Agenda item

Report of Cabinet Member Finance

The Cabinet Member Finance introduced the report and explained that this report was in accordance with the CIPFA Code of Practice on Treasury Management which recommended that Members were informed of Treasury Management activity at least twice a year. The report therefore ensured that the authority had adopted the code and complied with its requirements.

The Cabinet Member explained that the main ratings agencies may remove some of the institutions’ sovereign support following evolving regulatory changes and that this process may commence during this financial year. Therefore immediate changes to the credit methodology were required with the credit element of Capita’s future methodology in future focusing solely on the Short and Long Term ratings of each institution.

The Cabinet Member then explained that the report noted the Council’s portfolio position. He reported that external and short term borrowing were at a low level as the council was using internal borrowing to reduce costs. Long term borrowing in terms of the £1.4 m loan taken out in May 2014 on behalf of CBH was cost neutral for the council as CBH were repaying the Council in line with the repayment schedule. Investment growth had increased from £18m to £20.4 m due to increased short term lending. The Cabinet Member reported that the Council had operated within the treasury limits and Prudential Indicators set out in the Council’s Treasury Policy Statement and Annual Treasury Strategy Statement. He also reported that the average interest rate for temporary borrowing had been 0.33 % with lending at 0.63 %. He then took the opportunity to thank finance officers for their valued work.

A Member asked when the authority could expect to have recovered all the outstanding amounts from the Icelandic banks and how would Members be kept informed of progress.

The Cabinet Member referred Members to paragraph 4.6 in the report which indicated that the next dividend was expected to be paid out in early December 2014 and was estimated to be a 1p in the pound. The progress in recovering the debt would continue to be reported to the Treasury Management Panel. Some of the distribution from Glitnir’s Winding up was being held in an escrow account and although it could not be immediately realised, it was earning a good rate of interest. In response to a question from a Member, the Director of Resources indicated that the council was likely to receive around      £5,700 as a result of an imminent distribution of 1p in £. He would be reporting back to Council in February as part of his budget report. 

A Member asked whether any sensitivity analysis had been done on the projections for bank rates set out in the table in 6.1.

The Cabinet Member advised that it was a constantly moving picture and the council would be continuing to review the latest advice from their Treasury Management advisers.

In response to a question from a Member on the risk assessment in Appendix 1, the Director of Resources explained that a LOBO loan was a lender's option borrower’s option loan. Although it was currently earning a good rate of interest, the lender did have the option to recall it at specific times and there was a risk that alternative arrangements may earn less interest. 

A Member referred to recommendation 2. and asked what assessments had been done to support this recommendation.

The Cabinet Member Finance acknowledged that this recommendation needed more clarity and it would be firmed up before coming back to Council in February once government’s  intentions were clearer.

Upon a vote it was (unanimously)

RESOLVED that;

1.    The contents of the summary report for the treasury management activity during the first six months of 2014/15 be noted.

2.    The changes to the credit methodology whereby, viability, financial strength and support ratings will be considered as key criteria in the choice of creditworthy investment counterparties, be approved.