46 BARBADOS PUBLIC WORKERS’ CO-OPERATIVE CREDIT UNION LIMITED Barbados Public Workers’ Co-operative Credit Union Limited Notes to the Separate Financial Statements March 31, 2023 (expressed in Barbados dollars) 18 2 Accounting policies …continued d) Financial instruments …continued Expected credit losses and impairment …continued Presentation of ECL The ECL allowance associated with financial assets measured at amortised cost are presented in the statement of financial position as a deduction from the gross carrying amount of the assets. For loan commitments, generally a provision is recognised. In the event the financial instruments includes both a drawn and undrawn component, and the Credit Union cannot identify the ECL on the loan commitment separately from the drawn component, the Credit Union presents a combined loss allowance for both components. The combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any excess of the loss allowance over the gross amount of the drawn component is presented as a provision. Restructured financial assets If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognised and ECL are measured as follows: - If the expected restructuring will not result in derecognition of the existing asset, then the expected cash flows arising from the modified financial asset are included in calculating the cash shortfalls from the existing asset. - If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. This amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date using the original effective interest rate of the existing financial asset. In assessing whether the modified terms are “substantially” different from the original terms, the following factors are considered: • Introduction of significant new terms • Significant change in loan’s interest rate • Significant extension in loan’s term • Significant change in credit risk from inclusion of collateral or other credit enhancements. Expected life For instruments in Stage 2 or Stage 3, loss allowances reflect expected credit losses over the expected remaining lifetime of the instrument. For most instruments, the expected life is limited to the remaining contractual life. For certain revolving facilities such as lines of credit, the expected credit life is estimated based on the period over which the Credit Union’s exposure to credit losses is not mitigated by normal credit risk management actions.
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