107 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED | CONSOLIDATED ANNUAL REPORT 2022 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED Notes to the Consolidated Financial Statements For the year ended March 31, 2022 (Expressed in Barbados dollars) 76 25. Financial Risk Management, continued 25.2 Credit risk, continued Assessment of Corporate debt securities As at March 31, 2022, the Group held corporate debt securities with the Barbados Port Inc. (BPI) with a carrying value of 8,779,119 (2021- $9,210,709) with an average weighted effective yield of 4.74% (20214.89%). An ECL assessment was performed as required by IFRS 9. This assessment on the Group’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, 2021 on Sovereign default and recovery rates, 1983 to 2021 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. • The recovery rate of 85% (2021-85%) 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% (2021-15%). • 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 was assigned. The Investment Credit Rating was unchanged as at the financial year-end. 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 for which the PD assigned was the Cumulative Probability of Default (CPD) rate less the survival period. The Investment credit rating has declined below a company rating. This is where the company or investment classification family is considered speculative and subject to substantial default risk. 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 for which the assigned PD was the CPD rate. The investment credit rating has significantly declined. The company or investment classification family is considered speculative or in poor standing and subject to very high default risk or may be in default on some part of the its investment obligation. The above assumptions were the best-case scenario for the Groups’ securities that are backed by the most reasonable and supportable data available at the time of the assessment.
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