Eastern Caribbean Central Bank 2024-2025 Annual Report

Eastern Caribbean Central Bank Notes to the Financial Statements For the year ended 31 March 2025 (Expressed in Eastern Caribbean dollars)

3. Financial risk management (continued) b) Credit risk (continued)

(iii) Amounts arising from ECL (continued)

(i) Expected credit loss measurement (continued) c) Computation of the expected credit losses (continued)

EAD represents the expected exposure in the event of a default. The Bank derives the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the contract and arising from amortisation. EAD is computed as the sum of the amortised amount and accrued interest to reflect contractual cash flows. As described above, and subject to using a maximum of a 12-month PD for Stage 1 financial assets, the Bank measures ECL considering the risk of default over the maximum contractual period (including any borrower’s extension options) over which it is exposed to credit risk, even if, for credit risk management purposes, the Bank considers a longer period. The maximum contractual period extends to the date at which the Bank has the right to require repayment of an advance or terminate a loan commitment or guarantee. Sensitivity of ECL to changes in future economic conditions as at 31 March 2025 As described above, the Bank measures expected credit losses (ECL) in accordance with IFRS 9 using a probability-weighted model that incorporates forward-looking macroeconomic scenarios. These scenarios include a base case, an upside (optimistic) scenario, and a downside (adverse) scenario, each reflecting a range of outcomes for key macroeconomic indicators such as GDP growth, inflation, and unemployment rates. The Bank has performed a quantitative sensitivity analysis to evaluate how ECL on the portfolios will change if the key assumptions used to calculate ECL change. To assess the sensitivity of the ECL allowance to changes in macroeconomic assumptions, the Bank conducted scenario-based analysis using alternative weightings. The results of the sensitivity analysis are as follows:  Under more adverse economic conditions, the ECL allowance would increase by $567,960 to $1,479,389, relative to the reported allowance;  Under more favourable economic conditions, the ECL allowance would decrease by $218,464 to $692,965, compared to the reported allowance.

54