Separate Annual Report 2021

81 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED | SEPARATE FINANCIAL STATEMENTS 2021 BARBADOS PUBLIC WORKERS' CO-OPERATIVE CREDIT UNION LIMITED Notes to the Separate Financial Statements For the year ended March 31, 2021 (Expressed in Barbados dollars) 59 23. Financial Risk Management, continued Credit risk Credit risk is the risk that the Credit Union will incur a loss because its members 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 Union’s asset portfolio. There is also credit risk in off-balance sheet financial instruments such as commitments. COVID-19 The COVID-19 pandemic’s significant impact to the economy and the different stages of lockdown and re- opening, resulted in continued uncertainty on timing of recovery. This required additional considerations to determine the allowance for credit losses this year. In response to the pandemic, and based on regulatory support, during the period the Credit Union introduced a support mechanism for members impacted by COVID-19, including the deferral of payments for an initial period of six months. Special payment arrangements such as payment plan solutions and debt restructuring, based on approval by the Credit Committee and the Board was also offered to members. The ECL methodology, model inputs, significant increase in credit risk (SICR) thresholds, and definition of default remain consistent with those used as at March 31, 2020. Forward-looking information, scenarios and associated weightings, were revised to reflect the unprecedented impact of the COVID-19 pandemic, and the resulting significant uncertainty as it relates to current conditions and outlook. IFRS 9 requires the consideration of past events, current conditions and reasonable and supportable forward- looking information over the life of the exposure to measure expected credit losses. Furthermore, to assess significant increase in credit risk, the Standard requires that entities assess changes in the risk of a default occurring over the expected life of a financial instrument when determining staging. The IASB and global regulators issued guidance for entities, consistent with IFRS 9, to consider the exceptional circumstances of the COVID-19 pandemic. This includes consideration of significant government support and the high degree of uncertainty around historical long-term economic trends used in determining reasonable and supportable forward-looking information. The Credit Union’s models are calibrated to consider past performance and macroeconomic forward-looking variables as inputs. Expert credit judgment is applied to consider the exceptional circumstances this period, including consideration of government assistance programs, in the assessment of underlying credit deterioration and migration of balances to progressive stages. Consistent with requirements of IFRS 9, the Credit Union considered both quantitative and qualitative information in the assessment of significant increase in risk. First time utilization of a payment deferral program was not considered an immediate trigger, in keeping with IASB and regulatory guidance, for an account to migrate to a progressive stage, given the purpose of these programs is to provide temporary cashflow relief to the Credit Union’s members.