93 SEPARATE FINANCIAL STATEMENTS 2024 Barbados Public Workers’ Co-operative Credit Union Limited Notes to the Separate Financial Statements March 31, 2024 (expressed in Barbados dollars) 59 23 Financial risk management …continued Credit risk …continued Key inputs and assumptions: …continued The Credit Union’s stage 1 and 2 allowance for credit losses on the loan portfolios as at March 31, 2024 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 2023 - 2024 decreased as compared to 2022 - 2023. 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. 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 these 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 2023 - 2024 and for continued expansion in the economy thereafter, with non-performing loans maintaining a downward trajectory for the 2023 - 2024 fiscal. Our downside scenario adjusts 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.
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