Credit Union Annual Report 2021 V2 - Flipbook - Page 51
THE CAYMAN ISLANDS CIVIL SERVICE ASSOCIATION (CICSA)
CO-OPERATIVE CREDIT UNION LIMITED
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 2021
2.4 Summary of accounting policies (continued)
The ECL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime expected credit
loss or LTECL), unless there has been no significant increase in credit risk since origination, in which case, the allowance
is based on the 12 months’ expected credit loss (12mECL) as outlined in Note 2. The Credit Union’s policies for
determining if there has been a significant increase in credit risk are set out in Note 22. The 12mECL is the portion of
LTECLs that represent the ECLs that result from default events on a financial instrument that are possible within the 12
months after the reporting date.
Both LTECLs and 12mECLs are calculated on either an individual basis or a collective basis, depending on the nature of
the underlying portfolio of financial instruments. The Credit Union’s policy for grouping financial assets measured on a
collective basis is explained in Note 22.
The Credit Union has established a policy to perform an assessment, at the end of each reporting period, of whether a
financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk
of default occurring over the remaining life of the financial instrument. This is further explained in Note 22.
The Credit Union has established a policy on how it groups its loans. IFRS 9 outlines a ‘three-stage’ model for impairment
based on changes in credit quality since initial recognition. Based on the above process, Credit Union groups its loans
into Stage 1, Stage 2, Stage 3 and POCI, as described below:
•
A loan that is not credit-impaired on initial recognition is classified in ‘Stage 1’. Loans in Stage 1 have their
expected credit losses (‘ECL’) measured at an amount equal to the portion of lifetime expected credit losses that
result from default events possible within the next 12 months.
•
If a significant increase in credit risk (‘SICR’) since initial recognition is identified, the loan is moved to ‘Stage
2’ but is not yet deemed to be credit-impaired. Loans in Stages 2 have their ECL measured based on expected
credit losses on a lifetime basis.
•
If the loan is credit-impaired, it is then moved to ‘Stage 3’. Loans in Stages 3 have their ECL measured based
on expected credit losses on a lifetime basis.
•
Purchased or originated credit-impaired loans are those that are credit-impaired on initial recognition. Their ECL
is always measured on a lifetime basis.
Delinquency status is utilized as the main indicator for changes in credit risk. Credit management actions are triggered by
movements in days past due. Other qualitative factors are considered, which include but are not limited to:
•
Early signs of cash flow/liquidity problems
•
Known adverse change in financial conditions
•
Known adverse changes in business or economic conditions in which the borrower operates
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