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Appendix A

 

 

 

 

 

 

 

 

 

Treasury Management Strategy Statement

Minimum Revenue Provision Policy Statement and Annual Investment Strategy

Maidstone Borough Council

2015/16

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INDEX     

 

1       INTRODUCTION.. 3

1.1     Background.. 3

1.2     Reporting requirements. 3

1.3     Treasury Management Strategy for 2015/16.. 4

1.4     Treasury management consultants. 4

1.5     Training.. 4

2       THE CAPITAL PRUDENTIAL INDICATORS. 5

2.1     Capital expenditure.. 5

2.2     The Council’s borrowing need (the Capital Financing Requirement). 5

2.3     Affordability prudential indicators. 5

2.4     Incremental impact of capital investment decisions on council tax. 6

3       BORROWING.. 7

3.1     Treasury Indicators: limits to borrowing activity. 7

3.2     Prospects for interest rates. 8

3.3     Borrowing strategy. 8

3.4     Policy on borrowing in advance of need.. 9

4       ANNUAL INVESTMENT STRATEGY.. 10

4.1     Investment policy. 10

4.2     Creditworthiness policy. 15

4.3     Country limits. 15

4.4     Investment strategy. 15


 

1     INTRODUCTION

1.1       Background

The Council is required to operate a balanced budget, which broadly means that cash raised during the year will meet cash expenditure.  Part of the treasury management operation is to ensure that this cash flow is adequately planned, with cash being available when it is needed.  Surplus monies are invested in low risk counterparties or instruments commensurate with the Council’s low risk appetite, providing adequate liquidity initially before considering investment return.

 

The second main function of the treasury management service is the funding of the Council’s capital plans.  These capital plans provide a guide to the borrowing need of the Council, essentially the longer term cash flow planning to ensure that the Council can meet its capital spending obligations.  This management of longer term cash may involve arranging long or short term loans, or using longer term cash flow surpluses.   On occasion any debt previously drawn may be restructured to meet Council risk or cost objectives.

 

CIPFA defines treasury management as:


“The management of the local authority’s investments and cash flows, its banking, money market and capital market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks.”

1.2       Reporting requirements

The Council is required to receive and approve, as a minimum, three main reports each year, which incorporate a variety of policies, estimates and actuals. 

 

Prudential and treasury indicators and treasury strategy (this report) - The first, and most important report covers:

·       the capital plans (including prudential indicators);

·       a minimum revenue provision (MRP) policy (how residual capital expenditure is charged to revenue over time);

·       the treasury management strategy (how the investments and borrowings are to be organised) including treasury indicators; and

·       an investment strategy (the parameters on how investments are to be managed).

 

A mid year treasury management report – This will update members with the progress of the capital position, amending prudential indicators as necessary, and whether any policies require revision. 

 

An annual treasury report – This provides details of a selection of actual prudential and treasury indicators and actual treasury operations compared to the estimates within the strategy.

 

 

 

 

Scrutiny - The above reports are required to be adequately scrutinised before being recommended to the Council.  This role has previously been undertaken by the Audit Committee.

 

A quarterly update on the Council’s treasury management position is also provided through budget monitoring reports presented to Cabinet.

1.3       Treasury Management Strategy for 2015/16

The strategy for 2015/16 covers two main areas:

 

Capital issues

·       the capital plans and the prudential indicators;

·       the minimum revenue provision (MRP) policy.

 

Treasury management issues

·       treasury indicators which limit the treasury risk and activities of the Council;

·       prospects for interest rates;

·       the borrowing strategy;

·       policy on borrowing in advance of need;

·       the investment strategy; and

·       creditworthiness policy.

 

These elements cover the requirements of the Local Government Act 2003, the CIPFA Prudential Code, CLG MRP Guidance, the CIPFA Treasury Management Code and  CLG Investment Guidance.

1.4       Treasury management consultants

The Council uses Capita Asset Services, Treasury solutions as its external treasury management advisors.

 

Responsibility for treasury management decisions ultimately remains within the organisation and officers will not place undue reliance on the advice of external service providers.

 

The terms of appointment and value gained through use of treasury management consultants will be subject to regular review.

1.5       Training

The CIPFA Code requires the responsible officer to ensure that members with responsibility for treasury management receive adequate training in treasury management.  This especially applies to members responsibe for scrutiny.  A treasury management training session was delivered by Capita, the Council’s treasury management advisors in December 2014 and was open for all members to attend.  Further training will be arranged as required. 

