94 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) 66 23 Financial risk management …continued Credit risk …continued Assessment of Amortized Cost Fixed Income Securities Sovereign debt securities - Government of Barbados On June 19, 2018, the Barbados government formally entered into default when the grace period for payment of interest and principal on its foreign 2035 bonds expired. The Barbados Government entered into the Barbados Economic Recovery and Transformation (BERT) program, with its local currency debtors. Under this program holders of treasury bills, treasury notes, debentures, loans and bonds owed by the Government of Barbados received an offer of exchange on September 7, 2018. The Credit Union’s acceptance of this offer resulted in the restructuring of principal and interest payments of $19,002,841 on its debt securities measured at amortised cost. The new securities were designated as Series B bonds in the amount of $17,994,321 together with Series D bonds in the amount of $1,008,847. In keeping with the requirements of the IFRS 9 standard, the previous investments which were carried at amortised cost were derecognised and replaced by that of the new securities at their fair market value. This resulted in a derecognition loss of $3,634,651 below their 2018 year end stated value. As a consequence, a derecognition assessment was carried out as at October 1, 2018 on the principal and capitalized interest of the underlying investments. The Central Bank of Barbados yield curve for these securities was compared with that of the Institute of Chartered Accountants of Barbados (ICAB) to arrive at the risk free rate used in the performance of this calculation. The Net Present Value (NPV) was calculated on each strip and was deducted from the carrying value to arrive at the loss on derecognition. Subsequent to the initial local currency sovereign credit rating on November 16th, 2018 of “Selective Default” (SD), this improved to B- with a Stable outlook on January 13th, 2021. There were no further credit rating updates during the current financial year. Assessment of Sovereign debt securities At March 31, 2023 the Credit Union’s holdings in Government Securities relating to the Series B and D bonds were classified as POCI (Purchased or Originated Credit Impaired) and the Credit Union subsequently reversed any associated expected credit loss provisions booked on origination. At March 31, 2023, the balance was $14,702,065 (2022: $14,915,552) with a weighted average effective rate of 2.44% (2022: 2.45%). The derecognition loss of $3,634,651 which was initially recognised was reported at $2,333,102 (2022- $2,739,883) at March 31, 2023. POCI financial assets are assets that are credit impaired on initial recognition. The Government of Barbados bonds are carried at lifetime ECL which was incorporated into the calculation of the effective interest rate on initial recognition. Therefore, these bonds would not carry a separate impairment allowance subsequent to initial recognition.
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