Credit Union Annual Report 2021 V2 - Flipbook - Page 77
THE CAYMAN ISLANDS CIVIL SERVICE ASSOCIATION (CICSA)
CO-OPERATIVE CREDIT UNION LIMITED
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 2021
22. Financial risk management (continued)
Management of credit risk, post credit origination
Loans to members constitute the Credit Union’s principal asset and source of income and as such must always be
protected against loss, by firm, decisive and quick action. The prompt identification of delinquent loans and
quantification of credit risk, coupled with a detailed action plan, are essential to ensure full collection and to ensure the
Credit Union is maintaining adequate reserves for possible credit and settlement losses.
The Board has established effective Delinquency Control and Collections policies in order to minimize the risk
associated with default. The application and implementation of these policies affect the cash receipts and ultimately the
amount of cash available for new loans and other purposes including undistributed surplus from which dividends are paid.
By establishing and enforcing a firm credit and delinquency policy the Credit Union teaches members to respect both
their obligations and the founding principle of the Credit Union. Failure to apply these policies would significantly
increase the risk of default and could lead to serious financial problems for the Credit Union, and therefore its
membership as a whole.
The Credit Union has established a number of different functions in order to manage the level of delinquent loans,
including, a Debt Collection Department (“DCD”) and a team of debt collection officers (collectively, the “debt
collection team”).
The debt collection officer will make collection strategy recommendations based on the facts as they are verified and
developed, in order to return the loan to a current status as soon as possible. Loans lacking a defined strategy, for
whatever reason or, credit relationships where the borrower is not fully cooperating, are referred to the DCD for further
action. The supervision of the DCD is controlled by the Senior Credit Risk Manager.
On a monthly basis, the DCD prepares a report on all delinquent loans in excess of 15 days delinquent, which in turn is
presented to the Chief Executive Officer, Board of Directors, and the Chairpersons for the Credit and Supervisory
Committees. This report summarizes the totals of the various delinquency classes, the delinquency rate and the current
exposure. The Board, Chairpersons of the two committees and the various other functions established review the
reports and ascertain whether satisfactory effort is being made on all delinquent accounts.
A review of the schedule of delinquent loans is essential to the Board in making certain that its policies and
procedures are being carried out. It is an invaluable aid to the Treasurer and the Chief Executive Officer as they cannot
carry out their responsibilities and take appropriate action unless they know what loans are delinquent for how long
and what efforts have been made to collect them.
The debt collection team regularly monitor a variety of sources of information in assessing the credit worthiness of the
borrower, including reference to court judgements and information available in the public domain.
The collection efforts include making initial contact with the member to regularize their accounts, followed by up to three
reminder letters, up to and including legal action in the event of significant default.
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