43 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) 15 2 Accounting policies …continued d) Financial instruments …continued Expected credit losses and impairment The Credit Union utilises a forward-looking expected credit loss model to recognise loss allowances on its financial assets measured at amortised cost and loan commitments issued. At each reporting date, the Credit Union measures the loss allowance for the financial asset at an amount equal to the lifetime expected credit losses, if the credit risk on the financial asset has increased significantly since initial recognition (Stage 2) or if there is objective evidence of impairment (Stage 3). If at the reporting date, the credit risk on the financial asset has not increased significantly since initial recognition, the Credit Union measures the loss allowance for the financial asset an amount equal to twelve month expected credit losses (Stage 1). Stage 1 financial assets also include facilities where the credit risk has improved, and the financial asset has been reclassified from Stage 2. 12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. Lifetime ECL are the ECL that result from all possible default events over the expected life of the financial instrument. No impairment loss is recognised on equity investments. Significant increase in credit risk When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Credit Union considers both quantitative and qualitative information and analysis based on the Credit Union’s historical experience and credit risk assessment. The determination of whether there has been a significant increase in credit risk is critical to the staging process. Factors to consider include: • Changes in market or general economic conditions; • Expectation of potential breaches; • Expected delays in payment; • Deterioration in credit ratings; or • Significant changes in operating results or financial position of the borrower. The Credit Union uses three criteria for determining whether there has been a significant increase in credit risk: • a quantitative test based on movement in PD; • qualitative indicators; and • a backstop of 30 days past due
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