Public reports pack PDF 3 MB - Blaby District Council

0.82% (equating to an annual return of 1.64%). However, the view of the fund
managers is that this level of return is expected to fall away significantly over
the second half of the financial year and into 2013/14. Expectations for
2012/13 is for a full year return of around 1.1%, with next year’s forecast
return falling further to approximately 0.9%. In contrast to this, in house
investments have faired better to date in 2012/13, with an average rate of
return of 1.48%.
6.5 Given the position outlined above it is now proposed that the Council
withdraws its remaining funds held with SWIP, currently just over £5.5m, and
instead manages those funds within the umbrella of its own internal
investments. One year fixed term interest rates with some of the nationalised
and part-nationalised UK banks are currently available at around 2.25%.It is
proposed therefore that a proportion of these funds currently held by SWIP,
up to £3m, is placed into a one year sterling enhanced fixed rate deposit.
6.6 With regard to the balance of the funds, approximately £2.5m, an exercise is
currently being undertaken to ascertain whether it would be financially
beneficial for the Council to
a) retain these funds to avoid additional future borrowing or to
b) invest over a longer term (i.e. two to three years) to secure a competitive
longer term rate of return which may not be available in a years time.
Paradoxically longer term investments, i.e. two year funds, are presently
earning marginally lower interest rates than one year investments. The return
on all these options i.e. one, two and three year deposits, is higher than the
Public Works Loan board borrowing costs, currently 1.7% over ten years..
6.7 The Council’s current investment strategy limits the maximum amount that
can be invested with an individual counterparty to £5m. In recent years falling
credit ratings as a result of the state of the global economy has meant that the
number of institutions eligible for inclusion on the Council’s approved lending
list has become very limited.
For this reason, coupled with the fact that the Council’s in house treasury
officers will have an additional £5.5m to invest, it is proposed that the
counterparty limit for nationalised and part-nationalised UK banks only should
be increased from £5m to £8m, to provide greater flexibility.
At the same time the Council need to be mindful of the risks associated with
placing a significant proportion of its available investment funds with any one
single institution. The Council’s current total exposure to Lloyds Bank is as set
out below:-
Amount Rate Maturity Date
£ %
Lloyds TSB – 11 months 1,000,000 3.10 13 th February 2013
Lloyds TSB – 7 months 1,400,000 1.70 13 th March 2013
Lloyds TSB – 11 months 1,600,000 3.00 11 th April 2013
Lloyds TSB – 11 months 1,000,000 3.00 11 th April 2013
Total 5,000,000
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