Separate Annual Report 2021

90 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) 68 23. Financial Risk Management, continued Credit risk, continued Financial investments, continued Assessment of Sovereign debt securities At March 31, 2021 the Credit Union’s holdings in Government Securities relating to the Series B and D bonds were classified as POCI (Purchased or Originated Credit Impaired) and the Credit Union subsequently reversed any associated expected credit loss provisions booked on origination. At March 31, 2021, the balance was $14,134,500 with a weighted average effective rate of 1.02%. The derecognition loss of $3,634,651 which was initially recognized was reported at $3,520,935 at March 31, 2021. POCI financial assets are assets that are credit impaired on initial recognition. The Government of Barbados bonds are carried at lifetime ECL which was incorporated into the calculation of the effective interest rate on initial recognition. Therefore these bonds would not carry a separate impairment allowance subsequent to initial recognition. Assessment of Corporate debt securities As at March 31, 2021, the Credit Union held corporate debt securities with the Barbados Port Inc. (BPI) with a carrying value of $9,210,709 with an average weighted effective yield of 4.89%. An ECL assessment was performed as required by IFRS 9. This assessment on the Credit Union’s debt securities measured at amortized cost 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, 2020 on Sovereign default and recovery rates, 1983 to 2020 was used to provide the cumulative default rates (CDR) for categories of bonds similar to Barbados’. This gave the cumulative probability of default over a 10 year period. • The recovery rate of 85% for the Barbados Port Inc. bonds was 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). Similar to the ECL assessment for term deposits, the staging methodology is as follows: Stage 1: The entity shows no decline in its ability to repay either based on past performance or future events for which a 12-month PD is assigned. Stage 2: There has been a significant event which has caused or is highly probable to have significant impact on the investee’s ability to repay (SICR) for which the PD is the Cumulative Probability of Default (CPD) rate less the survival period. Stage 3: There has been a default or significant event which has caused or is highly probable to have a significant impact on the investee’s ability to repay (SICR) for which the PD is the CPD rate.