NewstatisticsfromtheGlobalEmerging MarketsRiskDatabaseConsortiumonaround15,000loanstoprivatecompaniesindeveloping economiesover30years,revealthattherisk ofinvestinginemergingmarketbusinessesislowerthancommonlyperceived.

OCTOBER2024

ReassessingRisk

inEmergingMarketLending:

InsightsfromGEMsConsortiumStatistics

Emergingmarketshavelongbeenviewedashigh-risk

destinationsforinvestment,particularlyinvestmentsin

companies.Althoughmacroeconomicandpoliticalstability

risksarehigher,thisperceptionalsoreflectsproject-levelrisks,oruncertaintyaboutrepaymentprospects.Investors,with

limitedhistoricaldataandalackofreliablemetricsonthelikelihoodofdefaultandrecoveryrates,approachemergingmarketswithgreatcaution.

Ourresearchchallengesthisview.NewlyreleasedstatisticsfromtheGlobalEmergingMarketsRiskDatabase(GEMs),

aconsortiumof26multilateraldevelopmentbanks(MDBs)anddevelopmentfinanceinstitutions(DFIs)poolingtheir

creditriskdata,providesawaytoanalyzetherisksinamorenuancedway.Thestatisticsofferinsightsintodefaultand

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recoverypatternsforloanstoemergingmarketfirmsoverthepastthreedecades,especiallywheninvestmentsaremadealongsideMDBsandDFIs.Theyalsohighlightthebenefitsofincorporatingemergingmarketexposureintodiversifiedinvestmentportfolios.

DataCoverageandScope

TheGEMscreditriskstatisticsforprivatelending,publishedinOctober2024,areamongthemostcomprehensiveoftheirkind.2Spanningtheperiod1994–2023,thedataincludeabout15,000loansextendedtoapproximately10,000privatecounterpartiesacrossessentiallyallemergingand

developingeconomies.Thetotalvalueoftheseloansexceedshalfatrilliondollars.Thiscoverage

capturesnearly2,000defaultevents,providingarobustfoundationforanalyzingdefaultand

recoveryrates.ComprisedofloansissuedbyMDBsandDFIs,theGEMsdataspanallsectorsoftheeconomy,includingtransportationandenergyinfrastructure,manufacturing,agribusiness,financialservices,telecom,retailandwholesale,healthcare,andtourism.Theydifferfromatypicalpurely

commercialportfolio,however,inthatMDBsandDFIsoftenprovideadvisorysupportforprojectdevelopmentandimplementationbylocalin-countryteams.

DefaultRates:HowRiskyAreEmergingMarkets?

Defaultratesareaguidingmetricforinvestors,astheyindicatethefrequencywithwhichborrowersfailtomeettheirfinancialobligations.Between1994and2023,theaveragedefaultrateintheGEMs

FIGURE1

AnnualDefaultRates,GEMsVersusComparators

Inpercent

Asian

SouthAmerica

Economic&Debt

15%

Crisisand

DBubble

GlobalFinancialCrisis

Commodity

PriceCrisisCOVID-19

FinancialCrisis

10%

Moody'sGlobal

Corporate"B3"rating

5%

GEMs

(privatecounterparties)

S&PGlobal

Corporate"B"rating

0%

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

2020

2022

2024

Note:Standard&Poor’sglobalcorporate“B”ratingisfromStandard&Poor’s(2024):“Default,Transition,andRecovery:2023AnnualGlobalCorporateDefaultandRatingTransitionStudy.March2024”.Moody’sglobalcorporate“B3”ratingisfromMoody’s(2023):“DefaultTrends–Global.AnnualDefaultStudy.March2023”.Thebars(ingrey)displaydifferentcrisesduringthesampleperiod1994–2023.

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portfoliowas3.6percent.3,4,5Thisisroughlycomparabletoaveragedefaultratesobservedinnon-

investmentgradecompaniesthatreceiveaBcreditratingfromS&P(3.3percent)andaB3from

Moody’s(4percent).6ThecomparatorgroupofcorporatesratedbyS&PandMoody’scoversfirms

acrosstheglobe,withheavyrepresentationofadvancedeconomies,whereasthesamplecoveredbyGEMsconsistsprimarilyoffirmsinemerginganddevelopingeconomies.Butthetakeawayisclear:althoughemergingmarketcorporates,onaverage,arenotinvestmentgrade,theyarelowerriskthanmanyhigh-yieldcorporateborrowersfromadvancedeconomies.

