Digital Transformation As we continue to navigate and manage the intricacies of a rapidly evolving financial services landscape and the challenges that come with it, we remain conscious of our responsibility to meet the growing demands of members while competing with a new range of non-traditional competitors. The Barbados Public Workers’ Co-operative Credit Union Ltd has determined that digital transformation is an inevitable response to this challenge; successful execution of which will position the credit union for long-term success and growth. On completion, members can anticipate an enhanced experience that allows for the delivery of more personalized, efficient, and secure services regardless of the preferred method of interaction. This will include seamless integration from any device, at any time and from any place as geographical barriers, not in-person activities and lengthy processes become less of a challenge in the new framework that will make doing business with us easier than ever. Embrace the future with us as we set off on this journey to empower you with modern tools to meet your evolving needs and expectations. Together, we will chart new paths that will help you to achieve your financial goals with greater ease, convenience and flexibility. Group Vision Statement . . . . . . . . . . . . . . . 2 Group Values . . . . . . . . . . . . . . . . . . . . . . . . . 2 Training and Development . . . . . . . . . . . . . 3 Our Leaders Board of Directors . . . . . . . . . . . . . . . . . . . . . 4 Management Team . . . . . . . . . . . . . . . . . . . . 5 Corporate Information . . . . . . . . . . . . . . . . . 6 Financial Highlights . . . . . . . . . . . . . . . . . . . 8 Management Discussion & Analysis . . . . . 10 Board of Directors’ Report . . . . . . . . . . . . 14 Independent Auditors’ Report . . . . . . . . . 26 Financial Statements . . . . . . . . . . . . . . . . . 30 CONTENTS
2 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED
3 SEPARATE FINANCIAL STATEMENTS 2023 Training and Development Course Title • 4th Annual AML & Financial Crime Conference - Caribbean • AML Training (Online) • AML Training for Managers • AML Training for Supervisors • Annual Fraud Conference 2022 • Applied Customer Journey Mapping • Audit Skills Training • Beginners Auditors’ Tools and Techniques • Caribbean 3rd Annual Fraud Conference - Fighting the Variant • Certified Customer Service • Conducting Discipline - A Step by Step Guide • Effective Debt Collections Techniques Workshop 2022 • Health & Safety • HR Analytics Conference - Transferring Companies for a Digital Future • IIA Seminar: Excel for Analytics • IIA Seminar: Leadership Matters • Improving Audit Committee Effectiveness • Managing Discipline • Managing Hazardous Substances at Work • People Leader Skills Training Programme • Review an Analysis of Tribunal Cases • Summit - Is Date Privacy a Challenge or an Opportunity? As part of the continuous organizational development, members of staff completed the following training programmes during the year.
4 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED Our Leaders Meet the Board of Directors President Bro. Courtney Gibson Director Sis. Nicola Callendar Vice-President Sis. Cheryl Inniss Director Bro. Carl Padmore Director Sis. Lydia Lewis Secretary Bro. Hasani Evelyn Director Sis. Jameela Hollingsworth Director Bro. Mark Hope Treasurer Bro. Cameron Haynes Board of Directors Bro Courtney Gibson, FCCA, FCA, MBA, CB, CCUE — President Sis Nicola Callender, Graduate Diploma – Public Sector Management, B Sc Computer Science & Accounting, Assoc Degree – Computer Science, — Director Bro Hasani Evelyn, Assoc Degree – Sports Management, Cert Supervisory Management, Cert Management Skills & Strategic Planning — Secretary Bro Cameron Haynes, FCCA, FCA, LL B (Hons ), LL M, FCG, CGP, CS — Director Sis Jameela Hollingsworth , LLB, Bsc, MBA — Director Bro Mark Hope, B Sc , MBA, FCG, LLB, CCD — Director Sis Cheryl Inniss, M Sc Labour & Employment Relations, B A (Hons) Psychology, Certificate in Special Education & Exceptional Learning, TEACCH – Certificate in Autism, Introduction to Special Ed ADHD Certificate, Associate Degree in Applied Arts – Fashion Design, Cert in Microsoft Word & Excel, CCD — Vice-President Sis Lydia Lewis , B Sc (Hons), Dip Management, CCUV, CCD — Director Bro Carl Padmore, B Sc Fine Arts (Creative Arts) (Hons) — Director
5 SEPARATE FINANCIAL STATEMENTS 2023 Chief ICT Officer Bro. Irwin Gibson Chief Risk and Compliance Officer Sis. Alison Weekes Group Chief Executive Officer Bro. Glyne Harriison Chief Internal Auditor Bro. Eric Small Chief Human Resources Officer Sis. Jacqueline Caesar Chief Financial Officer Bro. LeVere Catlyn Chief Operations Officer Bro. Richard Kennedy Chief Legal & Corporate Affairs Officer Sis. Natalie Holder Executive Management Team Mr Glyne Harrison, BSc, MSc, MSc , CMA, CPA — Group Chief Executive Officer Ms Jacqueline Caesar, MBA, BSc (Hons) — Chief Human Resources Manager Mr LeVere Catlyn, CPA—CGA, CA, CCUE — Chief Financial Officer Mr Irwin Gibson, BEng, MSc , MBA — Chief ICT Officer Ms Natalie Holder, LLB, LEC — Chief Legal & Corporate Affairs Officer Mr Richard Kennedy, B Sc, Pg Dip, Trade Relations — Chief Operations Officer Mr Eric Small, BSc , CIA, CFE — Chief Internal Auditor Ms Alison Weekes, MSc, ICA AML Dip , ICA Int Compl Dip — Chief Risk and Compliance Officer Meet the Executive Management Team
