Central Coast Council has moved to assure ratepayers that its investment portfolio is on track to deliver sound returns for the community.
As at August, 43.84 per cent of Council’s investment portfolio was held in the BBB credit rating category, compared to its own guideline of 40 per cent.
The financial institutions issuing fixed income investments and bonds are considered investment grade (IG), if its credit rating is BBB or higher by Standard and Poor (S&P).
Generally, the financial institutions are assessed by the rating agency as having adequate capacity to meet financial commitments and repayment of the invested funds.
There was a downgrading of some banks’ credit rating in May by S&P, which in turn has downgraded the rating of some of Council’s investments, but Council has confirmed in a public report that this will be rebalanced favourably by the end of the month.
Council has reported the rebalancing of the investment portfolio in each of its monthly investment reports since the May report, presented at the Ordinary Meeting held on June 28.
Council intends to hold these term deposits until they mature and, as such, the value of these term deposits are not impacted by this rating change.
Council Chief Financial Officer, Ms Vivienne Louie, said Council’s investment portfolio was in accordance with the Ministerial Order and will be within Council’s investment guidelines by the end of October.
Over 50 per cent of investments are held with AA financial institutions.
“Council is not concerned that the investment portfolio is currently predominantly in the BBB category as we believe those financial institutions are safe to hold our investments,” Ms Louie said.
“Our investment portfolio is structured on rolling maturity dates to ensure Council has sufficient funds to deliver the Operational Plan.
“Our Operational Plan is our contract with our community and we must deliver.
“At certain times of the year, Council may have more cash than we require to meet our obligations, so we invest the additional funds to obtain the best return for our community.
“Staff always review the investment portfolio to ensure that any new investments proposed are in accordance with the Ministerial Investment Order and Council’s Investment Policy.
“We review credit ratings of financial institutions who are taking investments, review the interest rates offered for the maturity dates required, and the amount of our investment portfolio already held with each financial institution.”
Before entering into any investment transaction with a new institution, there will be a diligent review of the creditworthiness of that institution.
The Chief Executive Officer, or his/her delegate, must form his/her own opinion of the risk attached to an institution and not merely rely on published credit ratings.
“Council will continue to monitor the portfolio and manage investments taking into consideration credit ratings of financial institutions, interest rates offered for the maturity dates required, and the amount of our investment portfolio already held with each financial institution.
“We don’t want to put all our eggs in one basket, which is why we review credit ratings with the amounts invested with each financial institution,” Ms Louie added.
Council’s investment portfolio is reported monthly to the next available ordinary Council meeting.
According to the Investment report for September, tabled at the October 23 ordinary Council meeting, Council adopted its current policy in April.
“Subsequent to its adoption, S&P Global Ratings downgraded 23 financial institutions include Bank of Queensland and Bendigo and Adelaide Bank.
“This downgrade increased Council’s exposure in BBB+ investments from 30.84 per cent to 49 per cent, exceeding the policy guideline.
“The finance team are drafting some changes to the policy guidelines based on recommendations from the Audit, Risk and Improvement Committee.
“It is expected the revised Investment policy and guidelines will be presented to Council for adoption in the next ordinary meeting in November.
“The portfolio will be rebalanced to higher credit classes over the next 12 months.
“According to the latest investment report, the Council’s counterparty credit exposure to the re-rated institutions, Bank of Queensland and Bendigo and Adelaide Bank, remains relatively low at 6.5 per cent and 7.2 per cent respectively.
Of the 33 BBB-rated investments currently held by Council, 20 will mature within the next six months, providing the opportunity to recalibrate the overall portfolio into investments with safer risk ratings.
Media release, Oct 19
Vivienne Louie, Central Coast Council
Agenda item 5.1, Oct 23
Central Coast Council ordinary meeting
Jackie Pearson, journalist