Meeting documents

To consider the attached report.

Contact Officer:  Nuala Donnelly (01296) 585164

The Committee received a report on the Authority’s Treasury Management Strategy and its performance for the 2017/18 financial year..  An annual report was required to be brought to Council after each year end.

The main objectives for the Treasury Management team for 2017/18 were laid out in the Treasury Management Strategy agreed by Council in February 2017, which were:-

·                    Foremost, to maintain, the security of the Council’s deposits by only depositing with trusted financial institutions and limiting the size and length of deposit with each organisation.

·                    To directly manage a range of deposits in order to provide sufficient flexibility to meet day to day operational needs.

·                    To only undertake new long term borrowing where the business case justifies it.

The actual performance was in line with the plan which had ensured that the Council placed deposits in a decreasing market by spreading its deposits thinly across many trusted institutions in accordance with its policy.  No new long term borrowings had been undertaken during the period, while the in-house team achieved interest rates above the 7 day LIBOR rate.

The Committee report charted the average monthly balances deposited by the in-house team, and detailed the average weighted rate of return received over the financial year compared to the LIBOR rates available

Over the financial year, the rate of return had increased, and credit risk reduced.  For March 2018, the weighted average rate of return for the Council was 0.61% (on investment of £45.4m) This compares to Benchmarking data where, across 227 Authorities, Weighted average rate of return was 0.61%, on investment average of £67.1m.  (Source of data: Link Asset Services)

Members were also provided with information showing the Council’s performance against capital and treasury indicators, as indicated by the Council’s Balance Sheet, as at 31 March 2018.

When managing the Council’s deposits the primary consideration was to protect capital rather than to maximise return as the deposited sums were public money and, therefore, any loss of capital should be avoided at all costs.  The Treasury Management team continued to invest money in line with its list of approved (safe) institutions, varying the amounts and length of deposit according to the institution and the cash flow requirements at the time.  Although, a safe list of institutions was maintained, major unexpected events or a sudden loss of confidence in the banking sector could not always be predicted.

Historically, the majority of the Council’s lending had been with Banks and Building Societies but over the last year the Council had increased its range of investment with some of the major UK banks in order spread the risk of its portfolio. The Council had also started to lend to other Local Authorities to reduce exposure to smaller un-rated building societies. The lending list was monitored throughout the year to take account of any changes within the sector i.e. building society mergers / conversions to banks.  During 2017/18 there had not been any mergers that affected the Council’s lending list.

With interest rates still at low levels, the actual amount of deposit income generated was £275,086. This was £15,086 higher than planned. This was due to the high level of money available for deposit from unspent reserves and balances held to meet capital programme obligations.  With the prevailing low rates the likelihood of an increase in the interest generated remains low.

In November 2017, the Bank of England had raised Bank Rate to 0.5% from 0.25%.   Market intelligence on forecast rates were informed by the political and economic markets.  There was no change to the rate in June 2018, although there was some indication that the interest rate might increase in August by 0.25%

Money Market Funds

The council continued to operate two Money Market Funds to give the in-house team easy access to surplus funds.  MMF interest rates had broadly increased in line with the Bank of England  base rate. Returns for money market funds  remain below those of fixed term deposits but they offer greater security being triple A rated. Although, the returns had reduced the MMFs were required to manage the daily cash flow as they offer daily access without any loss of interest.

New Borrowing

No new borrowing was taken out during the year.  Any borrowing would have to be within the Authority’s Authorised Limit and Operational Boundary, which were set at the beginning of each year.  It was a requirement of the code that any deviations from these limits, approved or otherwise, are reported to Council.

The council does not use fund managers to aid its investment decisions.  An update on the Treasury Management for 2018-19 will be prepared mid-year for review by Members.

Members requested further information and were informed that the transactions fees paid by the Council through spreading deposits thinly across many trusted institutions were negligible.  Going forward, the Council was likely to move to using fewer institutions, mainly through a reduction in the number of building societies used.

RESOLVED –

(1)          That the Council’s Treasury Management team be congratulated for their performance during the year, which had achieved an average weighed rate of return which were better than the LIBOR rates.

(2)          That the Council’s performance against the Treasury Management Strategy for 2017/18 be noted.