107 SEPARATE FINANCIAL STATEMENTS 2023 Barbados Public Workers’ Co-operative Credit Union Limited Notes to the Separate Financial Statements March 31, 2023 (expressed in Barbados dollars) 79 23 Financial risk management …continued Liquidity risk and funding management Liquidity risk is defined as the risk that the Credit Union will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Credit Union might be unable to meet its payment obligations when they fall due under both normal and stressed circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, and adopted a policy of managing assets with liquidity in mind and of monitoring future cash flows and liquidity on a daily basis. The Credit Union has developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash flows and the availability of high-grade collateral which could be used to secure additional funding if required. The Credit Union maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption of cash flow. The Credit Union also has committed lines of credit that it can access to meet liquidity needs. The steps taken by the Credit Union to respond to possible future liquidity constraints arising from adverse economic conditions and the impact of those steps on the Credit Union’s financial statements include the following: i. The Finance, Investment and Asset Management Committee meets monthly to discuss strategies and plans around managing the liquidity and the capital needs of the Credit Union; ii. Analysis of account aggregation to ensure funding sources are adequately stratified; iii. Robust stress testing of our liquidity buffer at levels above regulatory requirements; iv. Assessing the monthly inflow and outflow of funds (liquidity forecasting); v. Identifying and assessing the adequacy of contingency liquidity funding for our subsidiaries; vi. Revisiting measures geared at strengthening the Credit Union’s capital base; vii. Monitoring of portfolio behavioral matrices in reference to members servicing their loans; viii. Performs periodic liquidity and profitability evaluations for existing activities and strategies; ix. Identifies primary and contingent funding sources needed to meet daily operations, as well as seasonal and cyclical cash flow fluctuations; x. Ensures liquidity management strategies are consistent with the board’s expressed risk tolerance; and xi. Evaluates liquidity and profitability risks associated with new business activities. The Credit Union monitors its loan commitments, which are off-balance sheet items and include unfunded residential mortgages, consumer loans and undrawn lines of credit. Sound risk management practices include closely monitoring the amount of unfunded commitments that require funding over various periods and detailing anticipated demands against unfunded commitments in internal reports and contingency plans. In addition, the Credit Union maintains a portfolio of highly marketable and diverse assets that are assumed to be easily liquidated in the event of an unforeseen interruption of cashflow. This portfolio value has an estimated value of $435,708,442 (2022: $419,998,157) as at March 31, 2023. In balancing profitability goals and liquidity demands, management carefully evaluates the benefits (yield and increased marketability) of holding liquid assets against the expected higher returns associated with less liquid assets. The Credit Union also has a committed line of credit facility for $7,800,000 that it can access to meet liquidity needs in cases of adverse conditions which results in greater operational cashflows.
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