Credit Union Annual Report 2022 - Flipbook - Page 54
THE CAYMAN ISLANDS CIVIL SERVICE ASSOCIATION (CICSA)
CO-OPERATIVE CREDIT UNION LIMITED
NOTES TO FINANCIAL STATEMENTS (continued)
July 31, 2022
2.4 Summary of accounting policies (continued)
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:
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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
Default is defined as delinquency of 90 days past due or more. Other qualitative criteria are also considered such as:
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The borrower is in long-term forbearance
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The borrower is deceased
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The borrower is insolvent
•
The borrower is in breach of financial covenants
The Credit Union assesses on a forward-looking basis the ECL associated with its loans and with the exposure arising
from loan commitments. The Credit Union recognizes a loss allowance for such losses at each reporting date. The
measurement of ECL reflects:
•
An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes;
•
The time value of money; and
•
Reasonable and supportable information that is available without undue cost or effort at the reporting date about
past events, current conditions and forecasts of future economic conditions.
The estimation of credit exposure for risk management purposes is complex and requires the use of models, as the
exposure varies with changes in market conditions, expected cash flows and the passage of time. The Credit Union
measures credit risk using Probability of Default (‘PD’), Exposure at Default (‘EAD’) and Loss Given Default (‘LGD’).
PD represents the likelihood of a borrower defaulting on its financial obligation either over the next 12 months, or over
the remaining lifetime of the obligation. PD is generated based on historical default data.
EAD is based on the amounts the Credit Union expects to be owed at the time of default, over the next 12 months or over
the remaining lifetime. EAD is assessed based on contractual terms of the loan.
LGD represents the Credit Union’s expectation of the extent of loss on a defaulted exposure. LGD varies by type of
counterparty, availability of collateral or other credit support.
ECL is determined by projecting the PD, LGD and EAD for future period and for each individual exposure or collective
segment. These three components are multiplied together and discounted. For expected credit loss provisions modelled
on a collective basis, a group of exposures is assessed on the basis of shared risk characteristics, such that risk exposures
within a group are homogeneous.
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