(A) TREASURY MANAGEMENT MID- Director of Finance YEAR REPORT
Total Page：16
File Type：pdf, Size：1020Kb
12. INFORMATION ITEMS FOR CONSIDERATION BY THE CABINET (a) TREASURY MANAGEMENT MID- Director of Finance YEAR REPORT Purpose To receive the treasury management mid-year report. Introduction The Council’s Treasury Management Strategy for 2015/16 was approved in February 2015. This mid-year investment performance report covers the period 1 April 2015 to 30 September 2015. The report covers treasury activity and the associated monitoring and control of risks. For members’ information, Appendices ‘A’ and ‘B’ relate to this item. Treasury Management Strategy The Department for Communities and Local Government Guidance on Local Government Investments stipulates that priority should be given to the security and liquidity of funds. The Council’s approach is to maximise the return on investments within these parameters. Focus on the security of deposits has been the overriding investment objective in the current financial year. The Council has reduced its exposure to both individual building societies and the sector as a whole. The diversity of the portfolio has been preserved through deposits with rated banks and the development of the property portfolio. This strategic shift was a risk managed response to regulatory changes which, in the event of counterparty default, would subject institutional deposits to ‘bail-in’ contributions. Deposits placed in the year to date have adhered to the Council’s counterparty policy as set out in its Treasury Management Strategy for 2015/16. Counterparty credit quality is assessed and monitored with reference to the credit ratings across rating agencies Fitch, S&P and Moody’s; credit default swaps; financial statements; and information on potential government support. In accordance with the approved Strategy, property investments are made after a comprehensive business case is established which includes consideration of acquisition / disposal costs, returns at an appropriate level, the nature of the property, management costs and the default risk. 1 The Economic Outlook At their October meeting, the Monetary Policy Committee of the Bank of England voted by an 8 – 1 majority to maintain the Bank Rate at 0.5% with the asset purchasing programme being held at £375 billion. The Committee minutes confirm that they expect inflation to remain below 1% until Spring 2016. The decline in oil prices and the strength of Sterling in depressing import price growth were seen as factors behind low inflation. Given these considerations and as wage growth consolidates, the Council’s treasury advisors anticipate that the Bank will move to increase the central rate of borrowing around June 2016. Their full forecast for the Bank Rate is given in the table below: Forecast of UK Interest Rates: Source: Arlingclose Ltd Bank Rate % Current 0.50 June 2016 0.75 December 2016 1.00 June 2017 1.25 December 2017 1.50 June 2018 1.75 December 2018 1.75 Based on this forecast and cash flow projections the following investment returns are anticipated: Year Projected Rate of Return Projected Investment Interest 2015/16 0.68% £350,000 2016/17 0.98% £425,000 2017/18 1.44% £550,000 The Council is currently debt free and its capital expenditure plans do not currently imply any requirement to borrow over the forecast period. Investments are expected to fall to £45 million by 2017/18 after factoring in the commitments in the capital programme. 2 Treasury Management Performance 2015/16 The average investment portfolio from 1 April 2015 to 30 September 2015 was £52.5 million. The tables below indicate the movement in the investment balance and the rate of return for the financial year to date: 31 March 2015 30 September 2015 Investment balance as at £48,250,000 £46,800,000 1 April 2015 to 30 September 2015 Average return on cash investments 0.60% Average London inter-bank 7-day rate 0.48% Average London inter-bank 1-month offer rate 0.51% The average rate of return on the Council’s cash investments in the financial year to the end of September 2015 was 0.60%, generating investment income of £157,400. The average return on investments in this period exceeded the Local Authority seven day rate by 0.12% and the long-term benchmark, the London one month inter-bank offer rate, by 0.09%. The table below gives an indication of the movement in market rates over the period relative to the central Bank Rate and the average rate of return achieved by the Council of 0.60%. 