6 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED Financial Highlights Financial Highlights - Five Year Review In Bds $’000 2023 2022 2021 2020 2019 Statement of financial position: Assets Cash and equivalents 356,952 376,390 350,989 261,089 197,824 Investments 113,377 69,958 62,840 55,075 57,098 Loans to Members (net) 1,146,391 1,114,980 1,054,665 1,046,080 997,535 Property and Equipment 48,657 51,377 52,507 53,772 54,725 Other Assets 58,364 60,493 56,176 56,696 45,135 Total Assets 1,723,741 1,673,198 1,577,177 1,472,712 1,352,317 Liabilities and Owner’s Equity Liabilities Deposits 1,500,899 1,453,146 1,374,306 1,279,598 1,175,004 External Debt - - - - - Other 34,153 35,658 29,705 24,150 23,077 1,535,052 1,488,804 1,404,011 1,303,748 1,198,081 Equity Share Capital 13,334 12,901 12,357 12,008 11,401 General & Other Reserves 170,439 166,742 156,436 148,952 138,632 Retained earnings 4,916 4,751 4,373 8,004 4,203 188,689 184,394 173,166 168,964 154,236 Total Liabilities and Owner’s Equity 1,723,741 1,673,198 1,577,177 1,472,712 1,352,317 Statement of income: Interest Income 88,928 86,601 83,591 89,897 89,383 Interest Expense 21,273 22,139 23,177 23,547 26,140 Net Interest Income 67,655 64,462 60,414 66,350 63,243 Other income 4,867 4,580 3,721 4,512 3,772 Net income and other income 72,522 69,042 64,135 70,862 67,015 Impairment expense 4,766 6,498 9,247 6,123 3,771 Net operating income 67,756 62,544 54,888 64,739 63,244 Total operating expenses 59,662 52,277 46,869 47,647 46,340 Net income before extra-ordinary items 8,094 10,267 8,019 17,092 16,904 Derecognition of Government Securities 3,635 Reversal of Impairment on Investment in Subsidiary 1,307 - 1,307 Tax of Assets - - - - Net income after extra-ordinary items 9,401 10,267 8,019 17,092 11,962
7 SEPARATE FINANCIAL STATEMENTS 2023 2023 2022 2021 2020 2019 Financial statistics in percent: Asset Growth 17.05 13.61 7.09 8.90 10.52 Loan Growth 9.59 6.59 0.82 4.87 4.12 Deposit Growth 17.29 13.56 7.40 8.90 11.29 Net Surplus Growth -44.99 -39.93 -53.08 42.89 -27.93 Return on Assets 0.59 0.65 0.53 1.21 0.93 Return on Equity 5.26 5.81 4.69 10.58 7.92 Operating Efficiency 88.05 83.58 85.39 73.60 73.27 Net Interest Margin 4.23 4.10 3.96 4.70 4.91 2023 2022 2021 2020 2019 Other statistics Delinquency ratio (%) 13.8 13.5 13.5 9.9 8.6 # of members 111.1 107.5 103.0 100.1 95.0 # of employees # of branches 6 6 6 6 6 2023 2022 2021 2020 2019 Net income per member $84.61 $95.51 $77.85 $170.75 $125.92 Financial Highlights Financial Highlights - Five Year Review In Bds $’000 Principal Bankers Republic Bank (Barbados) Ltd. Auditors PricewaterhouseCoopers SRL Barbados
8 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED This section of the Annual Report provides a discussion and analysis of the financial position and performance of the Barbados Public Workers’ Co-operative Credit Union Limited (BPWCCUL) for the financial year ended March 31, 2023, as compared to the financial year ended March 31, 2022. The Management Discussion and Analysis (MD&A) should be read in conjunction with the audited financial statements, which have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Barbados’ Economic Performance 2022-2023 The January to March 2023 Central Bank of Barbados’ “Review of Barbados’ Economic Performance” reported that economic recovery, driven by growth of 6.4 percent, was recorded for the first quarter of 2023 reflecting eight consecutive quarters of expansion. The press release also reported that the economy as measured by the nominal and real Gross Domestic Product, is currently larger than pre-pandemic levels (2019). Macro-economic Developments • The significant driver of growth continues to be the tourism sector, which recorded arrivals that more than doubled the numbers for the same period in 2022, and rebounded to 78 percent of preCOVID-19 levels. • The positive contribution from the tourism sector also drove improved performance of other sectors including the construction and financial sectors. • The unemployment rate was the lowest since September 2007 at 7.2 percent as at the end of 2022, a significant decrease relative to 8.2 percent recorded at the end of 2022 and 14.1 percent in 2021. • The international reserves were reported at a healthy balance of $3.2 billion, the highest on record, a result of the receipts from tourism and the funding disbursements (policy-related loans) from multilateral development institutions (MDIs). 2 ANAGEMENT DISCUSSION AND ANALYSIS s section of the Annual Report provides a discussion and analysis of the financial ition and performance of the Barbados Public Workers' Co-operative Credit Union mited (BPWCCUL) for the financial year ended arch 31, 2023, as compared to the ncial year ended March 31, 2022. The Management Discussion and Analysis D&A) should be read in conjunction with the audited financial statements, which have n prepared in accordance with International Financial Reporting Standards ("IFRS"). bados’ Economic Performance 2022-2023 January to March 2023 Central Bank of Barbados' "Review of Barbados' Economic formance" reported that economic recovery, driven by growth of 6.4 percent, was orded for t first quarter of 2023 reflecting eight consecutive quarters of expansion. press release also reported that the economy as measured by the nominal and real ss Domestic Product, is currently larger than pre-pandemic levels (2019). cro-economic Developments • The significant driver of growth continues to be the tourism sector, which recorded arrivals that more than doubled the numbers for sa e peri d in 2022, and rebounded to 78 percent of pre-COVID-19 levels. Nominal and Real GDP (Jan-Mar) Sources: Barbados Statistical Service and Central Bank of Barbados Management Discussion & Analysis (MD&A) • As global interest rates continue to increase