Bank of St. Vincent and the Grenadines Ltd.

Notes to the Consolidated Financial Statement

For the Year Ended December 31, 2022

(in Eastern Caribbean dollars)

2. Summary of Significant Accounting Policies …..Cont’d

2.7 Financial Assets and Liabilities …..Cont’d d) Impairment of Financial Assets …..Cont’d Incorporation of Forward–Looking Information

Forward looking assumptions surrounding GDP growth rates, unemployment and general business sentiments are taken into consideration in developing the probability of defa ult (PD), loss given default (LGD), and exposure at default (EAD) in assessing credit risk and expected credit losses inherent in the Group’s financial assets. The assumptions are incorporated in the Group’s most likely forecast for a range of macroeconom ic assumptions. These forecasts are determined using all reasonable and supportable information, which includes both internally developed modules and those available externally.

In cases where there is low correlation between credit losses and macroeconomic indicators, a range of scenarios incorporating management’s overlays are assessed for possible outcomes on all significant portfolios.

Assessment of Significant Increase in Credit Risk (SICR)

In assessing whether the credit risk on a financi al instrument has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument at the reporting date based on the remaining maturity of the instrument. In making this assessment, the Grou p considers both quantitative and qualitative information that is reasonable and supportable, including historical experience and forward‐looking information that was available.

The assessment of an increase in credit risk included macroeconomic outlook, management judgement, and delinquency and monitoring. The importance and relevance of each specific factor depends on the type of product, characteristics of the financial instruments and the borrower and the industry. With regards to delinquency and monitoring, there was a rebuttable presumption that the credit risk of the financial instrument has increased since initial recognition when contractual payments are more than 30 days overdue.

Some of the indicators which were incorporated included:

• actual or expected significant adverse changes in business, financial or economic conditions that are expected to cause a significant change to the borrower’s ability to meet its obligations;

• actual or expected significant changes in the operating results of the borrower;

• significant increases in credit risk on other financial instruments of the same borrower;

• significant changes in the value of the collateral supporting the obligation or in the quality of third‐party guarantees or credit enhancements; and

• significant changes in the actual or expected performance and behaviour of the borrower, including changes in the payment status of borrowers in the group and changes in the operating results of the borrower.

Quantitative information is a primary indicato r of significant increase in credit risk and is based on the change in lifetime determined PD by comparing the remaining lifetime PD at reporting date with the remaining lifetime PD at the point in time that was estimated based on facts and circumstances a t the time of initial recognition of the exposure.

The qualitative factors that indicate significant increase in credit risk are reflected in PD models on a timely basis. However, the Group still considers separately some qualitative factors to assess if credit risk has increased significantly. For loans and advances there is particular focus on assets that are included on a ‘watch list’ once there is a concern that the creditworthiness of the specific counterparty has deteriorated Events such as unemployment, bankruptcy or death are also considered.