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Agenda Item No. 7(b)

 

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING:  5th DECEMBER, 2012.

 

REFERENCE FROM CABINET: 19th NOVEMBER, 2012.

 

C1913    TREASURY MANAGEMENT (L) (SCRUTINY - CORPORATE RESOURCES) -

 

Cabinet received a mid year report on the Authority's treasury management operations for the period 1st April, 2012 to 30th September, 2012 and was asked to note the latest Treasury Management Indicators.

 

The Council had approved the 2012/2013 treasury management strategy at its meeting on 7th March, 2012.

The Council’s investment strategy aim was to secure the best return on its investments whilst having regard to capital security within the parameters laid down.

 

As for the Council’s borrowing strategy, it was estimated that the Council borrow £5,995,000 of new external loans to support the capital programme for 2012-2013.

 

The Head of Financial Services (Section 151 Officer) was pleased to report that all treasury management activity undertaken during the period complied with the approved strategy, the CIPFA Code of Practice, and the relevant legislative provisions.

 

The latest forecast from the Council treasury management Advisers, was set out below:

 

Period

Bank Rate

3 month LIBOR

12 month LIBOR

25-year PWLB rate

Q3 2012

0.50

0.65

1.40

4.10

Q4 2012

0.50

0.65

1.20

4.15

Q1 2013

0.50

0.65

1.30

4.20

Q2 2013

0.50

0.70

1.40

4.25

Q3 2013

0.50

0.80

1.45

4.35

Q4 2013

0.75

0.95

1.50

4.50

H1 2014

1.00

1.20

1.80

4.85

H2 2014

1.50

1.70

2.30

5.10

H1 2015

2.00

2.20

2.80

5.25

H2 2015

2.50

2.75

3.30

5.50

 

The below table summarised the treasury management transactions undertaken by the Authority during the first half of this financial year. All activities were in accordance with the Authority’s approved strategy on Treasury Management. The table set out the monies borrowed and repaid during the period.

 

Loan Type

Opening Balance

Received

Repaid

Closing Balance

 

01/04/2012

 

 

30/09/2012

 

£’000

£’000

£’000

£’000

 

 

 

 

 

PWLB

95,977

0

241

95,736

 

 

 

 

 

Other Long Term Loans

6,004

0

0

6,004

 

 

 

 

 

Temporary Loans

100

0

0

100

 

 

 

 

 

Totals

102,081

0

241

101,840

 

  • Loans borrowed from the PWLB were intended to assist Local Authorities in meeting their longer term borrowing requirements.  The above loans were all at fixed rates of interest. The rate paid on each loan was largely dependent upon the original duration of the loan and date taken out.
  • Other Long term loans represented those non-PWLB loans that were repayable at least 1 year or more from the date they are advanced.  The bulk of this debt was represented by two market loans of £2,000,000 and £4,000,000. The balance of this debt was local bonds. These totalled £3,500 and were made up of small individual sums that were invested with the Council for a number of years by members of the public.  
  • Temporary Loans represent those loans that were borrowed for a period of less than 1 year and were borrowed on 7 day notice. 
  • External interest at an average rate of 5.62% and amounting to £2,803,462 had been accrued on the loans for the first 6 months of 2012/2013.

The Council had made the following investments for the period 1st April 2012 to 30th September 2012  as set out below:-  

 

Borrowing

Institution

Opening Balance

Invested

Returned

Closing Balance

 

01/04/2012

 

 

30/09/2012

 

£’000

£’000

£’000

£’000

 

 

 

 

 

Local Authorities

 

 

4,000

0

4,000

0

Debt Management Account Deposit Facility

100,000

645,900

630,200

115,700

 

 

 

 

 

Totals

104,000

645,900

634,200

115,700

 

Interest, at an average rate of 0.25% and amounting to £125,917 had been earned from these investments for the first 6 months of 2012/2013.

 

In light of the very low level of short term investment interest rates currently available, internal funds had been used to finance capital expenditure and no external loans had been borrowed to date this year. However this would be reviewed in the light of the Public Works Loan Board (PWLB) who announced that a new PWLB rate, called the certainty rate, that was set 0.2 percentage points below current PWLB rates (currently 1.0% above the UK government bond yield).  The certainty rate was available from 1st November this year for local authorities that met the requisite criteria of providing capital spending and borrowing forecasts to CLG.  The Authority had complied with the criteria and had access to the certainty rate from the above date.

 

As for the Treasury Management Indicators, the Council measured its exposure to Treasury management Risks using the following indicators:

 

  • Interest Rate Exposure - this indicator was set to control the Authority's exposure to interest rate risk. The exposures to fixed and variable rate interest rates, expressed as an amount of net principal borrowed were:

 

Limit

Actual

Met

Upper limit on fixed rate exposures

      139m

95.98m

ü

Upper limit on variable rate exposures

+/- 144m

-117.45m

 

ü

  • Fixed rate investments and borrowings were those where the rate of interest was fixed for the whole financial year.  Instruments that either mature during the financial year or had a floating interest rate were classed as variable rate.
  • Maturity Structure of Borrowing - this indicator was set to control the Authority's exposure to refinancing risk. The maturity date of borrowing was the earliest date on which the lender could demand repayment. The maturity structure of fixed rate borrowing as at 30th September 2012 was:

 

 

Upper Limit

Lower Limit

Actual

Met

Under 12 months

20%

0

4.64%

ü

12 months and within 24 months

20%

0

2.35%

ü

24 months and within five years

30%

0

7.64%

ü

Five years and within 10 years

30%

0

10.68%

ü

10 years and above

100%

0

74.69%

ü

 

  • Principal Sums Invested for Periods Longer than 364 Days - This indicator was to control the Council’s exposure to the risk of incurring losses by seeking early repayment of its long term investments.  The total principal sums invested to final maturities beyond the period end were:

 

 

2012/13

2013/14

2014/15

Limit on principal invested beyond year end

£30M

£30M

£30M

Actual principal invested beyond year end

0

0

0

Within limit?

ü

ü

ü

 

This matter was for a Council decision.

 

RESOLVED –

 

(1)               T H A T Cabinet recommends to Council to note the Treasury Management mid year report for the period 1st April 2012 to 30th September 2012.

 

(2)               T H A T Cabinet recommends to Council to note the latest Treasury Management Indicators.

 

Reasons for Decisions

 

(1)               To present the Treasury Management mid year report as required by the CIPFA Treasury Management in the Public Services: Code of Practice.

 

(2)               To present an update of the Treasury Management Indicators which are included in the Treasury Management Strategy.

 

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