OneofthekeyinsightsfromtheGEMsdataisthediversificationbenefitofholdingaportfoliothat

includesbothadvancedandemergingmarketassets.DefaultratesinGEMsportfoliosarecorrelatedwiththoseofadvancedeconomies,butthecorrelationisfarfromperfect.ThecorrelationcoefficientbetweenGEMsdefaultratesandthoseforS&PB-ratedfirmsis0.46,whereasthecorrelationfor

Moody’sB3-ratedfirmsis0.33.Thisrelativelylowcorrelationindicatesthatemergingmarketdefaultsdonotnecessarilyfollowthesamepatternsasthoseinadvancedeconomies,particularlyduring

timesofeconomicstress.

Figure1showsthatinvestorswithexposuretobothadvancedandemergingmarketassetscan

mitigatesomeoftherisksassociatedwitheconomicdownturnsinadvancedeconomies.For

example,duringthe2008globalfinancialcrisis,whichoriginatedintheadvancedeconomies,defaultsbyemergingmarketfirmswerelesspronouncedthanamongtheiradvancedeconomycounterparts.Thissuggeststhatadvancedeconomyinvestorswithportfoliosincludingemergingmarketsreaped

diversificationbenefitsatacrucialtime.

FIGURE2

GEMsAverageDefaultRatesandCountryRatings

Bycountryandincomegroup

GEMsdefaultrate(privatecounterparties)

Implieddefaultratefromhistoricalcountrysovereignratings

Highincome

2.3%

1.7%

Uppermiddleincome

3.1%

6.2%

Lowermiddleincome

4.4%

14.6%

Lowincome

6.3%

14.2%

Note:ThelightbluebarsrepresenttheaveragedefaultrateintheGEMssample(1994–2023)bycountryincomegroup(fromthe2024WorldBankGroupcountryincomeclassification).Thenavybluebarsdisplayaveragedefaultratesimpliedfromhistoricalcountrysovereignratingsfrom1994to2023forthesamecountygroups(subjecttodataavailability).HistoricaldefaultratesimpliedincountrysovereignratingsarefromStandard&Poor’s(2024):“Default,Transition,andRecovery:2023AnnualGlobalSovereignDefaultandRatingTransitionStudy.March2024”.

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CountryPatterns:DoesIncomeLevelMatter?

TheGEMsstatisticsrevealinterestingpatternswhenviewedbycountryincomelevel.Asexpected,defaultratesarenegativelycorrelatedwithincomelevel.Butthegapbetweenadvancedandlower-incomeeconomiesisnotaspronouncedasonemightexpect(Figure2).

Inhigh-incomeeconomies,theaverageGEMsdefaultratewas2.3percent—slightlyhigherthan

impliedbythecountrycreditrating(Figure2).ThedefaultrateonprivateborrowersintheGEMs

statisticsincreasesasincomeleveldeclines,reaching6.3percentinlow-incomecountries.Butexceptforhigh-incomecountries,thedefaultrateintheGEMssamplewaslowerthanwouldbeexpectedbasedonthecorrespondingcountries’sovereignriskratings.Comparingthedefaultratesinthe

GEMssampletothoseimpliedbythesovereignratings,onecanobserveasmalldifferenceof-0.6percentagepointsforadvancedeconomiesbutalargergapof7.9percentagepointsforlow-incomecountries.

Thisfindingchallengestheconventionalwisdomthatinvestmentsincorporationsorprivatesectorprojectsinlow-incomecountriesareexcessivelyrisky,possiblyduetofactorsunrelatedtobusinessperformance,suchaspoliticalinstabilityorcurrencyvolatility.Inpractice,theGEMsstatisticsshowthattheriskismuchlowerthanbasedonsovereigncreditratings.ThismaybebecausetheGEMsdataincludeloansfromDFIsandMDBs,whichmaybeabletomitigatesomeoftheserisksthroughacombinationoflocalexpertise,in-countrystaff,advisoryservices,andactivesupervisionduring

projectimplementation.Relyingsolelyonsovereignratingsinthiscontextwouldleadinvestorstooverstatetherisksoflendingtofirmsinthesemarkets.

RecoveryRates:WhatHappensAfterDefault?

TheGEMsstatisticsalsorevealthatrecoveryrates,whichmeasuretheamountofinvestment

recoveredafteradefaultoccurs,werehigherthanexpected.Onaverage,72percentofthevalueofdefaultedGEMsconsortiumloanswererecovered,comparedto70percentreportedforMoody’sGlobalLoans,59percentatMoody’sGlobalBonds,and38percentatJPMorganEmergingMarketBonds.

