105 CONSOLIDATED FINANCIAL STATEMENTS 2026 Barbados Public Workers’ Co-operative Credit Union Limited Notes to the Consolidated Financial Statements March 31, 2026 (expressed in Barbados dollars) 73 24 Financial Risk Management …continued 24.2 Credit risk …continued The Group’s definition of Significant Increase in Credit Risk (SICR)…continued This back-testing approach is allowed under IFRS 9 in relation to the ranking of investments based on the purpose for which the investment is held. The investments mentioned herein are best described as callable upon demand, with the exception of the Barbados Light & Power Limited which is held as a security deposit. The other investment contracts carry a fixed term. They can be called prior to maturity with the penalty of forgone interest. Loss Given Default (LGD) This methodology is based on Moody's Average Corporate Debt rates measured by Trading prices proxies. The LGD reflects 100% minus the percentage recovery rate. The average LGD for a 1st Lien Bank loan was used as a proxy for the BPWCCUL Cash Deposits portfolio. The expected credit loss allowance computed on term deposits was $69,284 (2025 - $88,947) as at March 31, 2026. 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 those 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, for 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 determine the risk-free rate used in this calculation. The Net Present Value (NPV) for each strip was calculated using the credit-adjusted effective interest rate and was deducted from the carrying value to determine the loss on derecognition. Subsequent to the initial local currency sovereign credit rating on November 3, 2018 of “Selective Default” (SD), this improved to B2 with a Stable outlook on April 14, 2025.
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