in the international markets the financing and funding issued by the MDIs will become more expensive and therefore non-interest expense and capital spending management will be critical elements of the Government’s focus throughout the remaining fiscal. • The ongoing Russia-Ukraine war, other global frictions and supply-chain disruptions, along with adverse weather conditions which impacted locally produced food crops, all contributed to upward pressure on domestic inflation. • The primary surplus, which is the difference between revenue and non-interest expenditures surpassed the targets set under the BERT2022 IMF supported programme. The fiscal deficit which is the primary surplus plus interest payments was recorded at 2.1 percent of GDP. Financial Sector Developments • The financial system in Barbados continued to be stable with: o Non-performing loans showing a notable decline during the first three months of 2023. o Profitability and capital adequacy being reported as steady, with a marginal decline in liquidity due to a lower deposit base at Deposit-taking Institutions. Liquidity, however, was over statutory requirements. • Local currency deposits decline by 0.9 percent mainly due to large withdrawals by private sector firms, households and public sector entities for foreign payments. • Lower deposit levels resulted in the average interest rates remaining relatively consistent,
9 SEPARATE FINANCIAL STATEMENTS 2023 4 decline by 0.9 percent mainly due to large withdrawals by eholds and public sector entities for foreign payments. sulted in the average interest rates remaining relatively oan rates of 5.5 percent and average savings rates of 0.15 4 4 • Local currency deposits decline by 0.9 percent mainly due to large withdrawals by private sector firms, households and public sector entities for foreign payments. • Lower deposit levels resulted in the average interest rates remaining relatively consistent, with average loan rates of 5.5 percent and average savings rates of 0.15 percent. 4 decline by 0.9 percent mainly due to large withdrawals by eholds and public sector entities for foreign payments. sulted in the average interest rates remaining relatively loan rates of 5.5 percent and average savings rates of 0.15 with average loan rates of 5.5 percent and average savings rates of 0.15 percent. • There was a noted slowdown in loan growth recorded within the financial sector, and outstanding credit balances to households declined due to a paydown in mortgages coupled with lower credit card balances. Barbados’ Economic Forecast It was reported in the latest World Economic Outlook (WEO, April 2023) that inflation is expected to stabilize over the remainder of the fiscal as improvements in international commodity prices and the oil market filter into the Barbadian market. It was reported in the latest World Economic Outlook (WEO, April 2023) that inflation is expected to stabilize over the remainder of the fiscal as improvements in international commodity prices and the oil market filter into the Barbadian market. This would, however, be dependent on the upward inflationary pressures from domestic demand for discretionary goods and services as the economy expands. The downside risks to the economic outlook reported in the publication were the possible slowdown of the global economy to fight high inflation without stifling global demand and the potential disruptions to the global supply chains and international trade arising out of any escalations to geo-political tensions on the projection for global economic growth. Credit Union Overview Coming into this reporting period ended March 31, 2023, we continued to adjust to the nuances of a post-COVID environment and the changes that accompanied it from a member and organisational perspective. Our focus throughout it all however continues to be on providing high-quality financial products and services while promoting financial well-being and providing our members with excellent service and support. During the period, membership grew by 3,612 or 4.3 percent to reach 111,118. Consequently, there was new deposit generation of $15.9 million and 212 new loans to first-time members totalling $3.2 million. Member-related expenditures granted through social outreach increased above the prior year by $16.6 thousand, however, demand for educational funds declined below the prior year by $65.7 thousand. Review of Financial Performance Total Income And Net Income Total income comprising of interest, non-interest income and the reversal of impairment on our investment in the BPW Financial Holdings Inc. (BPWFHI) subsidiary, was reported at $95.1 million for the year ended March 31, 2023, compared to $91.2 million in the prior year - a 4.3 percentage increase. As a result, net income for the year was reported at $9.4 million; a decline of $866 thousand compared to the prior year. mortgages coupled with lower credit card balances. Barbados’ Economic Forecast Barbados' economy is expected to rec rd gr wth ranging bet een 4 to 5 percent for Tourism and private sector investments will continue to be the k y drivers of grow economic expansion during the year. It was reported that inflation is ex e ted to stabiliz over the rem inder of the fis improvements in internation l commodity prices and the oil market filter in Barbadian market as reported in the latest World Economic Outlook (WEO, April This would, however, be dependent on the upward inflationary pressures from do demand for discretionary goods and services as the economy expands. The downside risks to the economic outlook reported in the publication were the po slowdown of the global ec nomy to fight high inflation without stifling global de and the potential disr ptions to the global supply chains a d international trade arisi of any escalations to geo-political tensions on the projection for global economic gro OVERVIEW Coming into this reporting p riod ended March 31, 2023, w continued to adjust nuances of a post-COVID environment and the chang s that accompanied it f member and organisational perspective. Our focus throughout it all however contin be on providing high-quality financi l products and s rvices while promoting fin Key Indicators Stock of NPLs NPL Ratios Sources: Central Bank of Barbados and Financial Services Commission Sources: Central Bank of Barbados Sources: Central Bank of Barbados Total Deposits Foreign-Currency Deposits