1.20 1.00 0.80 7 days 0.60 1 month 0.40 1 year 0.20 Bank Rate 0.00 Average rate 3 Direct Property Investments The table below reflects the Council’s updated property investment portfolio as at the 31 October 2015. The anticipated annual income from each acquisition is also provided. Date of Property Purchase Annual Yield Acquisition Price Income Barclays Bank, 12-14 Market 03/10/2014 £1,230,000 £89,500 7.25% Street, Hertford Barclays Bank, 89-93 High 12/12/2014 £660,000 £40,000 6.10% Street, Rainham, Kent DVLA Centre, Landegai Road, 17/12/2014 £2,375,000 £166,000 6.90% Bangor, Wales 29-31 Oxford Street, High 07/09/2015 £1,675,000 £110,000 6.55% Wycombe, Bucks 370-372 Dereham Road, 22/10/2015 £1,073,000 £65,000 6.10% Norwich, Norfolk Total £7,013,000 £470,500 The annual average rate of return on the property investments is therefore 6.7% which reflects the position before deduction of costs. Badger BC Investments Property investments made under the auspices of Badger BC Investments fall outside the scope of the CIPFA Code but are included here for completeness. The Company accounts to the Council for interest on loan drawdowns at a commercial rate of 4%. As at the 4th November 2015 loan drawdowns of just under £5.2M have been made yielding £82,346 since the loan account was created in June 2014. Treasury Management Indicators The Council has complied with its Prudential Indicators for 2015/16, which were set in February 2015 as part of the Treasury Management Strategy Statement. Members are asked to note the following indicators as at 30 September 2015: 4 Interest rate exposures This indicator is set to control the Council’s exposure to interest rate risk. Fixed rate investments are those where the rate of interest is fixed for the whole financial year. Instruments that mature during the financial year are classed as variable rate. The exposures to fixed and variable rate interest rates were: 2015/16 to 2016/17 2017/18 date Upper limit on fixed rate exposures (value of portfolio which can be invested for 50% 50% 50% greater than 1 year) Actual 5% Upper limit on variable rate exposures (value of portfolio which can be invested 100% 100% 100% for less than 1 year) Actual 95% Principal sums invested for periods longer than 364 days The purpose of this indicator is to control the Council’s exposure to the risk of incurring losses by seeking early repayment of its investments. The limits on the total principal sum invested to final maturities beyond the period end will be: 2015/16 2016/17 2017/18 Limit on principal invested beyond year £18M £18M £18M end Actual £2M £2M £2M Investment Instruments Monitor The Council’s treasury management policy requires the section to monitor and report investments held against the instrument limits set as part of the prudential indicators. The limits have been complied with in the financial year to date. 5 Approved Lending List All three of the credit rating agencies used by the Council have now reviewed their ratings in light of the loss of government support for most financial institutions. Despite the withdrawal of support many institutions have seen credit rating upgrades based on improvements in their financial strength and low loss exposure. The material changes to the authorised counterparties are summarised below: ● The money market fund that the Council holds with Ignis Liquidity Funds plc was acquired by Standard Life Investments Liquidity Fund plc in May. The Fund continues to be run in accordance with the same investment principles but has been renamed. ● The Danish Danske Bank and the Stafford Railway Building Societies now qualify for inclusion on the authorised counterparty list. A schedule of authorised counterparties and deposits made as at 30 September 2015 is provided at Appendix ‘A’. Also included at Appendix ‘B’ is a full schedule of investments including the rates of return as at the 30 September 2015. Contact Officer: List of Background Papers: Mr C Wybrew (Ext 5516) Investment/Loan records Reports to Cabinet February 2015 and October 2015. British Bankers’ Association London Inter-bank historic rates. Bank of England Inflation Report and Minutes of Monetary Policy Committee. 6 APPENDIX ‘A’ Schedule of deposits and limits. The unsecured counterparties and limits shown are those applying as at 30th September 2015. Max Deposit Short- Long- Group / Country Limit Max Time Limit Limit £M Term £M Term £M RATED BUILDING SOCIETIES COVENTRY 6 Months 3 2 N/a N/a LEEDS 100 Days 3 N/a N/a NATIONWIDE 6 Months 3 3 N/a N/a UNRATED BUILDING SOCIETIES CUMBERLAND 100 Days 1 1 N/a N/a DARLINGTON 100 Days 1 N/a N/a FURNESS 6 Months 1 N/a N/a HARPENDEN 100 Days 1 N/a N/a HINCKLEY & RUGBY 6 Months 1 N/a N/a LEEK UNITED 6 Months 1 N/a N/a LOUGHBOROUGH 100 Days 1 N/a N/a MANSFIELD 6 Months 1 N/a N/a MARKET HARBOROUGH 6 Months 1 N/a N/a MARSDEN 6 Months 1 N/a N/a MELTON MOWBRAY 6 Months 1 N/a N/a NATIONAL COUNTIES 6 Months 1 1 N/a N/a NEWBURY 6 Months 1 N/a N/a SCOTTISH 100 Days 1 N/a N/a STAFFORD RAILWAY 6 Months 1 N/a N/a TIPTON & COSELEY 6 Months 1 1 N/a N/a VERNON 100 Days 1 N/a N/a 7 Max Deposit Short- Long- Group / Country Limit Max Time Limit Limit