BankWatch Research Exposes Gaps in EIB Disclosure Policy

13 December 2010

A report showing that some European economic stimulus funds were slow reaching their intended recipients also exposes flaws in the disclosure policy of the European Investment Bank.

The report by the CEE BankWatch Network concerns “global loans” — which are made by the EIB to intermediary commercial banks at preferential rates to help them make loans in areas deemed important by the EIB. Of interest to BankWatch were global loans intended to help small and medium-sized enterprises (SMEs) in the Czech Republic, Hungary, Poland and the Slovak Republic.  Global loans account for almost one-quarter of EIB lending.

BankWatch researchers wanted to know if, and when, the funds were getting to the intermediary banks and then to the ultimate intended beneficiaries, the SMEs.

Getting the information wasn’t easy, and midway through the process, the EIB backtracked.

In the end, the key finding was that only 74 percent of the total amount examined had been allocated to the intermediary banks. Further, BankWatch estimated that between 50 percent and 69 percent of the money had made it to the intended recipients as of June 2010. BankWatch looked at 30 global loans totaling 1.9 billion euros.

Now You See It…

From a transparency perspective, the process of doing the research sheds light on the tight controls included in the EIB’s disclosure policy on access to information about global loans.

Most problematical was that the EIB changed its mind about whether to provide information about how much each recipient bank actually had received from the EIB compared to the promised amount.

The EIB in June provided such loan disbursal rate information, both in monetary terms and concerning  the numbers of loans made — for all 30 global loans.

But several months later the Bank said the first batch of EIB data was flawed.

Noting the Bank’s discovery of errors in the data, BankWatch observed that “it became evident that on the loans selected, the EIB had not only serious issues with disclosure but also with record-keeping and data integrity. “

Now You Don’t…

When it sent revised data, however, the EIB declined to provide information about what percentage of the pledged funds had been sent to the recipient banks.  Instead, it provided information only on those global loan facilities which had “closed,” meaning where the EIB funds had been fully disbursed to the intermediary banks and allocated to the SMEs. But no information was provided if the funds had not been fully disbursed.

The report summarizes:

So although the EIB had originally provided data on facilities in this region that were still open and in the process of being disbursed (some 82percent of the sample for CEE), it now refused to provide the updated information on these global loans, arguing that such data would be meaningless and would not provide an accurate picture on the state of global loan disbursements for this report.

A letter from EIB legal counsel, not disclosed, also was prepared on the topic, BankWatch learned.

BankWatch attempts to get information from the intermediary banks were unsuccessful, although the EIB disclosure policy does not tie the hands of the intermediary banks’ to make voluntary disclosures.

In frustration, the BankWatch report comments, “This is of course not valid since clearly in a report into how much has been disbursed during the global financial crisis by the EIB and the intermediary banks, it is also necessary to have information on those global loans which have not been disbursed at all or are still in the process of being disbursed.”

The group made its estimates on disbursals based on the June figures.

Report author Isabella Besedova said: “It was no easy task to get to the bottom of the EIB’s global loans, such is the abysmal lack of transparency that still surrounds them, but what we discovered should be causing alarm among the bank’s shareholders, the EU member states. Only four out of the 30 global loans, administered by the likes of Unicredit, Dexia and Fortis, have been fully allocated to SMEs in our region, and four out of the 30 packages were untouched during our research period.”

Pro-Disclosure Recommendation

The report contains recommendations on a number of topics, and on disclosure, BankWatch suggests:

“Update and publish data on global loans on the EIB website in six monthly intervals beyond the current signature stage. Such data needs to include amount disbursed to the intermediary, the number of allocations made thus far, the region in which money was disbursed and the industry sector disbursed to. This information is presently available under the EIB’s disclosure policy on request only. Currently an inaccurate view is being painted of the assistance the EIB’s global loans purport to give to the states and their economies by the current practice of publishing only amounts signed. Information on what the intermediaries do with global loans and how long it takes them to do this must also be supplied.”


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ABOUT IFTI WATCH

In this column, Washington, D.C.-based journalist Toby J. McIntosh reports on the latest developments in information disclosure in International Financial and Trade Institutions (IFTI).
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