123 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) 83 25 Financial Risk Management …continued 25.3 Liquidity risk and funding management Liquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises because of the possibility that the Group might be unable to meet its payment obligations when they fall due under both normal and stressed circumstances. To limit this risk, management has arranged diversified funding sources in addition to its core deposit base, and adopted a policy of managing assets with liquidity in mind and of monitoring future cash flows and liquidity on a daily basis. The Group has developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected cash flows and the availability of high-grade collateral which could be used to secure additional funding if required. The steps taken by the Group to respond to possible future liquidity constraints arising from adverse economic conditions and the impact of those steps on the consolidated financial statements include the following: • The Finance, Investment and Asset Management Committee meets monthly to discuss strategies and plans around managing the liquidity and the capital needs of the Group; • Analysis of account aggregation to ensure funding sources are adequately stratified; • Robust stress testing of our liquidity buffer at levels above regulatory requirements; • Assessing the monthly inflow and outflow of funds (liquidity forecasting); • Revisiting measures geared at strengthening the Group’s capital base; • Monitoring of portfolio behavioural matrices in reference to customers servicing their loans; • Performs periodic liquidity and profitability evaluations for existing activities and strategies; • Identifies primary and contingent funding sources needed to meet daily operations, as well as seasonal and cyclical cash flow fluctuations; • Ensures liquidity management strategies are consistent with the board’s expressed risk tolerance; and • Evaluates liquidity and profitability risks associated with new business activities. The Group monitors its loan commitments, which are off-balance sheet items and include unfunded residential mortgages, consumer loans and undrawn lines of credit. Sound risk management practices include closely monitoring the amount of unfunded commitments that require funding over various periods and detailing anticipated demands against unfunded commitments in internal reports and contingency plans. In addition, the Group maintains cash resources that are assumed to be easily liquidated in the event of an unforeseen interruption of cashflow. The cash resources have an estimated value of $424,387,613 (2023 - $392,757,131) as at March 31, 2024. In balancing profitability goals and liquidity demands, management carefully evaluates the benefits (yield and increased marketability) of holding liquid assets against the expected higher returns associated with less liquid assets. The Group also has a committed line of credit facility for $7,800,000 (2023 - $7,800,000) that it can access to meet liquidity needs in cases of adverse conditions which results in a greater operational cashflows. In addition, the Group maintains a statutory deposit with the Central Bank of Barbados.
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