Theserelativelyhighrecoveryratessuggestthatevenincaseswheredefaultsoccur,investorsin

emergingmarketsarelikelytorecoupasignificantportionoftheirinvestments.Thisrelatively

strongGEMsperformancemaybearesultofMDBsandDFIshavingadeeperunderstandingoflocalmarketsandstrongerrelationshipswithborrowers.

Conclusion:AReassessmentofRisk

Theseresultssuggestthatinvestinginfirmslocatedinemergingmarketsisnotasriskyasmighthavebeenexpected.7GEMsstatisticsreflecttheuniqueexperienceofmultilateraldevelopmentbanksanddevelopmentfinanceinstitutions,includingmorein-countrystaffthanglobalcommercialinvestors

anddetailedknowledgeoftheregulatoryandpoliticalaspectsofthemarket.Notwithstandingthosecaveats,theresultspresentedinthisnoteprovidegeneralencouragementforinvestorspotentially

interestedininvesting—directlyoralongsideGEMparticipants—inemergingmarketbusinesses.

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Endnotes

1InternationalFinance

Corporation.FedericoGaliziaisVicePresident,RiskandFinance.SusanLundisVicePresident,

EconomicsandPrivateSector

Development.ContributionsbyRaptiGoonesekere,PaoloMauro,CesaireMeh,FlorianMoelders,

MohammedSaleharegratefullyacknowledged.

2TheGEMsconsortiumpools

creditriskdataandpublishestheresultingstatisticsasaresource

forpublicuse.Ithasevolved

overtimeintoacommunitythatdevelopscommonapproaches

anddatamethodologiestorecorddefaultandrecoveryfrequencies.Asaco-founder,alongwiththe

EuropeanInvestmentBank,and

thelargestcontributorofprivatelendingdatatoGEMs,IFCremainscommittedtopoolingdatawith

ourpartnerstooptimizecreditriskanalysisofprivatesectorplayers

lookingtoinvestinemergingmarkets.

3GlobalEmergingMarketsRiskDatabaseConsortium(2024):

“DefaultandRecoveryStatistics,PrivateandPublicLending1994-

2023.October2024”.

4Thesepatternsarealso

consistentwithlonger-rundatafromIFC,whoseprivatesectorportfoliohadanaveragedefaultrateof4.1percentfrom1986to2023(seeIFCPortfolioDefaultRateAnalysis,March2024).

5S&PandMoody’spublish

annualdefaultrates.Basedonthesestatistics,theaverage

defaultratefrom1994to2023iscalculatedbytakingasimpleaverageoftheseannualdefaultratesoverthesameperiod.ThecorrespondingsimpleaveragefromGEMsis3.8percent.

6CreditratingagencieslikeS&PandMoody’suseprobabilities

ofdefaultasakeyinputintheir

corporatecreditratingscales.

Theseagenciesassignratings

basedonthelikelihoodthata

borrowerwilldefaultonitsdebtobligations,withhigherratings

(e.g.,AAAorAaa)indicatinglowerdefaultriskandlowerratings(e.g.,BorC)suggestingahigherriskofdefault.Theimpliedprobabilityofdefaultisderivedfromhistorical

defaultratesassociatedwitheachratingcategory.Forinstance,a

companywithaBBratingfrom

S&Pisexpectedtohaveahigherprobabilityofdefaultthana

companywithanArating,basedontheagency’shistoricaldataofdefaultswithineachratingband.Byanalyzingpastdefaultsand

recoveryoutcomes,theagenciesestimatetheseprobabilities,whicharethenmappedtothecredit

ratingsasareflectionofexpectedrisk.AsnotedintheAnnex,the

definitionsofdefaultdifferacrossdatasources.IntheS&Pscale,theaveragedefaultrateis1.7percentforB+,3.3percentforB,and6.8percentforB-.IntheMoody’s

scale,thedefaultrateis2.5

percentforB2,4.0percentforB3,and7.1percentforCaa1.

7Thesepatternsarealso

consistentwithearlierresearchonIFC’sequityinvestments,

whichoverthepreviousfourdecadesoutperformedtheS&P

500.SeeCole,Shawn,Martin

Melecky,FlorianM?lders,and

TristanReed(2021):“Long-run

ReturnstoImpactInvestingin

EmergingMarketsandDevelopingEconomies”,NBERWorkingPaperNo.27870.

IFCRESEARCHNOTE