ECCB 2022-2023 Annual Report and Financial Statements

Eastern Caribbean Central Bank Notes to the Financial Statements For the year ended 31 March 2023 (Expressed in Eastern Caribbean dollars)

2. Summary of significant accounting policies (continued)

g) Financial assets and financial liabilities (continued)

(ix) Impairment of financial assets (continued)

Measurement of expected credit losses (ECL) (continued)

Credit-impaired financial assets

At each reporting date, the Bank assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI are credit‑impaired (referred to as ‘Stage 3 financial assets’). A financial asset is ‘credit‑impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data:  significant financial difficulty of the borrower or issuer;  default or delinquency in interest or principal payments;  high probability of the borrower entering a phase of bankruptcy or a financial reorganization;  measurable decrease in the estimated future cash flows from the loan or the underlying assets that secure the loan;  The restructuring of a loan or advance by the Bank on terms that the Bank would not consider otherwise. A significant increase in credit risk is defined as a significant increase in the probability of a default occurring since initial recognition. When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Bank considers both quantitative and qualitative information and analysis based on historical experience and credit risk assessment. As a backstop, the Bank considers that a significant increase in credit risk occurs no later than when an asset is more than 30 days past due. IFRS 9 also requires that (other than for purchased or originated credit impaired financial instruments) if a significant increase in credit risk that had taken place since initial recognition, has reversed by a subsequent reporting period then the loss allowance reverts from lifetime ECL to 12-month. Significant increase in credit risk

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