To consider the attached report.
Contact Officer: Nuala Donnelly (01296) 585164
The Authority’s Treasury Management Policy required an annual report to be brought to Council after each year end and a mid year report for the current year. A synopsis of treasury management activities had been included in the Quarterly Financial Digest submitted to the meeting.
Members were informed that the amount of money deposited with banks and building societies at the end of September 2018 was £40 million with another £7.3 million held in the two Money Market Funds. The outstanding balance on borrowings was £18.5m with £5m having been repaid to the London Borough of Newham Council in May 2018/19 using investment balances. As there had been no new no new borrowing taken out there had been no change to the Council’s Authorised and Operational Limits.
The objectives for the Treasury Management team for 2018/19 had been laid out in the Treasury Management Strategy agreed by Council in February 2017. The main activities continued to be:-
· 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 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. Historically, the majority of the Council’s lending had been with Building Societies but over the last year the Council had invested more of it’s portfolio with major UK banks and had also began depositing funds with other Local Authorities as a more secure option. 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, and ratings changes.
Members were informed that actual performance was largely in line with the plan. With interest rates still at a low level, the actual amount of deposit income generated exceeded the half year target of £165,000 by £1,454.17. The target for 2018/19 had been increased to reflect historic activity and anticipated changes in the market. Generally interest rates were improving. For the first 6 months of 2017/18, the weighted rate of return on the investment portfolio had been 0.48% compared to 0.76% for April – September 2018.
The interest rate had increased in August 2018 and the market indications were that there may be further interest rate changes in 2019/20. There were however a number of economic factors e.g. Brexit that would influence interest rate changes over the coming months. The Council ability to manage capital spend without additional borrowing has resulted in financial efficiencies and savings on the cost of borrowing
The report also contained graphs and information on the average monthly balances deposited by the in house team and rates of return received over the financial year compared to the 3 month LIBID rate.
For the 6 months to the end of September 2018, the weighted average rate of return for the Council had been 0.76% on investments of £47.3m compared to average of 61% (on investment of £45.4m) during 2017/18. The performance to date in 2018-19 compares to Benchmarking data where, across 227 Authorities, the weighted average rate of return had been 0.79%, on average investments of £79.8m.
The council continued to operate two Money Market Funds to give the in-house team easy access to surplus funds. Whilst, Money Market Funds had the highest credit ratings, the interest rates offered were typically 15-25 basis points below those of Fixed term Deposits. However MMFs offered the most effective fund structure to manage the council’s daily cash flow requirements.
Property Funds still offered some of the best returns on capital. Investing in a Property Fund was within the strategy but as yet the council had decided not to use them. Any investment would have to be for a minimum of five years in order to maximise the return. However, if there was any change and an investment was being considered then a report would be brought to Council for consideration.
The Committee had no substantial comments on the mid year report and thanked the in-house team for the efficient manner in which they continued to manage the Council’s funds.
That the performance to date against the Treasury Management Action Plan for 2018/19 be noted.