10 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED Net Interest Income Net interest income comprised of interest earnings on assets such as loans and securities, less interest expenses paid on lease liabilities deposits and wholesale funding. Net interest income increased by $3.2 million or 5.0 percent in 2023 even as loans on non-accrual increased, decreased by $839.5 thousand or 3.8 percent. Interest income from loans and advances, together with that from cash resources increased by $1.8 million or 2.1 percent and $661.3 thousand or 80.5 percent, respectively. Contrastingly, interest from financial investments increased by $105.4 thousand or 6.6 percent to reach $1.6 million. Other Income Other income increased by $287 thousand or 6.3 percent during the financial year to end at $4.9 million, inclusive of fee income for the international debit card which increased by $448.5 thousand or 22.4 percent. The collection of income from charged-off loans increased by $35.2 thousand or 3.1 percent, while rental income increased by $11.6 thousand. These increases were offset by a negative movement in legal income which declined by $161.2 thousand or 13.5 percent. Efficiency And Expense Management Staff Costs & Support During the reporting period, the Credit Union advanced its organization redesign plan and executed voluntary separation packages offerings to its employees. It also renewed an expired agreement with the Barbados Workers Union which was outstanding for a four-year period, and made the associated negotiated payments, including back pay to staff. Together these activities resulted in staff compensation and benefits increasing by $4.3 million or 22.3 percent to end the year at $23.9 million. Despite the organisational changes taking place, the organization once again exceeded its internal benchmark for customer satisfaction with a rating of 96 percent during the financial year 2023. Total Operating Expenses Total operating expenses for the year were reported at $60.0 million (2022 - $52.3 million), representing an increase of $7.4 million or 14.1 percent compared to the prior year. The increase in staff costs and benefits arising out of the previously outlined corporate initiatives accounted for 58.9 percent of the increase in total operating expenditure. Changes in operating expenses for 2023, with a comparison to the 2022 prior year, are outlined below: • Increases were recorded in direct cost of services of $1.1 million or 140.6 percent, repairs and maintenance of $866.6 thousand or 16.8 percent, legal and professional fees of $873.1 thousand or 31.7 percent, membership security of $671.3 or 14.9 percent and meeting and conferences of $468.9 or 58.1 percent. • Compensating reductions of $432.0 or 45.2 percent were recorded in staff and members training, while office stationery and supplies and janitorial services recorded decreases of $373.3 thousand or 61.7 percent, and $255.0 thousand or 20.8 percent respectively. While routine maintenance of property, plant and equipment occurred during the fiscal, there were no significant upgrades which merited capitalization and hence depreciation expenses decreased by $232.8 thousand or 5.2 percent. Net Operating Income Net operating income increased by $5.2 million or 8.3 percent to end the year at $67.7 million. This was primarily attributed in part to an increase in interest income of $2.3 million or 2.7 percent, and a decrease in expected credit losses (ECL) of $4.8 million versus $6.5 million in 2022. While there was a marginal increase in non-performing loans, the associated discounted market values of those loans were higher than their carrying values and this positive position resulted in lower overall impairment losses. Assets The Credit Union’s assets have grown by $371.4 million at an average of 27.5 percent over the last five years. This growth continued during the past year but the recorded asset growth of $50.5 million was below the prior year’s growth of $96.0 million. Net loans and advances to members were $1.146 billion, inclusive of the required allocation for expected credit losses which this year carried an allowance of $40.7 million. This compares to $1.115 billion inclusive of an expected credit loss allowance of $39.8 million at the end of the 2022 financial year. Net loan growth was $31.4 million or 2.8 percent over the prior year. Increases in mortgage loans were the primary driver of loan growth, with net mortgages growing by $45.8 million (2022 - $66.6 million) or 10.3 percent (2022 - 17.7 percent). Coming out of the COVID experience, the appetite for loans outside of Net Interest Income Membership 3 Net Interest Income Management Discussion & Analysis (MD&A) (Continued)
