Credit Union Annual Report 2021 V2 - Flipbook - Page 78
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)
During and after the reminders are sent to delinquent borrowers and their co-makers or guarantor(s), every effort is made
to collect the debt. In the event of significant default, where the loan is secured by securities such as a Bill of Sale or
mortgage (charge on property) the Credit Union can take the necessary action so that the security maybe realised. If
efforts to regularise the members’ loans fail, the ultimate action is referral of the matter to the Credit Union’s attorney,
in respect of loans secured on property, who in turn take legal proceedings against the member. These proceedings can
include action for foreclosure, and possession of property served as security for the loan. With respect to consumer
loans, the loan may be referred for further collection efforts to the Cayman Islands National Credit Bureau.
Any dividends earned on delinquent members’ shares must be credited against his outstanding obligations, first to the
outstanding interest, then towards reducing the outstanding principal.
Upon initial recognition for loans and advances, the fair value of collateral is based on valuation techniques
commonly used for corresponding assets and include valuations provided by reputable local property valuation
specialists. In subsequent periods, the fair value is updated periodically from time to time depending on market
conditions and/or when collateral values approximate the carrying value of the loan.
The carrying value of impaired loans is generally determined by reference to the fair value of collateral held in respect
of such loans. Accordingly, any change in the fair value of collateral held in respect of impaired loans will have a direct
impact on the carrying value of impaired loans. In addition, the assessment if whether a loan is classified as past due
but not impaired is also generally made by reference to the fair value of collateral held.
iii. Market risk
The market risk to which the Credit Union’s financial assets are exposed to include currency risk, equity price risk and
interest rate risk.
iv. Currency risk
The Credit Union is exposed to currency risk in relation to monetary assets and liabilities denominated in foreign
currencies. The Credit Union holds an insignificant amount of its cash at bank and fixed deposits denominated in United
States dollars, in addition to the two securities held as investments (Note 4), which are also denominated in United States
dollars. The value of such monetary assets will fluctuate because of changes in the exchange rates at which these are
converted into Cayman Islands dollars. Management considers this risk to be minimal as all foreign currency
holdings are denominated in the United States dollar, which has a fixed rate of exchange to the Cayman Islands dollar.
v. Equity price risk
The Credit Union’s investment in securities exposes it to equity price risk. The investments consist of publicly traded
shares of Caribbean Utilities Company, Ltd. and Cayman National Corporation Ltd. The primary goal of the Credit
Union is to achieve capital growth and dividend income from these investments. Management considers that equity price
risk is not material as this risk is mitigated by restricting the value of funds invested to two different holdings, which
management consider are relatively stable over time. Management regularly monitors the movements in the share
prices of these equities in order to minimize the risk of significant loss to the Credit Union.
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