Page 130 - RB GRENADA ANNUAL REPORT 2025_ONLINE

130 • Republic Bank (Grenada) Limited 2025 Annual Report • FINANCIALS

Notes to the Financial Statements

For the year ended September 30, 2025. Expressed in Thousands of Eastern Caribbean dollars ($’000), except where otherwise stated.

18 Risk management (continued)
18.2 Credit risk (continued)

18.2.4 The Bank’s internal rating and PD estimation process
Commercial and corporate lending and mortgages
The Bank has an independent internal credit risk department. Risk ratings were selected as cohort for PD
analyses. A vintage approach was applied looking at the movements of ratings over a period of time. Historical
PDs were developed and there being no correlation between macro economic trends and historical default rates,
management applied judgmental overlays based on expectations. As previously mentioned, LGD percentage
estimates were developed based on historical loss trends for non-performing loans which are assessed on
an individual level including estimating the present value of future cash flows. EAD equals the loan balance
outstanding plus accrued interest.

Retail lending and mortgages
Product types were selected as cohort for PD analyses for retail lending and retail mortgages. A vintage approach
was applied looking at the number of defaults by segment over a period of time. Historical PDs were developed
and there being no correlation between macro economic trends, management applied judgmental overlays
based on expectations. LGD percentage estimates were developed based on historical loss trends for non-
performing loans which are assessed on both an individual and collective level. EAD equals the loan balance
outstanding plus accrued interest.

Overdrafts and Credit Cards
Many corporate customers are extended overdraft facilities and the PDs developed for the Corporate portfolio
were applied. LGDs for the Corporate portfolio was also utilised for overdrafts. EADs were developed based on
historical trends in utilisation of overdraft limits. ECL percentages for the Retail portfolio were utilised for retail
overdrafts. PDs for the credit card portfolio were developed using default percentages over a period of time. EADs
were developed based on historical trends in utilisation of credit card limits and LGD percentage estimates were
developed based on historical loss trends for a sample of credit card non-performing facilities.

Management judgmentally applied overlays as required as there was no noted correlation between macro
economic trends and historical default rates.

Investment securities carried at amortised cost
PD’s and LGD’s for traded instruments were based on the global credit ratings assigned to the instrument or
the country for sovereign exposures. PDs and LGDs for non traded instruments were based on one notch below
the credit rating of the sovereign in which the instrument is issued or on company ratings where they existed.
Management applied judgmental overlays on local debt instruments. EAD equals the amortised security balance
plus accrued interest.

Treasury Bills and Due from banks including related banks
Treasury Bills, Statutory deposits with Central Bank and Due from banks including related banks are short
term funds placed with the Eastern Caribbean Central Bank and correspondent banks and the Bank therefore
considers the risk of default to be very low. These facilities are highly liquid and without restriction and based on
management’s review of the underlying instruments the ECL on these instruments were determined to be zero.