11 SEPARATE FINANCIAL STATEMENTS 2023 mortgages continues to be lethargic as there was a decline in consumer loans of $13.9 million (2022- $5.5 million) or 2.11 (2022 - 0.83 percent), while business loans also showed a moderate decrease by $1.1 million (2022 - increased by $105.6 thousand) or 22.2 percent (2022-increased 2.3 percent). Asset Quality Loans 90 days or more past due increased by $8.1 million or 5.3 percent during the period while non-performing loans (loans 90 days or greater) were $162.6 million or 13.8 percent out of the gross loans portfolio of $1.2 million. Delinquent loans between 31 to 89 days increased by $12.0 million or 42.3 percent to move from $28.3 million to $38.9 million, and loans less than 31 days past due increased by $11.6 million or 1.2 percent. Given the cumulative impact of the movements, expected credit losses in relation to loans decreased by $1.7 million or 26.7 percent to move from $6.5 million in 2022 to $4.8 million at March 31, 2023. The delinquency rate for the fiscal moved from 13.5 percent to 13.8 percent at March 31, 2023. Liabilities The Credit Union’s operations continued to be funded solely by member deposits, which at March 31, 2023, totalled approximately $1.5 billion representing growth of $47.5 million (2022 - $78.8 million) or 3.3 percent (2022 – 5.7 percent). During the fiscal the average deposit cost of $1.8 remained constant compared to prior year. The organization currently maintains a higher-than-market rate on its core deposits to ensure its members receive a premium return on their savings compared to similar financial products in the market. This benefit to members was provided while balancing the need to remain competitive and ensuring the continued financial strength and stability for which we are known, both of which were achieved. Other Liabilities Other liabilities decreased by $1.5 million (2022 – increased by $6.0 million) or 4.2 percent (2022 - increased by 20.0 percent) to move from $35.7 million in 2022 to $34.1 million at March 31, 2023. Other noted declines included accounts payable and accrued expenses, $2.6 million or 32.1 percent, as well as the fair value adjustment (benefit) relating to staff loans - $1.9 million or 93.1 percent. Increases were recorded in the amounts due to member estates - $2.0 million (2022- $6.1 million) or 9.5 percent over the prior year. Unallocated receipts to members, unprocessed bill payments and payroll arising out of timing differences, increased by $1.7 million or 126.1 percent. Equity Total equity which comprises members’ share capital, retained earnings and statutory and other reserves provides a safety buffer, ensures financial stability and allows for future growth and development. As at March 31, 2023, total members’ equity stood at $188.7 million, up from $184.4 million as at March 31, 2022. The increase of $4.3 million or 2.3 percent was predominantly attributable to the contribution arising out of a positive net income of $9.4 million, and was enhanced by growth in the share capital of $433 thousand or 3.4 percent. Distributions to members during the year were approximately $3.8 million which mainly comprised of a share dividend of $631.4 thousand or 5 percent and an interest rebate of $2.1 million or 2.5 percent. Way Forward 2023 The financial services sector continues to evolve rapidly with evolving technologies providing the gateway for increased competition from non-traditional players. The Credit Union is not immune to the changes and is facing significant challenges, including more aggressive competition from our local banks, evolving expectations of members and continued escalations in regulatory requirements. The changing environment requires 2019 2020 2021 2022 2023 LOANS AND ADVANCES 1 Asset Growth 2019 2020 2021 2022 2023 Total Assets 2019 2020 2021 2022 2023 Deposits 2 Deposits Net Interest Income Membership Delinquency Ratio
12 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED greater pro-activity, increased operational dexterity and agility and constant assessment of our business processes in response to the changes and challenges, while concurrently identifying new and inevitable change. As we look ahead to the next twelve months, we note the need for us to get ahead of this rapid shift in member preference and the competitive landscape by way of transitioning to a more digitized and automated business mode. We have started this process to better serve you and are currently undergoing a digital transformation project that will identify the roadmap to be followed to redefine your member experience to one that can be considered best of class. Complementing this project to digitize and optimize our footprint through the enhanced use of technology, will be the re-imagining our branch strategies. The Lower Broad Street branch build-out will be our first step in revisiting the traditional branch model to introduce a design and flows that enhance member engagement, and improve our operational efficiency as we position the Credit Union and Group for long-term success in a rapidly evolving industry. We accept that the competitive landscape has become more crowded, but our ability to personalize and enhance your member experience remains foremost as we seek to ensure that we remain that trusted partner, helping you to achieve your financial goals. It is our commitment to you. Management Discussion & Analysis (MD&A) (Continued) SAVE TIME ! Apply Online Save time with our hassle-free online loan application. Apply now and enjoy the convenience of a streamlined process from the comfort of your own home. Don’t waste precious time waiting in line or dealing with paperwork. Experience the power of technology and apply online today!
