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)

3. Financial risk management (continued)

Credit risk (continued)

b)

(iii) Amounts arising from ECL (continued)

(i) Expected credit loss measurement (continued)

a) Significant increase in credit risk (continued)

Determining whether credit risk has been increased significantly (continued)

When contractual terms of a loan have been modified, evidence that the criteria for recognising lifetime ECL are no longer met includes a history of up to-date payment performance against the modified contractual terms. In assessing whether a borrower is in default, the Bank considers indicators that are: - qualitative: e.g. breaches of covenant; - quantitative: e.g. overdue status and non-payment on another obligation of the same issuer to the Bank; and - based on data developed internally and obtained from external sources. The Bank incorporates forward-looking information into the assessment of whether the credit risk of an instrument has increased significantly since its initial recognition and in the measurement of expected credit losses (ECL). The Bank has performed analysis and identified the key economic variables impacting credit risk and expected credit losses for each portfolio. These economic variables and their associated impact on the PD, EAD and LGD vary by financial instrument. The Bank applied judgment to select macroeconomic factors that would most likely impact credit risk. Forecasts of these macroeconomic variables are provided through the Bank ’ s ECL solution on a frequent basis and provides the best and worst view of economic conditions based on the expected impact of macro-economic factors, including but are not limited to the following: b) Incorporation of forward-looking information

 Gross domestic product (GDP) per capita;  GDP growth rate;  Interest rates;  Unemployment rates;  Inflation.

PD, LGD and EAD inputs used to estimate Stage 1 and Stage 2 expected credit loss allowances are modelled based on the macroeconomic variables (or changes in macroeconomic variables) that are closely correlated with credit losses in the relevant portfolios.

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