113 CONSOLIDATED FINANCIAL STATEMENTS 2024 Barbados Public Workers’ Co-operative Credit Union Limited Notes to the Consolidated Financial Statements March 31, 2024 (expressed in Barbados dollars) 73 25 Financial Risk Management …continued 25.2 Credit risk …continued Assessment of Amortized Cost Fixed Income Securities Sovereign debt securities - Government of Barbados On December 12th 2023, the Credit Union invested $10,000,000 in GOB BOSS Bonds Plus 2028 with a coupon rate of 4.5% were carried at amortized cost. The associated ECL was $37,460 as at March 31, 2024. Assessment of Corporate debt securities As at March 31, 2024, the Credit Union held corporate debt securities with the Barbados Port Inc. (BPI) with a carrying value of $5,159,737 (2023 - $6,986,992) with an average weighted effective yield of 4.47% (2023 - 4.65%). An ECL assessment was performed as required by IFRS 9. This assessment on the Credit Union’s debt securities measured at amortised cost utilized the following methodology as outlined below: • Due to the lack of published statistical data and the lack of an active market for securities, Moody’s Investor’s Report dated April 13, 2023 on Sovereign default and recovery rates, 1983 to 2022 was used to provide the cumulative default rates (CDR) for categories of bonds similar to Barbados. This gave the cumulative probability of default over a 10-year period. • The recovery rate of 89% (2023 - 89%) for the Barbados Port Inc. bonds were used since these securities were not part of the debt exchange and had a higher likelihood of repayment due to the corporate independence, financial stability and profitability of the Barbados Port Inc. The loss given default (LGD) was therefore 18.03% which included a country default spread risk premium 7.08% (2023 - 11%). • The discount rate applied was the effective interest rate for amortized cost financial instruments. Similar to the ECL assessment for term deposits, the staging methodology is as follows: Stage 1: The entity shows no decline in its ability to repay either based on past performance or future events for which a 12-month PD was assigned. The Investment Credit Rating was unchanged as at the financial year-end. Stage 2: There has been a significant event which has caused or is highly probable to have significant impact on the investee’s ability to repay for which the PD assigned was the Cumulative Probability of Default (CPD) rate less the survival period. The Investment credit rating has declined below a company rating. This is where the company or investment classification family is considered speculative and subject to substantial default risk. Stage 3: There has been a default or significant event which has caused or is highly probable to have a significant impact on the investee’s ability to repay for which the assigned PD was the CPD rate. The investment credit rating has significantly declined. The company or investment classification family is considered speculative or in poor standing and subject to very high default risk or may be in default on some part of its investment obligation. The above assumptions were the best-case scenario for the Groups’ securities that are backed by the most reasonable and supportable data available at the time of the assessment.
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