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Agenda Item No. 7(b)

 

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING:  18 DECEMBER 2013

 

REFERENCE FROM CABINET: 18 NOVEMBER 2013

 

 

C2075           TREASURY MANAGEMENT (L) (SCRUTINY COMMITTEE – CORPORATE RESOURCES) –

 

Members received a mid-year report on the Authority's treasury management operations for the period 1st April, 2013 to 30th September, 2013 and was asked to note the latest Treasury Management Indicators.

 

Council approved the 2013/2014 treasury management strategy at its meeting on 6th March 2013.

 

The Authority's borrowing strategy estimated that it would borrow £3,827,000 of new external loans to support the capital programme for 2013-2014. The council officers in conjunction with the treasury advisors had and would continually monitor the prevailing interest rates and the market forecasts and adopt a pragmatic approach to changing circumstances in respect of its borrowing needs.

 

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 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 following table set out the monies borrowed / repaid during the period.

 

Loan Type

Opening Balance

Received

Repaid

Closing Balance

 

01/04/2013

 

 

30/09/2013

 

£’000

£’000

£’000

£’000

 

 

 

 

 

PWLB

91,524

0

2,123

89,401

 

 

 

 

 

Other Long Term Loans

6,002

0

0

6,002

 

 

 

 

 

Temporary Loans

100

0

0

100

 

 

 

 

 

Totals

97,626

0

2,123

95,503

 

·         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 represent the non-PWLB loans that were repayable at least 1 year or more from the date they were advanced.  The bulk of this debt is represented by two market loans of £2,000,000 and £4,000,000. The balance of this debt was local bonds that totalled £2,000 and were made up of small individual sums that were invested with the Authority for a number of years by members of the public.  

·         Temporary Loans represent loans that were borrowed for a period of less than 1 year and on a 7 day notice. 

 

External interest at an average rate of 5.6019% and amounting to £2,894,495 had been accrued on the loans for the first 6 months of 2013/2014.

 

The Authority had made the following investments for the period 1st April 2013 to 30th September 2013  as set out in the table below:-  

 

Borrowing

Institution

Opening Balance

Invested

Returned

Closing Balance

 

01/04/2013

 

 

30/09/2013

 

£’000

£’000

£’000

£’000

 

 

 

 

 

UK Local Authorities

 

 

16,000

17,000

 

20,000

13,000

Debt Management Office

74,450

709,700

694,775

89,375

 

 

 

 

 

Totals

90,450

726,700

714,775

102,375

 

Interest, at an average rate of 0.2633% and amounting to £131,716 had been earned from these investments for the first 6 months of 2013/2014.

 

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.

 

The Authority 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

      147m

91,626

ü

Upper limit on variable rate exposures

+/- 154m

-102,825

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 2013 was:

 

 

Upper Limit

Lower Limit

Actual

Met

Under 12 months

20%

0%

3.74%

ü

12 months and within 24 months

20%

0%

3.03%

ü

24 months and within five years

30%

0%

6.18%

ü

Five years and within 10 years

30%

0%

18.27%

ü

10 years and above

100%

0%

68.78%

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:

 

 

2013/14

2014/15

2015/16

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 was a matter for Council decision.

 

RESOLVED -

 

(1)       T H A T the Treasury Management mid-year report for the period 1st April 2013 to 30th September 2013 be noted.

 

(2)       T H A T approval be given to replace paragraph 8.6 of the current Treasury Management and Investment Strategy with the following:

 

'Certain contingencies are required to be included in the strategy for instances where sums of money cannot be invested on the money market either because it is received too late in the working day or for any other reason. In such cases-

 

Either these monies can be deposited in ' call bank accounts' in UK banks which have a short term credit rating of a minimum of F1 (Fitch), P-1 (Moody's) and A-1 (Standard and Poor's) even where there is a negative rating watch / outlook on the bank. There would be no maximum on the amount deposited. Any such deposit must be withdrawn from the account and invested on the money market in the usual manner at the earliest opportunity;

or

 

The monies can be placed with the Co-operative Bank (the Council’s Bankers) even though the Bank did not meet the minimum credit rating criteria and it could result in exceeding the maximum investment limit. Any such deposit must be withdrawn from the account and invested on the money market in the usual manner at the earliest opportunity'.

 

(3)       T H A T approval be given to amend the current Treasury Management and Investment Strategy to increase the total amount that can be invested in UK Local Authorities from £20 million to £30 million with no change to the individual authority limit of £5 million.

 

(4)       T H A T the latest Treasury Management Indicators be noted.

 

(5)       T H A T the report be referred to Council.

 

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 apply the short term credit criteria to overnight deposits in particular circumstances.

 

(3)       To allow an increase in the overall total investment with UK Local Authorities.

 

(4)       To present an update of the Treasury Management Indicators which are included in the treasury management strategy.

 

(5)       To allow Council to consider the report.

 

 

 

 

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