 

The training needs of treasury management officers are also periodically reviewed.

 

 

 

2     THE CAPITAL PRUDENTIAL INDICATORS

The Council’s capital expenditure plans are the key driver of treasury management activity.  The output of the capital expenditure plans is reflected in the prudential indicators, which are designed to assist members’ overview and confirm capital expenditure plans.

2.1       Capital expenditure

This prudential indicator is a summary of the Council’s capital expenditure plans, both those agreed previously, and those forming part of this budget cycle.  Capital expenditure forecasts are shown below:

 

2014/15

2015/16

2016/17

2017/18

2018/19

£000

£000

£000

£000

£000

11,673

5,170

5,528

5,310

5,086

2.2       The Council’s borrowing need (the Capital Financing Requirement)

The second prudential indicator is the Council’s Capital Financing Requirement (CFR).  The CFR is simply the total historic outstanding capital expenditure which has not yet been paid for from either revenue or capital resources.  It is essentially a measure of the Council’s underlying borrowing need.  Any capital expenditure above, which has not immediately been paid for, will increase the CFR. 

The CFR does not increase indefinitely, as the minimum revenue provision (MRP) is a statutory annual revenue charge which broadly reduces the borrowing need in line with each assets life.

The CFR includes the liability for the arrangement with Serco Paisa for leisure centre improvements.  Whilst these increase the CFR, and therefore the Council’s borrowing requirement, these types of scheme include a borrowing facility and so the Council is not required to separately borrow for these schemes. 

CFR projections are shown in the table below:

2014/15

2015/16

2016/17

2017/18

2018/19

£000

£000

£000

£000

£000

-65

-2,033

-2,033

-2,033

-2,033

 

2.3       Affordability prudential indicators

The previous sections cover the overall capital and control of borrowing prudential indicators, but within this framework prudential indicators are required to assess the affordability of the capital investment plans.   These provide an indication of the impact of the capital investment plans on the Council’s overall finances. 

Ratio of financing costs to net revenue stream

This indicator identifies the trend in the cost of capital (borrowing and other long term obligation costs net of investment income) against the net revenue stream.

 

 

2014/15

2015/16

2016/17

2017/18

2018/19

2019/20

%

%

%

%

%

%

-1.1

0.0

0.0

-0.3

-1.1

-1.1

 

The estimates of financing costs include current commitments and the proposals in the 2015/16 budget report.

2.4       Incremental impact of capital investment decisions on council tax

This indicator identifies the revenue costs associated with proposed changes to the three year capital programme recommended in the 2015/16 budget report compared to the Council’s existing approved commitments and current plans.  The assumptions are based on the budget, but will invariably include some estimates, such as the level of Government support, which are not published over a three year period.

 

Incremental impact of capital investment decisions on the band D council tax

 

 

2014/15

£

2015/16

£

2016/17

£

2017/18

£

2018/19

£

Council tax - band D

1.20

4.4

4.42

4.34

4.21

 

 

3     BORROWING

The capital expenditure plans set out in Section 2 provide details of the service activity of the Council.  The treasury management function ensures that the Council’s cash is organised in accordance with the the relevant professional codes, so that sufficient cash is available to meet this service activity.  This will involve both the organisation of the cash flow and, where capital plans require, the organisation of approporiate borrowing facilities.  The strategy covers the relevant treasury / prudential indicators, the current and projected debt positions and the annual investment strategy.

 

3.1       Treasury Indicators: limits to borrowing activity

The operational boundary.  This is the limit beyond which external debt is not normally expected to exceed.  In most cases, this would be a similar figure to the CFR, but may be lower or higher depending on the levels of actual debt.

Operational boundary

2014/15

£000

2015/16

£000

2016/17

£000

2017/18

£000

Debt

6,000

6,000

6,000

6,000

Other long term liabilities (Serco Pasia*)

5,426

4,971

4,514

4,033

Total

11,426

10,971

10,514

10,033

 

The authorised limit for external debt. A further key prudential indicator represents a control on the maximum level of borrowing.  This represents a limit beyond which external debt is prohibited, and this limit needs to be set or revised by full Council.  It reflects the level of external debt which, while not desired, could be afforded in the short term, but is not sustainable in the longer term. 