13 SEPARATE FINANCIAL STATEMENTS 2023
14 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED Board of Directors’ Report Overview The Governor of the Central Bank of Barbados in his quarterly review of April 26, 2023 used a theme The Economy has Recovered which articulated macro-economic growth buttressed by what was cited in the review as the economy having recovered from the COVID slump Should the stated assumptions and forecasts run consistent to expectations, this positive news, and the trickle-down impact that is anticipated from both the economic growth and the post-COVID recovery, augurs well for the economy, Barbados and all Barbadians The Governor’s future looking statements predict what is expected to be the case in the coming year and beyond Conversely, as we reflect and report on our past fiscal period, we do so bearing in mind the predictions we made when we stood before you as a board at our AGM in December 2022 These predictions envisaged improved macro-economic conditions and a climate that would allow for increased membership participation, and it was against this backdrop that we set some ambitious budgetary goals; goals underpinned by an anticipated expansion of our membership base and a related improvement in loan activity through increased uptake of our financing products We acknowledge that there is a desire for low-interest rate loans and higher than average interest-rate deposit products, and that this is likely to continue as Barbadians seek to protect their disposable incomes We remain focused on delivering value-added membership, but can only do so to the extent that our actions allow us to maintain the financial strength and stability of our Credit Union, especially in these uncertain times It is imperative that we maintain healthy levels of capital, particularly through the generation of adequate levels of surplus which is our primary vehicle for doing so The principal risks and challenges that could prevent us from doing so are members’ loan defaults, a disproportionate imbalance of investments to member lending and the disparity in interest income as a result, and the liquidity challenges that could arise if overall operations are not properly managed Cognisant of the negative impact of these risks on achieving our set objectives, you are assured that they are monitored and managed by the Board to ensure your Credit Union is secure We are grateful that life has returned to mostly normal patterns following a year of heightened unpredictability It is clear however that this new normalcy is still not aligned with the previous norm, as other events unfolded that impacted the world as we know it and by extension influenced our local markets and the lives of our members The economic effects of the war in the Ukraine, the sluggish recovery and fallout from the COVID-19 pandemic, and even the separation of Britain from the European Union will continue for a number of years and will impact our local economic circumstances, particularly through rising inflationary pressures This rising inflation and the resultant increases in the cost-of-living are a reality felt by us all We are acutely aware of the impact these issues are having on our membership and will work with you as best as we can through this difficult period when inflationary pressures continue to erode your purchasing power “ We are proud of what we have accomplished from an operational, member service and community perspective
15 SEPARATE FINANCIAL STATEMENTS 2023 Audit Transition Our transition last year from the previous auditors to our new auditors, PwC was a challenging one which tested both parties with an outcome that was not in keeping with good practice or our normal corporate standards. We assured you that the situation would not be repeated and are pleased to report that the financial audits were completed within the statutory timelines for all entities across the Group this year. Our commitment to you coming out of the past AGM was that the lessons learnt from last year’s experience, would be used to bring about improvements, and as a Board we can confirm that improvements were evidenced across all aspects of the audits during the reporting period. Having returned to an AGM timeline that is in keeping with our legal requirement, and which syncs with our pre-COVID meeting schedules, we express thanks to the auditors, management, and all other parties involved for rectifying the previous challenges and returning us to a position of general compliance and good corporate practices. Credit Union Performance As we looked into the 2022-2023 reporting period from the platform of last year’s AGM we noted the solid predictions for economic growth and expansion that were emanating from various commentators. To date there has been some validation of those predictions, albeit tempered and not to the expected levels given the economic downturns experienced by our major trading partners which slowed our local rate of growth and economic improvement. Throughout it all your Credit Union has generally performed well in what has been an improving, but still challenging environment and we continue to execute on the vision of attaining long-term stability through sustainable and profitable growth. A snapshot of the financial performance over the previous reporting period is outlined below: Income Statement • Membership grew by a net of 3,612 or 3 percent to reach 111,118 members, up from 107,506 at prior year end. • Total income comprised of interest and non-interest income earned for the year was $95.1 million and this represents an increase of $3.9 million or 4 percent over the prior year. • Operating expenses for the year totalled $59.7 million and this represented an increase of $7.4 million or 14 percent over prior year. • Net interest income (interest earnings on assets, loans and securities less interest expense paid on lease liabilities, deposits, and wholesale funding) increased by $3.2 million compared to a $4.0 million increase in the year ending 2021-22 (5 percent increase versus 6.7 percent increase). • Net operating income for the year was $67.7 million which represents an increase of $5.2 million or 8 percent over prior year. • The cumulative impact of the year’s operational performance was an ending surplus of $9.4 million, compared to $10.3 million for the prior year. This was a decrease of $900 thousand or 8.7 percent. Statement of Financial Position • Total assets grew by $50.5 million or 3 percent over prior year. Total assets at the end of the financial year were $1.723 billion compared to $1.673 billion at the end of the prior year. • Net loans and advances to members, primarily driven by mortgages, grew by $31.4 million, increasing from $1.115 billion at the end of March 31, 2022, to $1.146 billion as of March 31, 2023. • Members’ deposits grew by 3 percent or $47.8 million to end the year at $1.501 billion as at March 31, 2023 compared to $1.453 billion at the end of the prior year. • Retained earnings of $4.9 million were recorded for the year compared to $4.8 million in the previous year, representing an increase of 3 percent, year on year. Subsidiary Performance CAPTIA Financial Services Inc. (CFSI) Through its diversified product offerings and regional footprint, CAPITA Financial Services Inc. plays a crucial role in the overall strategic positioning of the Barbados Public Workers’ Cooperative Credit Union Ltd. Group of Companies, and continues to positively contribute to its overall success. An overview of some of its key financial highlights for the past fiscal period is provided below: Income Statement • Total income, comprised of interest and non-interest income (including fees and commission) for the year ended March 31, 2023, was $25.6 million, an increase of $2.9 million or 13 percent over the prior year total of $22.7 million. • Net interest income (interest earnings on assets, loans, and securities less interest expense paid on lease liabilities, deposits, and wholesale funding) increased by approximately $557 thousand or 5 percent, moving to $11 million at the end of the financial year compared to prior year of $10.4 million. • Total expenses for the year were reported at $25.4 million compared to prior year $21.3 million, an increase of approximately $4.0 million or 19 percent. • The cumulative impact of the increased expenses versus
