85 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) 57 23 Financial risk management …continued Introduction …continued Risk management structure …continued The Credit Union’s policy is that risk management processes are audited annually by the Internal Audit function, which examines both the adequacy of the processes and the Credit Union’s compliance with the processes. Internal Audit discusses the results of all assessments with management, and reports its findings and recommendations to the Supervisory Committee. Risk mitigation As part of its overall risk management, the Credit Union invests a portion of its available funds in lending, financial investments and non-earning assets. The Credit Union’s main source of income is derived from lending and it seeks to actively use collateral to reduce its credit risk. The Credit Union also has sought long term funding requirements to match its long-term loan positions. In order to avoid excessive concentrations of risk, the Credit Union’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Credit risk Credit risk is the risk that the Credit Union will incur a loss because its members or counterparties fail to discharge their contractual obligations. The Credit Union manages and controls credit risk by setting limits on the amount of risk it is willing to accept for individual counterparties and by monitoring exposures in relation to such limits. Credit risk exposures arise principally in lending activities that lead to loans and advances and investment activities that bring debt securities into the Credit Union’s asset portfolio. There is also credit risk in off-balance sheet financial instruments such as commitments. The Credit Union’s models are calibrated to consider past performance and macroeconomic forward-looking variables as inputs. Expert credit judgment is applied to consider the exceptional economic circumstances including the assessment of underlying credit deterioration and migration of balances to progressive stages. Consistent with requirements of IFRS 9, the Credit Union considered both quantitative and qualitative information in the assessment of significant increase in risk. First time utilization of a payment deferral program was not considered an immediate trigger, in keeping with IASB and regulatory guidance, for an account to migrate to a progressive stage, given the purpose of these programs is to provide temporary cashflow relief to the Credit Union’s members. Modifications The Credit Union offers various payment solutions to members who may be experiencing challenging economic times. These include extension of loan term, converting outstanding interest to a separate loan and or debt consolidation. Where modification occurs, loans meeting such criterion are classified according to type and circumstance giving rise to any such modification. The terms and conditions related to each type is tracked monthly and accessed for substantial modifications. Where required, modification gains or losses have been recognised.
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