1.   This is the statutory limit determined under section 3 (1) of the Local Government Act 2003. The Government retains an option to control either the total of all councils’ plans, or those of a specific council, although this power has not yet been exercised.

2.   The Council is asked to approve the following authorised limit:

 

Authorised limit

2014/15

£000

2015/16

Estimate

2016/17

Estimate

2017/18

Estimate

Debt

10,000

10,000

10,000

10,000

Other long term liabilities (Serco Pasia*)

5,426

4,971

4,514

4,033

Total

15,426

14,971

14,514

14,033

 

* Other Long Term Liabilities is the same for Operational Boundary and Authorised Limit due to no additional liabilities being incurred during 2015/16.

3.2       Prospects for interest rates

 

The Council’s advisors, Capita Asset Services, have provided the following interest rate forecast:

 

Annual Average %

Bank Rate

%

PWLB Borrowing Rates %

(including certainty rate adjustment)

 

 

5 year

25 year

50 year

Mar 2015

0.50

2.20

3.40

3.40

Jun 2015

0.50

2.20

3.50

3.50

Sep 2015

0.50

2.30

3.70

3.70

Dec 2015

0.75

2.50

3.80

3.80

Mar 2016

0.75

2.60

4.00

4.00

Jun 2016

1.00

2.80

4.20

4.20

Sep 2016

1.00

2.90

4.30

4.30

Dec 2016

1.25

3.00

4.40

4.40

Mar 2017

1.25

3.20

4.50

4.50

Jun 2017

1.50

3.30

4.60

4.60

Sep 2017

1.75

3.40

4.70

4.70

Dec 2017

1.75

3.50

4.70

4.70

Mar 2018

2.00

3.60

4.80

4.80

Previously the bank rate was anticiptated to rise in June 2015.  However, partly due to the UK economic growth not being as high as previously predicted, the forecast has now been revised to the end of 2015.  Investment returns are therefore expected to remain relatively low during 2015/16 and beyond.

These rates are also reflected in the corresponding reduction in short term PWLB lending rates.

3.3              Borrowing strategy

The Council is currently maintaining an under-borrowed position.  This means that the capital borrowing need (the Capital Financing Requirement), has been funded using cash supporting the Council’s reserves, balances and cash flow as a temporary measure, rather than through loan debt.  This strategy is prudent as currently investment returns are low and counterparty risk is relatively high.

 

The authority to borrow up to £6m for the financing of capital expenditure is included in the current capital programme and the current prudential indicators. The 2015/16 strategy includes the continuation of that authority within the calculation of the indicators. If the Council is to borrow then the affordability of the capital programme must include an assessment of the cost of borrowing along with the loss of investment income from the use of capital resources held in cash.

Should rates move more quickly than the forecast predicts, the current and proposed strategies do allow the Head of Finance and Resources to take advantage of external borrowing.  The Council’s policy on borrowing in advance of need is set out at section 3.4 of this strategy.

The current long term borrowing rate from the Public Works Loan Board is 3.4% for 25 years. Were the Council to temporarily borrow the necessary resources from its own cash balances rather than complete a further one year investment it would save the equivalent of 2.7% of the amount borrowed. The affordability of the capital programme has been calculated based upon the assumption that internal borrowing would occur initially.

3.4       Policy on borrowing in advance of need

The Council will not borrow more than or in advance of its needs purely in order to profit from the investment of the extra sums borrowed. Any decision to borrow in advance will be within forward approved Capital Financing Requirement estimates, and will be considered carefully to ensure that value for money can be demonstrated and that the Council can ensure the security of such funds.

 

Risks associated with any borrowing in advance activity will be subject to prior appraisal and subsequent reporting through the mid-year or annual reporting mechanism.

4     ANNUAL INVESTMENT STRATEGY

4.1       Investment policy

The Council’s investment policy has regard to the CLG’s  Guidance on Local Government Investments (“the Guidance”) and the revised CIPFA Treasury Management in Public Services Code of Practice and Cross Sectoral Guidance Notes (“the CIPFA TM Code”).  The Council’s investment priorities will be security first, liquidity second, then return.

         

In accordance with the above guidance from the CLG and CIPFA, and in order to minimise the risk to investments, the Council applies minimum acceptable credit criteria in order to generate a list of highly creditworthy counterparties which also enables diversification and thus avoidance of concentration risk. 