16 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED income was a material decline in the overall profitability of the CFSI Group. Profit before taxes decreased by 52 percent or approximately $1.2 million to $1.1 million (2022 - $2.3 million, 2023 – $1.1 million) while profit after taxes decreased by 83 percent or just over $1.1 million to $129 thousand (2022 - $1.3 million, 2023 - $129 thousand). Statement of Financial Position • Assets decreased by approximately $1.2 million moving from $327.5 million at year-end 2022 to $326.3 million as at the end of the reporting period. • Loans and advances which is the core component of CFSI’s business model decreased by 2 percent or $4.9 million over the reporting period, moving from $283.8 million at year end 2022 to approximately $278.9 million at year end 2023. • Deposits were relatively stable over the reporting period, growing by 0.1 percent or $290 thousand to end at $278.9 million at March 31, 2023 compared to $278.6 million at the previous year-end. • Retained earnings of $9.67 million were recorded at the end of the financial year in comparison to $10.67 million in the previous period; a year on year decrease of 9 percent. • Total equity was relatively stable and moved from $28.35 million for the year ending 2022 to $28.15 million as at year ending March 31, 2023; a $196 thousand or 0.7 percent movement over the period. Following the very public scrutiny and adverse publicity it experienced last year, the subsidiary has taken action to enhance its governance structures and processes, and has put measures in place to re-establish its credibility and image while becoming even more resilient and continuing to serve its customers. The Board which was reconstituted coming into the reporting period is actively seeking a full-time C.E.O to fill the vacancy arising out of the departure of the previous President and C.E.O and is currently being supported by an experienced and wellrespected Interim CEO while the recruitment process is ongoing. It is anticipated that the vacancy will be filled during the 202324 period. We remain committed to investing in our subsidiary’s growth and supporting the initiatives that will guarantee its ongoing success, locally and regionally, while ensuring it attains and maintains a financial performance that provides incremental value to the overall Group. Allied Co-operators Inc. (ACI) For the 2022-23 reporting period, the focus of ACI’s operations has been to increase its revenue and revenue generating capacity. As at the end of the reporting period revenue stood at $267.3 thousand, representing an increase of approximately $169 thousand or 172 percent over the prior year. Generally speaking, most start-ups become profitable within the first three to five years of operation - ACI having only been recently introduced into the market, falls into this category. Since its introduction there has been good progress and a consistent decline in the recorded losses over the past two years. The majority of revenue continues to be generated through services provided to smaller Credit Unions within Barbados, a focus ACI intends to continue into the future. While the highlighted revenue increase is commendable, the desire to become a profitable entity with a well-diversified client portfolio still remains ACI’s primary objective. Given cash flow constraints experienced by many of the smaller credit unions during the COVID-19, market conditions were not as favourable as forecasted during the reporting period and the initial take up of the company’s products and services by the smaller credit unions was subsequently below what was projected. As a result and to mitigate against the sluggish market conditions the decision was taken to extend the company’s services to businesses in industries outside of the Credit Union sector. Market research was conducted to determine potential target markets and results indicate insurance companies and the small & medium sized off-shore companies within Barbados and the Caribbean as the best fits. Efforts have been made to seek out clientele in those areas and the results have been encouraging as multiple requests for proposals have been received by management as a direct result of these growth and expansion initiatives.While focused on these diversification efforts, ACI still remains grounded in the present and focused on the existing business on its books. It continues to provide a high-quality service to its credit union clientele, primarily through the provision of monthly ongoing compliance services to strengthen the compliance and governance infrastructure across the smaller Credit Unions; enhancing both their AML environments and the level of awareness at both the employee and Board of Directors’ level. Additional focus is also being placed on expanding its suite of services to include accounting and audit related services for small and medium sized enterprises (SME). These services will initially be offered to members of the Barbados Public Workers’ Co-operative Credit Union Ltd. and represent another viable initiative that will contribute to ACI’s overall growth. Legacy Foundation Legacy Foundation continued to be challenged across all aspects of its operations during the course of the last reporting period as member donations, foundation activities and initiatives all remained suppressed in the post-COVID economic environment. During the reporting period the Foundation received five applications for funding totalling $275 thousand dollars which are currently under review and made in-roads in the Barbadian community in the United Kingdom as in-person presentations were done in multiple cities including London, Birmingham, Board of Directors’ Report (Continued)
17 SEPARATE FINANCIAL STATEMENTS 2023 Manchester and Reading. The time spent on the ground networking and building relationships allowed for the increased awareness of both the Legacy Foundation and BPWCCUL brands at a time when building trust has become critical. The presentations also provided opportunities to: • Inform the diaspora about the Foundation’s goals and objectives. • Strengthen relationships with the existing member community while building relationships with prospective new members. • Inform and engage possible new donor streams and give Barbadians in the diaspora the opportunity to give back and partner in our charitable efforts. The Foundation’s objective is to undertake initiatives that bring about positive changes and make a meaningful impact in the lives of others, while addressing underserved areas of need in the charity space. By becoming a donor to the Foundation, you too become a part of a credit union force striving to create a better future for all. Every donation counts, and as is the case annually, we ask that you help us to positively impact those who need it most by way of making your deposits in the donations’ boxes present in all of our branches. Further information on the Foundation is available online at www.legacyfoundation.org. Organisational Strengthening As the Credit Union sector and financial services industry on a whole transition into a post-COVID era, we at the Barbados Public Workers’ Co-operative Credit Union Ltd. need to be in a position to effectively manage the now entrenched changes brought on by the pandemic, pivot in response to both opportunities and threats that are present in our operating environment, and respond in a manner that delivers on our purpose of bringing benefits and value to our members and key stakeholders. To provide us with the focus required to achieve the above and navigate our changing environment, we will refresh our strategy during the 2023-24 reporting period to ensure