88 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) 60 23 Financial risk management …continued Credit risk …continued Key inputs and assumptions: …continued The measurement of expected credit losses is a complex calculation that involves a large number of inputs and assumptions. The key drivers of changes in expected losses include the following: • Forward looking macroeconomic projections; • Recent portfolio performance; • Scenario design and the weighs associated with each scenario; and • Transfers between stages, which can result from changes in any of the above inputs. Forward looking macroeconomic projections The PD and LGD inputs used to predict expected credit losses are primarily based on GDP growth projections. The assumed level of response of the PD to the level of economic contraction was informed by historical events, recent portfolio performance and expert judgement. The LGDs used in the calculation of our allowance were qualitatively adjusted upwards to reflect higher expected time to resolution for future defaults secured with real estate collateral. Our allowance for credit losses reflect our economic outlook as at March 31, 2023. Subsequent changes to this forecast and related estimates will be reflected in our allowance for credit losses in future periods. Our base scenario accounts for the expected gradual recovery of the Barbados economy during 2022-2023 and for continued expansion in the economy thereafter, with non-performing loans maintaining a downward trajectory for the 2023-2024 fiscal. Our downside scenario adjust for negative trends which can adversely affect the future of the Barbadian economy. Our upside scenario considers a marginal improvement on base conditions resulting from fasterthan-expected economic recovery. The forecasts of GDP growth rates were informed by external economic projections of key regulatory authorities. Internal assessment of the level of member resilience The PDs used are specific to the type of loan and automatically adjusted for the borrowers’ position during the financial year. This adjustment was reflective of the main economic sector impacted by unemployment. Recent portfolio performance The PDs used are specific to the portfolio segments and automatically adjusted to take-into account recent portfolio performance. Portfolios which have shown high resilience to adverse economic conditions would have a lower PD level than portfolios with higher default rates.
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