73 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED | CONSOLIDATED ANNUAL REPORT 2020 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED Notes to the Consolidated Financial Statements For the year ended March 31, 2020 (Expressed in Barbados dollars) 56 26. Financial Risk Management, continued 26.1 Introduction, continued Impact of COVID-19 The Coronavirus now renamed COVID-19 which originated in Wuhan China is now a world-wide pandemic and so far had a crippling effect on the global economy. Its impact on global tourism led to reduced incoming flights to Barbados and a decline in business activity of hotels, restaurants and other ancillary sectors. This resulted in a surge of unemployment claims of over 33,000 between the period March and June 2020. As a consequence of job cuts and reduced disposable income, which would reduce persons’ ability to service their loan commitments and other obligations, management has adopted several measures specifically around financial risk management. These measures include: i. The respective committees across the Group meet monthly to discuss strategies and plans around managing the liquidity and the capital needs of the Group. ii. Robust stress testing of our liquidity buffer at levels above regulatory requirements: • Assessing the monthly inflow and outflow of funds (liquidity forecasting); • Identifying and assessing the adequacy of contingency liquidity funding across the Group; • Revisiting measures geared at strengthening the Group’s capital base; and the monitoring of portfolio behavioural matrices in reference to members and clients servicing their loans iii. The implementation of measures to assist our membership and clientele during this crisis, such as: • Loan moratoriums - It is not expected that there will be reclassification of loans from Stage 1 to Stage 2, as these payment moratorium should not trigger a significant increase in the credit risk (SICR) unless other criteria indicating SICR are identified. • Special payment arrangements such as payment plan solutions and debt restructuring, based on approval by the relevant Committees and the Boards. 26.2 Credit risk Credit risk is the risk that the Group will incur a loss because its customers or counterparties fail to discharge their contractual obligations. The Group 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 Group’s asset portfolio. There is also credit risk in off-balance sheet financial instruments, such as commitments.
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