The murky world of transparency disclosures

As the western world readied a first, massive salvo of sanctions on Russia in response to its invasion of Ukraine on February 24, the first port of call for investors and analysts looking to pinpoint the European banks with the most to lose might have been the transparency tables provided by the European Banking Authority (EBA), one of the most granular datasets available to the public on individual banks’ risk profiles.

The tables – which were last updated with data as of June 2021 – showed Societe Generale, UniCredit and Raiffeisen Bank International (RBI) to have the most credit exposure to Russia among large European banks. Peers like Crédit Agricole, Intesa Sanpaolo and ING Bank on the other hand, reported zero credit exposures, despite having extensive operations in the country.

As a flurry of press releases and ad hoc disclosures in the following days made clear, these banks did, in fact, have sizable exposures to Russia. Case in point, as of December 31, 2021, Intesa was exposed on- and off-balance for at least €6 billion ($6.5 billion), Crédit Agricole for €4.9 billion and ING for €3.4 billion.

Notwithstanding a multi-billion lending boom between June and December of last year, the scale of these figures should have transpired in the EBA’s disclosures, as they indeed did for UniCredit, Societe Generale and RBI. Technical issues such as consolidation perimeters don’t provide a satisfying explanation; most of the Russia exposures reported by the banks sat at group, not subsidiary, level.

There’s no indication that Intesa, Crédit Agricole or ING misled regulators or investors in any way, or that they provided the EBA with flawed or incomplete information.

But the discrepancy between what was disclosed to the market through the watchdog and what was later communicated directly by the banks does beg the question of how reliable the transparency tables – and similar, less granular data-gathering exercises from other regulatory bodies – actually are.

Granted, the market has far higher visibility into dealers’ activities than it did 10 or even just five years ago. And, in fairness, it can be hard to know in advance what kind of risks warrant monitoring and quantifying ahead of time.

But having a comprehensive, standardised database like the EBA’s is arguably also meant to erase the need for hurried damage-control announcements to inform investors of emergent risks – exactly the kind we saw after Russia invaded Ukraine.

This goes to show there is still some work to do to bring disclosures to adequate levels of transparency, whether through more granular data requests or by closing reporting loopholes.