that we continue on a path that will see us well prepared to face whatever the future brings. This will include continuation of a review of our digital offerings, an area we need to continue to enhance to ensure your interactions with us, and our channels and services are easy and efficient. Through a digital transformation project that is already in motion, we intend to invest in robust alternative electronic delivery channels to provide you with the convenience, security and flexibility you deserve in a busy world where online engagement is now the norm. Complementary to this, we will also continue to focus on our people and becoming an employer of choice through the successful completion of the corporate redesign initiative that, while largely completed, continues to engage our attention as we work through the implementation phase. Building out our governance, compliance and risk management frameworks has been a focus during the past year and will continue into the foreseeable future. To this end we have recruited a Chief Risk & Compliance Officer to focus on strategic risks and compliance matters, and have also provided additional resources to the department to focus on the day to day risks, in conjunction with the various business units. These enhancements, coupled with the provision of additional resources to the Internal Audit Department, has helped with the build-out of even stronger oversight and assurance teams to protect against us the various current and emerging risks the financial services sector is particularly susceptible to. Our strong capital position provides us with a stable base to continue to invest in these key priorities, and to assist our members while working towards sustainable future growth - even in these tumultuous times. As we continue to reinvent ourselves through a strategy refresh and key transformational projects, our focus will continue to be on channelling our investments and resourcing directly into those areas that will most help us to succeed. Digital Enhancements Recognising the importance of technology in delivering superior member experiences, the Credit Union has implemented solutions to provide members with greater convenience in the management of their financial affairs, particularly as it relates to money management and electronic payment and transfers. The Real Time Payment (RTP) service and the BillPay upgrade form part of the upgraded suite of services available on the online banking platform, specifically designed to enhance operational efficiency and enable faster service delivery. Real Time Payments (RTP) This service allows members to send and/ or receive funds between their Credit Union account and accounts at other financial institutions, whether in their own name or in another member’s/customer’s name. As part of the process and to ensure member security, members will receive real time confirmation of the transaction settlement once it has been completed. BillPay Upgrade During the reporting period the Credit Union embarked on the upgrade of the backend of the existing BillPay solution, transitioning from the previous end of day manual process, to an automated delivery of payment information through the Surepay payment network. The upgraded BillPay service passes the payment information from the Credit Union to the Surepay platform in real time when a member completes a payment request in the front-end module, improving on the previous batching of payments and the once daily end of day transfers done under the old system. Collectively, these changes will: • Significantly reduce the time for members’ transfers to be credited to accounts at the various vendors
18 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED Board of Directors’ Report (Continued) supported by Surepay (BillPay), and at other financial institutions (RTP). • Allow for same day transfer/receipt of funds to/from other financial services institutions. • Provide members with confirmation of the completion of their transaction and the payment status making for easy tracking. • Allow members access to all billing parties supported by Surepay, both in the present and the future. Member Engagement We continued to attract new members, resulting in total membership of 111,118 as at the end of the reporting period, an increase from 107,506 as at March 31 2022. This growth demonstrates the trust and confidence the wider Barbadian community continues to have in our Credit Union’s ability to effectively meet their financial needs. The trust and confidence placed in us, being a memberowned co-operative is not something we take lightly, as well as ensuring a consistently high level of member satisfaction is critical to ensure this trust is not eroded. We are pleased to note that we continue to perform well in this area as we registered a Customer Satisfaction Score this year of 84.7 percent compared to 83.2 percent as at March 2022, both against a benchmark score of 80 percent. Despite the confidence placed in us as reflected in the membership growth and attainment of our benchmark customer satisfaction score, we know from the reports received that we have not provided as consistent a member experience as we would have liked during the reporting period. There have been reported challenges with our branch wait times, our loan turnaround times and generally our consistent delivery of the quality of service; in the branches and across our other channels. This area of quality service delivery continues to capture our attention as we engage with management to determine and address the root causes of the challenges being encountered. Cybersecurity & Resilience Cyberattacks and cybersecurity beaches and exposures pose significant risks to all businesses and is an ongoing issue for all financial institutions regardless of location. Locally we have seen the impact of these attacks across various sectors including retail, health and financial services. As part of our long-established defensive toolkit to proactively counter the possibility of these attacks within our systems, we regularly use independent external assessments to identify any deficiencies within our systems in order to ensure adequate mitigations are in place. Active penetration testing and authorised ethical hacking of our network are some of the tools used to detect infrastructural and system vulnerabilities, and to determine potential threats and areas of weaknesses that could be compromised by malicious/ bad actors. The tests simulate real-world attacks and the recommendations coming out of these partnered approaches are used to strengthen the security of our internal systems, networks and applications. This long-standing approach is a critical part of our technological defence to better withstand cyberattacks and has proven to be effective and resilient to date. In addition to these tests we also continue to review and upgrade our network security at both the hardware and software levels, while investing in our cybersecurity systems, frameworks and policies to stay one step ahead. Additionally, as most attacks have been shown to occur due to human error, employees are trained to be aware of, and assist with the prevention and mitigation of attacks that may seek to take advantage of internal weaknesses. This level of staff awareness is achieved through ongoing mandatory security awareness training and testing across the Group. As members, you too play a critical part in ensuring the safety and soundness of our technology environment and we encourage you to also take your awareness of security best practices and fraud mitigation as seriously as we do. We remind you that our online banking system allows you to set-up alerts that can prompt you regarding transaction activity and changes in balances on your accounts. This can be a useful tool to protect you against unauthorised access while jointly ensuring we maintain a secure environment. Updates to Key Matters of Significance Lower Broad Street Building
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