Non-Consolidated Annual Report 2015

BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED NON-CONSOLIDATED ANNUAL REPORT 2015 53 BARBADOS PUBLIC WORKERS' CO-OPERATIVE CREDIT UNION LIMITED Notes to the Non-consolidated Financial Statements For the year ended March 31, 2015 (Expressed in Barbados dollars) 42 24. 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 Unionʼs 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 Unionʼs 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 Unionʼs 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 Unionʼs 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.