47 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED | CONSOLIDATED ANNUAL REPORT 2021 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED Notes to the Consolidated Financial Statements For the year ended March 31, 2021 (Expressed in Barbados dollars) 20 2. Accounting Policies, continued (d) Financial instruments, continued Expected credit losses and impairment, continued Measurement of ECL, continued The inputs used to estimate the expected credit losses are as follows: • PD – The probability of default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the remaining estimated life, if the facility has not been previously derecognized and is still in the portfolio. • EAD – The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed payments. • LGD – The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. It is usually expressed as a percentage of the EAD. • Forward looking information – The standard requires the incorporation of forward-looking information in the estimation of expected credit losses for each stage and the assessment of significant increases in credit risk consider information about past events and current conditions as well as reasonable and supportable forecasts of future events and economic conditions. The estimation and application of forward-looking information requires significant judgement. • Discount rate – The standard requires the ECL to be discounted using the effective interest rate (EIR). The above five parameters are modelled and estimated independently and combined to obtain the ECL of loans. Presentation of ECL The ECL allowance associated with financial assets measured at amortized cost are presented in the statement of financial position as a deduction from the gross carrying amount of the assets. For loan commitments, generally a provision is recognized. In the event the financial instruments includes both a drawn and undrawn component, and the Group cannot identify the ECL on the loan commitment separately from the drawn component, the Group presents a combined loss allowance for both components. The combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any excess of the loss allowance over the gross amount of the drawn component is presented as a provision.
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