Consolidated Annual Report 2021

15 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED | CONSOLIDATED ANNUAL REPORT 2021 Nonetheless, the financial sector remained relatively stable as central banks implemented shock-mitigating measures to combat the effects of the pandemic. This was strengthened by the expansions in fiscal deficits and debt during the pandemic as governments sought to ease the economic strain on households and businesses. Stress testing of the financial sector A stress testing exercise was conducted relative to runs on deposits in the various deposit-taking institutions (DTIs) given the level of reduced economic activity. Where appropriate, simulations sought to determine whether capital adequacy buffers were adequate to absorb market shocks and focused primarily on liquidity, credit, interest rate risk and large exposures. Liquidity Risk Given that DTIs are largely funded by deposits, maintaining adequate levels is of utmost importance in the event of a run on the institution. Hitherto and during the pandemic, the financial system was marked by excess liquidity. Commercial banks, finance and trust companies held upwards to 26.5 percent in liquid assets (cash equivalents and tradeable securities) on their balance sheets. The low prevailing interest rates between demand and time deposits has minimized the penalties for early withdrawal. Assuming that 95.0 percent of all liquid assets were fully convertible to cash on a given day, a 5.0, 10.0 and 15.0 percent run on all domestic-currency deposits (demand and time deposits) accounts were examined. Credit Unions Requiring Liquidity Support upon runs on Members Savings At 5.0% At 10.0% At 15.0% Day 1 0 0 0 Day 2 0 0 2 Day 3 0 1 4 Day 4 0 3 4 Day 5 1 4 4 Source: Financial Services Commission The above results for credit unions show that at daily deposit runs of 5.0 percent one credit union would require liquidity support at day five. While at daily deposit runs of 10.0 and 15.0 percent respectively, four credit unions require liquidity support. Last year testing at the 15.0 percent level showed that seven of the largest credit unions required liquidity support. Credit Risk As stated in the 2020 Stability Report, the credit union sector’s current rate of provisioning for NPLs is 23.4 percent and the capital adequacy ratio for the industry stood at 10.5 percent. The seven largest entities in the sector accounted for more than 93.0 percent of total assets and three of these entities were below the regulatory benchmark of 10.0 percent before any shocks were applied for stress testing. Domestic Economic Conditions Barbados’ tourism product was hardest hit as the country experienced declines in all its major economic industries, except for agriculture. There was a 70.0 percent fall-off in tourism which stemmed from lower visitor stay-overs and cruise arrivals. The rate of inflation slowed, indicating lower fuel and electricity prices combined with discounts offered by retailers. The economic downturn was especially sharper during those periods where the economy was on lockdown for extended periods. Conversely, the economy showed signs of a gradual recovery towards the year-end 2020. The country experienced a second wave of COVID-19 during the first quarter of 2021 which triggered further business closures and curfews. Consequently, there was a 20.0 percent decline in real GDP when compared to the first quarter of 2020. Group Overview We are a group of companies committed to improving the livelihood of people and their communities. Born out of the cooperative spirit, our members and customers have been the driving force and catalyst behind our many achievements, including our growth and transformation over the past five decades. As we enter into our fifty-first year as a Credit Union and eleventh as a Group, we acknowledge and laud the foresight and vision of our founding members, and the support of our existing members and customers without whom, this journey would not have been possible.