Non-Consolidated Annual Report 2014

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BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED NON-CONSOLIDATED ANNUAL REPORT 2014
BARBADOS PUBLIC WORKERS' CO-OPERATIVE CREDIT UNION LIMITED
Notes to the Non-consolidated Financial Statements
For the year ended March 31, 2014
(Expressed in Barbados dollars)
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23. Financial Risk Management…(continued)
Introduction...(continued)
Risk mitigation
As part of its overall risk management, the Credit Union invests a portion of its available funds in
lending, financial investments and non-earning assets. The Credit Union’s main source of income is
derived from lending and it seeks to actively use collateral to reduce its credit risk. The Credit Union
also has sought long term funding requirements to match its long term loan positions.
In order to avoid excessive concentrations of risk, the Credit Union’s policies and procedures include
specific guidelines to focus on maintaining a diversified portfolio.
Credit risk
Credit risk is the risk that the Credit Union will incur a loss because its customers or counterparties fail
to discharge their contractual obligations. The Credit Union manages and controls credit risk by setting
limits on the amount of risk it is willing to accept for individual counterparties and by monitoring
exposures in relation to such limits. Credit risk exposures arise principally in lending activities that lead
to loans and advances, and investment activities that bring debt securities into the Credit Union’s asset
portfolio. There is also credit risk in off-balance sheet financial instruments, such as commitments.
Loans and advances
The Credit Union employs a range of policies and practices to mitigate credit risk relating to loans and
advances. The most traditional of these is the taking of security for funds advanced. The principal
collateral types for loans and advances within the Credit Union are:
- Mortgages over residential properties
- Charges over financial instruments such as debt securities and equities
- Charges over business assets such as premises
- Hypothecation of deposit balances
It is the Credit Union’s policy to dispose of repossessed properties in an orderly fashion. The proceeds
are used to reduce or repay the outstanding claims. The Credit Union does not occupy repossessed
properties for business use.
Financial investments
The Credit Union limits its exposure to credit risk by investing only in entities that have high credit
ratings and Government of Barbados securities. Government securities are invested over a longer
period than term deposits with other financial institutions which typically mature within one year. The
Credit Union has invested in available-for-sale equity instruments as well, which gives it an opportunity
to monitor the performance of these companies over time and make economic decisions where
warranted. The Credit Union has documented investment policies in place, which guide the
management of credit risk on investments.