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Agenda Item No. 9(c)

 

THE VALE OF GLAMORGAN COUNCIL

 

COUNCIL MEETING: 17 DECEMBER 2014

 

REFERENCE FROM CABINET:  17 NOVEMBER 2014

 

C2531            TREASURY MANAGEMENT (L) (SCRUTINY COMMITTEE – CORPORATE RESOURCES) –

 

Cabinet was provided with the mid year report on the Authority's Treasury Management operations for the period 1st April 2014 to 30th September 2014 which was a requirement of the 2011 edition of the CIPFA Treasury Management in the Public Services Code of Practice.

 

The Authority's existing borrowing strategy estimated that it would borrow £15,195,000 of new loans to support the capital programme for 2014-2015. The council officers in conjunction with the treasury advisors had and would continue to 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 Finance (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 following tables 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 sets out the monies borrowed / repaid during the period.

 

Loan Type

Opening Balance

Received

Repaid

Closing Balance

 

01/04/2014

 

 

30/09/2014

 

£’000

£’000

£’000

£’000

 

 

 

 

 

PWLB

89,267

0

(132)

89,135

 

 

 

 

 

Other Long Term Loans

6,002

0

0

6,002

 

 

 

 

 

Temporary Loans

100

0

0

100

 

 

 

 

 

Totals

95,369

0

(132)

 

95,237

 

                                               

•           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 were 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 totaled £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 represented those loans that were borrowed for a period of less than 1 year. They were borrowed on 7 day notice.

 

External interest at an average rate of 5.60% and amounting to £2,671,254 had been accrued on these loans for the first 6 months of 2014/2015.

 

The Authority had made the following investments for the period 1st April 2014 to 30th September 2014  as set out below:-  

 

Borrowing

Institution

Opening Balance

Invested

Returned

Closing Balance

 

01/04/2014

 

 

30/09/2014

 

£’000

£’000

£’000

£’000

 

 

 

 

 

UK Local Authorities

 

 

24,000

16,000

(22,000)

18,000

Debt Management Office

71,550

734,000

(736,550)

69,000

 

 

 

 

 

Totals

95,550

750,000

(758,550)

87,000

 

As could be seen from the table above the Authority had invested with the Debt Management Office (DMO) or UK Local Authorities. This strategy was considered prudent considering the continuing pressures in the financial markets. The Head of Finance (Section 151 Officer) always had regard to the security and liquidity of the investments before seeking the highest rate of return, or yield.

 

The Authority had appointed new Banker's - Lloyds Bank. The new banking arrangements were likely to go 'live' during November. However there would be a period of parallel running with the Co-op Bank, until all banking arrangements had been successfully transferred to Lloyds.

 

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

      152m

89,269

    Y

Upper limit on variable rate exposures

+/- 154m

-106,650

    Y

 

 

Fixed rate investments and borrowings were those where the rate of interest was fixed for the whole financial year.  Instruments that either matured 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 2014 was

 

 

Upper Limit

Lower Limit

Actual

Met

Under 12 months

20%

0%

3.14%

Y

12 months and within 24 months

20%

0%

2.27%

Y

24 months and within five years

30%

0%

4.74%

Y

Five years and within 10 years

30%

0%

26.40%

Y

10 years and above

100%

0%

63.45%

Y

 

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:

 

 

2014/15

2015/16

2016/17

Limit on principal invested beyond year end

£30M

£30M

£30M

Actual principal invested beyond year end

0

0

0

Within limit?

Y

Y

Y

 

This was a matter for Council decision

 

RESOLVED –

 

(1)       ....................

 

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

 

"The monies can be placed with the Council's Bankers even though the Bank may not meet the minimum credit rating criteria shown above. 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".

 

(3)       ....................

 

(4)       T H A T the report be referred to Council for approval.

 

Reasons for decisions

 

(1)       ....................

 

(2)       To amend some of the details in respect of overnight deposits in particular circumstances.

 

(3)       ....................

 

(4)       To allow Council to consider the report.

 

 

 

[View Cabinet report]

 

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