Credit Union Annual Report 2022 - Flipbook - Page 53
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)
vi. Impairment of Financial Assets
Overview of the Expected Credit Loss (ECL) principles
As described in Note 1, the adoption of IFRS 9 has fundamentally changed the Credit Union’s loan loss impairment
method by replacing IAS 39’s incurred loss approach with a forward-looking ECL approach. The Credit Union records
the allowance for expected credit losses for all loans and other debt financial assets not held at FVPL, together with loan
commitments, in this section all referred to as ‘financial instruments’. Equity instruments are not subject to impairment
under IFRS 9.
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 credi t 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 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 t o ‘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.
•
The ECL allowance is only recognized or released to the extent that there is a subsequent change in the ECL.
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