 

The council will maintain a counterparty list to identify institutions suitable for investment.   The counterparty list will be maintained using the following principles:

 

a) Use of the Council’s Treasury Management Consultant’s scheme for rating of institutions for creditworthiness which uses a sophisticated modeling approach with credit rating agencies, Moodys, Fitch and Standard & Poors, along with Sovereign ratings, CDS spreads and credit watches.

 

b) Group limits placed on institutions within the same group and not separate for each institution.  The group limit will be the highest individual credit criteria for the group.

 

c)  An institution will never have a higher credit rating than the sovereign country it operates within.  If the sovereign is downgraded below the rating of an institution, the institution is downgraded to the same level.

 

d)  Duration limits with part nationalised is 2 years.

 

e) Use of the top 5 Building Societies is ranked using the management expenses and asset size ranking.

 

f)   The Head of Finance & Resources will have been given delegated responsibility to add or withdraw institutions from the counterparty list when ratings change, either as advised by Capita Assets Services (the Council’s advisors) or from another reliable market source.

 

The DCLG provides criteria for specified investments with all other investments being non-specified.  The following principles are applied to their use:

 

a) Only the top five building societies (with the exception of Nationwide Building Society) and investments over a 1 year duration with a credit worthy institution will be non-specified.

 

b) Funds will be invested short term (up to one year) so that funds are available to invest when rates increase.

 

c)   The use of an additional £3m core cash deposits for greater than one year (bringing maximum total long term investments to £8m) if rates are at a premium over predicted base rates and funds are available for the term, with the potential to invest within property funds.

 

d) The use of enhanced cash funds and Money Market Funds which are AAA rated funds.  These funds spread the risk over many counterparties and funds may be withdrawn by giving a short notice period.

 

e) The use of overseas banks to be included which are on Capita Asset Services counterparty list and whose country sovereignty rating is the same or higher than the UK.

 

The criteria for providing a pool of high quality investment counterparties (both specified and non-specified investments) are:

 

SPECIFIED INVESTMENTS: All such investments will be sterling denominated, with maturities up to maximum of 1 year, meeting the minimum ‘high’ quality criteria where applicable.

 

NON-SPECIFIED INVESTMENTS: These are any investments which do not meet the specified investment criteria. 

A variety of investment instruments will be used, subject to the credit quality of the institution, and depending on the type of investment made it will fall into one of the above categories.

 

The criteria, time limits and monetary limits applying to institutions or investment vehicles are set out below:

 

 

 

* Minimum credit criteria / colour band

** Max % of total investments/ £ limit per institution

Max. maturity period

Debt Management Account Deposit Facility (DMDAF) – UK Government

N/A

100%

6 months

UK Government gilts

UK sovereign rating

 

2 years

UK Government Treasury blls

UK sovereign rating

 

2 years

Bonds issued by multilateral development banks

UK sovereign rating

 

6 months

Money market funds

AAA

100%

Liquid

Enhanced money market funds with a credit score of 1.25

AAA

100%

Liquid

Enhanced money market funds with a credit score of 1.5

AAA

100%

Liquid

Local authorities

N/A

100%

2 years

Term deposits with banks and building societies

Yellow

Purple

Blue

Orange

Red

Green

No Colour

 

 

Up to 2 years

Up to 2 years

Up to 2 years

Up to 1 year

Up to 6 Months

Up to 100 days

Top 5 Building societies only

CDs or corporate bonds  with banks and building societies

Yellow

Purple

Blue

Orange

Red

Green

No Colour

 

Up to 2 years

Up to 2 years

Up to 2 years

Up to 1 year

Up to 6 Months

Up to 100 days

Top 5 Building

Corporate bond funds

 

 

 

Gilt funds

UK sovereign rating

 

 

Property funds

 

 

 

 

 

SPECIFIED INVESTMENTS:

(All such investments will be sterling denominated, with maturities up to maximum of 1 year, meeting the minimum ‘high’ rating criteria where applicable)

 

 

 

* Minimum ‘High’ Credit Criteria

Use

Debt Management Agency Deposit Facility

--

In-house

Term deposits – local authorities 

--

In-house

Term deposits – banks and building societies **

Capita Green Rating

In-house

 

Term deposits with nationalised banks and banks and building societies

 

 

