50 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED | SEPARATE FINANCIAL STATEMENTS 2022 BARBADOS PUBLIC WORKERS' CO-OPERATIVE CREDIT UNION LIMITED Notes to the Separate Financial Statements For the year ended March 31, 2022 (Expressed in Barbados dollars) 22 2. Accounting Policies, continued (e) Significant accounting judgments, estimates and assumptions, continued Impairment of non-derivative financial assets The measurement of the expected credit loss allowance for financial assets measured at amortised cost is an area that requires the use of complex models and significant assumptions about future economic conditions and credit behaviour (e.g. the likelihood of members defaulting and the resulting losses). Explanation of the inputs, assumptions and estimation techniques used in measuring ECL is detailed in note 2(d). A number of significant judgments are also required in applying the accounting requirements for measuring ECL, such as: • The Credit Union’s criteria for determining if there has been a significant increase in credit risk and hence whether impairment allowances for financial assets should be measured on a lifetime expected credit loss (ECL) basis • Choosing appropriate models and assumptions for the measurement of expected credit losses, including post model adjustments • Determination of associations between macroeconomic scenarios and, economic inputs, such as unemployment rates, collateral values, inflation and GDP levels, and their effect on PDs, EADs and LGDs • Establishing the number and relative weightings of forward-looking macroeconomic scenarios for each type of product or market and the associated ECL; and • Establishing groups of similar financial assets for the purposes of measuring ECL In determining ECL, management judgment is applied, using objective, reasonable and supportable information about current and forecast economic conditions. When determining whether the risk of default has increased significantly since initial recognition, both quantitative and qualitative information is considered, including expert credit assessment, forward looking information and analysis based on the Credit Union’s historical loss experience. Consistent with industry guidance, member support payment deferrals as part of COVID-19 support packages in isolation will not necessarily result in a significant increase in credit risk, and therefore will not trigger an automatic migration from stage 1 (12-month ECL) to stage 2 (Lifetime ECL) in the credit impairment provision for such loans. However, management felt it would be more prudent to reclassify those affected loans to stage 2 and apply Lifetime ECLs.
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