87 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) 59 23 Financial risk management …continued Credit risk …continued Key inputs and assumptions: …continued Further to our current policy for transfers between stages as described in Note 2, as part of our overlay, we qualitatively increased ECL in stage 2 to reflect the current challenging economic environment. This qualitative adjustment was informed by remaining time to maturity, economic projections, scenario weights and the historical behaviour of our portfolio. The following table illustrates the impact of staging on our ECL by comparing our allowance if all performing loans were in Stage 1, to the actual ECL recorded on these. As at March 31, 2023 Performing loans ($’000) As at March 31, 2022 Performing loans ($’000) ECL - all performing loans to Stage 1 1,597 2,799 Impact of staging 1,361 2,400 Stage 1 and 2 ECL 2,958 5,199 Adjustments to ECL have been considered to moderate the impact of dramatic swings in economic input variables or their lagging impact on credit losses. Judgment has been required in the development and application of these overlays. Management relies on the prediction of key reputable authorities with expertise in the area. While the Barbados economy is projected to experience 4% to 5% growth in 2023, the impact of other world economies upon its tourism product and related industries remains highly uncertain. Consequently, the assumptions used to determine our allowances have a higher-than-usual degree of uncertainty. The inputs used in the calculation of the allowance are inherently subject to change, which may materially impact our estimate of the allowance for expected credit losses. The Credit Union’s stage 1 and 2 allowance for credit losses on the loan portfolios as at March 31, 2023 reflects a decrease as a result of the recent recovery observed in many economies and the resilience of our portfolio. The IFRS 9 model could not solely be used to determine expected credit losses as it was not designed with events of this magnitude in mind. As a consequence, a model overlay was used to account for incremental expected losses not captured by the IFRS 9 model. To address the uncertainties inherent in the current environment and to reflect all relevant risk factors not captured in our model, we applied expert credit judgement in the design of the overlay and the determination of inputs used in the calculation of the allowance in light of the significant uncertainty, the impact of expert credit judgement on our allowances during 2022-2023 decreased as compared to 2021-2022. We applied qualitative adjustments to macroeconomic projections, the assumed credit response of the portfolio to the macroeconomic conditions, levels of loss severity and the determination of significant increase in credit risk.
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