* Minimum Credit Criteria

 Use

UK  part nationalised banks

Capita Blue Rating

In-house

Banks part nationalised by high credit rated (sovereign rating) countries – non UK

Sovereign rating AA+

In-house

 

Collateralised deposit  (see note 2)

UK sovereign rating

In-house

Certificates of deposit issued by banks and building societies covered by UK  Government  (explicit) guarantee

UK sovereign rating

In-house

UK Government Gilts

UK sovereign rating

In-house buy and hold

Bonds issued by multilateral development banks

 

AAA

In-house buy and hold

Bond issuance issued by a financial institution which is explicitly guaranteed by  the UK Government  (refers solely to GEFCO - Guaranteed Export Finance Corporation)

 

UK sovereign rating

In-house buy and hold

Sovereign bond issues (other than the UK govt)

AAA

In-house buy and hold

Treasury Bills

UK sovereign rating

In house

 

Collective Investment Schemes structured as Open Ended Investment Companies (OEICs): -

    1. Government Liquidity Funds

Capita Yellow Rating       

In-house

    2. Money Market Funds

Capita Yellow Rating       

In-house

    3. Enhanced Money Market Funds with a credit score of 1.25

Capita Dark Pink Rating       

In-house

     4. Enhanced Money Market Funds with a credit score of 1.5

Capita Light Pink Rating       

In-house

    5. Bond Funds  

AAA     

In-house

    6. Gilt Funds

AAA

In-house

 

NON-SPECIFIED INVESTMENTS A maximum of 25% will be held in aggregate in non-specified investment

 

1.  Maturities of ANY period

 

 

* Minimum Credit Criteria

Use

Fixed term deposits with variable rate and variable maturities: -Structured deposits

Capita Green Rating

In-house

Term deposits with unrated counterparties : any maturity

Top five Building Societies based on a combination of Asset size and Man Exp

In-house

Commercial paper issuance  covered by a specific UK Government (explicit) guarantee

UK sovereign rating

In-house

Commercial paper other

 

In-house

Corporate bonds

* Short-term __, Long-term __, Viability __, Support __

In-house

Other debt issuance by UK banks covered by UK Government  (explicit) guarantee

UK sovereign rating

In-house

Property fund: the use of these investments would constitute capital expenditure

--

In house

 

2.  Maturities in excess of 1 year

 

* Minimum Credit Criteria

Use

Max. maturity period

 

Term deposits – local authorities

--

In-house

2 yrs

 

Term deposits – banks and building societies

Capita Blue Rating

In-house

2 yrs

 

Certificates of deposit issued by banks and building societies covered by UK  Government  (explicit) guarantee

UK sovereign rating

In-house

 2yrs

 

 

 

 

 

 

Certificates of deposit issued by banks and building societies

Capita Blue Rating

In-house

2 yrs

 

UK Government Gilts

 UK sovereign rating

In-house

2 yrs

 

Bonds issued by multilateral development banks

AAA

In-house

2 yrs

 

Sovereign bond issues (other than the UK govt)

AAA

In-house

2 yrs

 

 

Collective Investment Schemes structured as Open Ended Investment Companies (OEICs)

   1. Bond funds

AAA     

In-house

2 yrs

 

   2. Gilt funds

AAA

In-house

2 yrs

 

 

Accounting treatment of investments. 

 

The accounting treatment may differ from the underlying cash transactions arising from investment decisions made by this Council. To ensure that the Council is protected from any adverse revenue impact, which may arise from these differences, we will review the accounting implications of new transactions will be reviewed before they are undertaken.

4.2       Creditworthiness policy

This Council employs the creditworthiness service provided by Capita Asset Services.  This service uses a modelling approach utilising credit ratings from the three main credit rating agencies - Fitch, Moody’s and Standard and Poor’s.  The credit ratings of counterparties are used in conjunction with the following information:

 

  • credit watches and credit outlooks from credit rating agencies;
  • credit default swap, an insurance policy to cover the lender for the risk of a borrower defaulting on a loan, is monitored to reflect the risk within a counterparty’s rating;
  • sovereign ratings to select counterparties from only the most creditworthy countries (AA+ or above).

 

The end product is a series of colour coded bands which indicate the relative creditworthiness of counterparties.  These colour codes are used by the Council to determine the suggested duration for investments, with the following exceptions:

 

1.   The suggested maximum duration for semi nationalised UK Banks is 1 year.  This council’s treasury management strategy enables investments with these institutions for up to 2 years, as previously agreed as part of the 2014/15 strategy. 

