Non-Consolidated Annual Report 2020

BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED | NON-CONSOLIDATED ANNUAL REPORT 2020 74 BARBADOS PUBLIC WORKERS' CO-OPERATIVE CREDIT UNION LIMITED Notes to the Non-consolidated Financial Statements For the year ended March 31, 2020 (Expressed in Barbados dollars) 57 23. Financial Risk Management, continued Credit risk, continued Financial investments, continued Assessment of Sovereign debt securities An ECL assessment was performed at March 31 2020 as required by IFRS 9. This assessment on the Credit Union’s debt securities measured at amortized utilized the following methodology as outlined below: • Due to the lack of published statistical data and the lack of an active market for securities, Moody’s Investor’s Report dated May 13, 2019 on Sovereign default and recovery rates, 1983 to 2019 were used to provide the cumulative default rates (CDR) for categories of bonds similar to Barbados’. This gave the cumulative probability of defaults over a 10 year period. • An average expected recovery rate of 72.5% for the lower and upper ranges were used to approximate the government securities (Caa1) and corporate issuers (Caa2) to reflect a stable outlook, taking into consideration the level of uncertainty and economic stocks from COVID-19. Therefore, 1-recovery rate, 27.5%, was the loss given default (LGD). • The recovery rate of 85% for the Barbados Port Inc. bonds were used since these securities were not part of the debt exchange and had a higher likelihood of repayment due to the corporate independence, financial stability and profitability of the Barbados Port Inc. The loss given default (LGD) was therefore 15%. • The discount rate applied was the yield curve supplied by the Institute of Chartered Accountants of Barbados (ICAB). The above assumptions were the best case scenario for the Credit Union’s securities that are backed by the most reasonable and supportable data available at the time of the assessment. Key data sources as outlined in the expected credit loss assessment methodology were obtained from Moody’s, a global credit rating agency that provided published statistics and data on corporate and sovereign bonds and investments. Also used were the yield curves from the Central Bank of Barbados (CBB) and the Institute of Accountants of Barbados (ICAB). The expected credit losses computed were $324,541 (2019: $564,263) as at March 31, 2020. Exposure to credit risk before collateral held or other credit enhancements 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 FVOCI 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.

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