 

2.   The council’s treasury management strategy allows the use of the top 5 Building Societies (some falling into the ‘no-colour’ category based on the Capita bandings).  Ranking will be based on the management expenses and asset size ranking.

 

      The Council will therefore use counterparties within the following durational bands:

 

 

  • Yellow       5 years

·         Dark pink  5 years for Enhanced money market funds (EMMFs) with a         credit score of 1.25

·         Light pink  5 years for Enhanced money market funds (EMMFs) with a                                          credit score of 1.5

  • Purple       2 years
  • Blue          2 years (only applies to nationalised or semi nationalised   UK Banks)
  • Orange      1 year
  • Red           6 months
  • Green        100 days 
  • No colour   not to be used (except for the top 5 Building Societies       ranked using the management expenses and asset size)

 

Based on these criteria, the current counterparty list is as follows:

 

Maximum Deposit

Suggested Term

UK Institutions

Bank of Scotland Plc

£8m

24 mths

Lloyds Bank Plc

£8m

24 mths

National Westminster Bank Plc

£8m

24 mths

The Royal Bank of Scotland Plc

£8m

24 mths

Coventry BS

£2m

Building Society - 6 mths

Leeds BS

£2m

Building Society - 6 mths

Skipton BS

£2m

Building Society - 6 mths

Yorkshire BS

£2m

Building Society - 6 mths

Close Brothers Ltd

£3m

100 days

MBNA Europe Bank

£3m

100 days

Bank of New York Mellon (International) Ltd

£5m

12 mths

HSBC Bank plc

£5m

12 mths

Standard Chartered Bank

£5m

12 mths

Nationwide BS

£3m

6 mths

Abbey National Treasury Services plc

£3m

6 mths

Barclays Bank plc

£3m

6 mths

Cater Allen

£3m

6 mths

Merrill Lynch International

£3m

6 mths

Santander UK plc

£3m

6 mths

Collateralised LA Deposit*

£5m

60 mths

Debt Management Office

£5m

60 mths

Supranationals

£5m

60 mths

UK Gilts

£5m

60 mths

Overseas Institutions

Norddeutsche Landesbank Girozentrale

£3m

100 days

Silicon Valley Bank

£3m

100 days

Australia and New Zealand Banking Group Ltd

£5m

12 mths

Commonwealth Bank of Australia

£5m

12 mths

National Australia Bank Ltd

£5m

12 mths

Westpac Banking Corporation

£5m

12 mths

Bank of Montreal

£5m

12 mths

Bank of Nova Scotia

£5m

12 mths

Canadian Imperial Bank of Commerce

£5m

12 mths

Royal Bank of Canada

£5m

12 mths

Toronto Dominion Bank

£5m

12 mths

Nordea Bank Finland plc ~

£5m

12 mths

Pohjola Bank

£5m

12 mths

DZ Bank AG (Deutsche Zentral-Genossenschaftsbank)

£5m

12 mths

The Hong Kong and Shanghai Banking Corporation Ltd

£5m

12 mths

Cooperatieve Centrale Raiffeisen Boerenleenbank BA (Rabobank Nederland)

£5m

12 mths

Qatar National Bank

£5m

12 mths

Samba Financial Group

£5m

12 mths

DBS Bank Ltd

£5m

12 mths

Oversea Chinese Banking Corporation Ltd

£5m

12 mths

United Overseas Bank Ltd

£5m

12 mths

Nordea Bank AB

£5m

12 mths

Svenska Handelsbanken AB

£5m

12 mths

Bank of New York Mellon, The

£5m

12 mths

HSBC Bank USA, N.A.

£5m

12 mths

JPMorgan Chase Bank NA

£5m

12 mths

Northern Trust Company

£5m

12 mths

State Street Bank and Trust Company

£5m

12 mths

U.S. Bancorp

£5m

12 mths

Wells Fargo Bank NA

£5m

12 mths

Landwirtschaftliche Rentenbank

£5m

24 mths

NRW.BANK

£5m

24 mths

Banque et Caisse d'Epargne de l'Etat

£5m

24 mths

Clearstream Banking

£5m

24 mths

Bank Nederlandse Gemeenten

£5m

24 mths

Nederlandse Waterschapsbank N.V

£5m

24 mths

Macquarie Bank Limited

£3m

6 mths

BNP Paribas Fortis

£3m

6 mths

KBC Bank NV

£3m

6 mths

National Bank of Canada

£3m

6 mths

Danske Bank

£3m

6 mths

BNP Paribas

£3m

6 mths

Credit Agricole Corporate and Investment Bank

£3m

6 mths

Credit Industriel et Commercial

£3m

6 mths

Credit Agricole SA

£3m

6 mths

Societe Generale

£3m

6 mths

BayernLB

£3m

6 mths

Deutsche Bank AG

£3m

6 mths

Landesbank Baden Wuerttemberg

£3m

6 mths

Landesbank Berlin AG

£3m

6 mths

Landesbank Hessen-Thueringen Girozentrale (Helaba)

£3m

6 mths

ING Bank NV

£3m

6 mths

DnB Bank

£3m

6 mths

Arab National Bank

£3m

6 mths

Riyad Bank

£3m

6 mths

Skandinaviska Enskilda Banken AB

£3m

6 mths

Swedbank AB

£3m

6 mths

Credit Suisse AG

£3m

6 mths

UBS AG

£3m

6 mths

Citibank International Plc ~

£3m

6 mths

Credit Suisse International ~

£3m

6 mths

Goldman Sachs International ~

£3m

6 mths

Goldman Sachs International Bank ~

£3m

6 mths

Morgan Stanley & Co. International plc ~

£3m

6 mths

Sumitomo Mitsui Banking Corporation Europe Ltd ~

£3m

6 mths

UBS Ltd ~

£3m

6 mths

Bank of America, N.A.~

£3m

6 mths

BOKF, NA

£3m

6 mths

Citibank, N.A. ~

£3m

6 mths

Money market Funds AAA Rated

£8m

60 mths

Cash Enhanced Funds AAA Rated

£8m

60 mths

 

As well as limits on the amount of funds that can be placed with individual counterparties, Capita would suggest imposing group limits. The group limit should be equal to the individual limit of one counterparty within the same group.

 

All credit ratings will be monitored daily.   The Council is alerted to changes to ratings of all three agencies through its use of Capita’s creditworthiness service.

·         if a downgrade results in the counterparty / investment scheme no longer meeting the Council’s minimum criteria, its further use as a new investment will be withdrawn immediately.

·         in addition to the use of credit ratings the Council will be advised of information in movements in credit default swap spreads against the iTraxx benchmark and other market data on a weekly basis. A credit default swap is an insurance policy to cover the lender for the risk of a borrower defaulting on a loan.  Monitoring this market, the credit risk of any particular counterparty can be assessed and appropriate action can be taken to reflect this risk within a counterparty’s rating.  Extreme market movements may result in downgrade of an institution or removal from the Council’s lending list.

 

Sole reliance will not be placed on the use of this external service.  In addition this Council will also use market data and market information, information on sovereign support for banks and the credit ratings of that supporting government.

4.3       Country limits

The Council has determined that it will only use approved counterparties from countries with a minimum sovereign credit rating of AA+ from Fitch.  The list of countries that qualify using this credit criteria as at the date of this report are shown above at 4.2.  This list will be added to, or deducted from, by officers should ratings change in accordance with this policy.

4.4    Investment strategy

In-house funds. Investments will be made with reference to the core balance and cash flow requirements and the outlook for short-term interest rates (i.e. rates for investments up to 12 months).  

 

Capita Asset Services has revised its Interest Rate Forecast.  Previously, it was thought that rates would increase in June 2015, however it looks like this will now be either late 2015 or early 2016. This has reduced investment rates.  Current investment rates are as follows:

 

•        Instant Access                0.40%

•        3 months                        0.50%

•        6 months                        0.65%

•        1 year                                       0.95%

•        2 years                           1.25%

•        5 years                           1.85%        

 

Investment treasury indicator and limit - total principal funds invested for greater than 364 days. These limits are set with regard to the Council’s liquidity requirements and to reduce the need for early sale of an investment, and are based on the availability of funds after each year-end.

 

The Council is asked to approve the treasury indicator and limit: -

 

Maximum principal sums invested > 364 days

 

2015/16

£000

2016/17

£000

2017/18

£000

Principal sums invested > 364 days

8,000

8,000

8,000