Title: / Treasury Management Policy
Ref No: / GRPOLFN13 / Reviewed: / 01/09/2016 / Version: / 10
POLICY DOCUMENT
Group Member: / Progress Housing GroupService Area: / Treasury Management
Document Ref No: / GRPOLFN13
Subject Title: / Treasury Management Policy
Version: / 10
Effective Date: / 01/08/2015
Last Reviewed: / 01/09/2016
Next Review Date: / 01/09/2017
Document Owner: / Treasury Manager
Date of Board Approval: / 05/09/2016
1. INTRODUCTION
1.1 The Progress Housing Group has adopted the CIPFA Code for Treasury Management in Public Services: Code of Practice 2011 (the Code) and has designated the Executive Director (Finance & Resources) as its appropriate officer responsible for Treasury Management. A full list of all the guidance used to compile the Group’s treasury management strategy is included at TMP1.
1.2 Progress Housing Group recognises that its primary purpose is the acquisition, development, provision and management of social housing. The primary objective of its Treasury Management strategy is the provision of the financial resources necessary to achieve its purpose and the management of the associated risks, financial and operational, that might threaten its ability to do so. In all Treasury Management matters, Progress Housing Group is risk averse. Its strategy, policies and procedures are structured so as to minimise exposure to risks that would jeopardise the security of its assets.
1.3 Progress Housing Group defines Treasury Management activities as:-
“ the management of the Group’s investments and cash flows, its banking, money market and capital market transactions; the effective control of risks associated with those activities; and the pursuit of optimum performance consistent with those risks”
1.4 Progress Housing Group regards the successful identification, monitoring and control of risk to be the prime criteria by which the effectiveness of its treasury management activities will be measured. Accordingly, the analysis and reporting of treasury management activities will focus on their risk implications to the Group, and any financial instruments entered into to manage these risks.
1.5 Progress Housing Group acknowledges that effective treasury management will provide support towards the achievement of its business and service objectives. At all times it will prioritise effective risk management and will employ performance measures to control and manage the key treasury risks. These measures are defined in section 4.2 with 9 key risks identified (Categories A-I). Whilst the treasury function is managed in accordance with this criteria at all times Progress Housing Group is committed to achieving value for money and improving efficiencies wherever possible. At all times however the pursuit of these efficiencies or added value must not take priority over the primary aim of effective risk management.
1.6 Progress Housing Group will create and maintain, as the cornerstones for effective treasury management:
· A treasury management policy statement, stating the policies and objectives of its treasury management activities,
· Suitable treasury management practices (TMPs), setting out the manner in which Progress Housing Group will seek to achieve those policies and objectives, and prescribing how it will manage and control those activities.
1.7 The content of the policy statement and TMPs will follow the recommendations contained in sections 6 and 7 of the Code, subject only to amendment where necessary to reflect the particular circumstances of Progress Housing Group. Such amendments will not result in Progress Housing Group materially deviating from the Code’s key recommendations.
1.8 The Group Board of Management, in consultation and by agreement with the subsidiaries, is responsible for formulating Standing Orders, Financial Regulations and the scheme of delegation for Treasury Management.
1.9 This Policy Statement is for approval by all the Boards and will be reviewed and monitored periodically by Group Board of Management under powers delegated by the Group Board. The Group Board of Management will receive as a minimum:
· Annually – a 12 month strategy and plan,
· An annual report after its close, and
1.10 Quarterly treasury reports, to include the main treasury risk areas as identified at 4.2. Unless otherwise agreed with the Group, it is a requirement that all Registered Providers within the Group will subscribe to the principle of group borrowing and treasury management administered by the Group.
1.11 Progress Housing Group delegates the execution and administration of treasury management decisions to the Executive Director (Finance & Resources), who will act in accordance with Progress Housing Group’s policy statement, TMPs and CIPFA’s Standard of Professional Practice on Treasury Management.
2. SCOPE OF THE POLICY
2.1 This policy covers the following aspects of Treasury Management:
2.1.1 Cash flow forecasting
2.1.2 Raising funds
2.1.3 Monitoring and Management of interest rate risk
2.1.4 Investing funds
2.1.5 Monitoring and Management of commitments including loan payments and repayments
2.1.6 Monitoring and Management of compliance with loan covenants, statutory and regulatory requirements
2.1.7 Monitoring and Management of income to ensure commitments are met
2.1.8 Security management
3. RESPONSIBILITY
3.1 Group Board
3.1.1 Progress Housing Group Board will receive the annual reports (which will contain both historic and forecast information), the annual strategy and plan every year.
3.1.2 The main responsibilities are:-
· Approval of / amendments to the organisation’s adopted clauses, treasury management policy statement and treasury management practices,
· Budget consideration and approval,
· Approval of the division of responsibilities,
· Receiving and reviewing external and internal audit reports and acting on recommendations
· Approving the selection of external service providers and agreeing terms of appointment.
3.2 Executive Director (Finance & Resources)
3.2.1 The Executive Director (Finance & Resources) is responsible for overseeing the main activities of the treasury management function and all its associated activities.
3.3 Operations Director (Finance) The main responsibilities are:-
· Recommending treasury management policy/practices for approval, reviewing the same regularly and monitoring compliance,
· Receiving and reviewing management information reports,
· Reviewing the performance of the treasury management function and promoting value for money reviews,
· Ensuring the adequacy of treasury management resources and skills and the effective division of responsibilities within the treasury management function.
3.4 Treasury Manager
3.4.1 The main responsibilities are:-
· Submitting regular treasury management and annual strategyreports,
· Submitting budgets and budget variations,
· Execution of transactions,
· Adherence to agreed policies and practices on a day-to-day basis,
· Maintaining relationships with third parties and external service providers.
4. POLICY
4.1 Aims & Objectives
4.1.1 To ensure on-going compliance with Legislation, Regulation, Good Practice and Market Etiquette
4.1.2 To provide the financial resources necessary to support the activities of the Group
4.1.3 To minimise the revenue costs of Progress Housing Group’s loan portfolio and maximise the return, subject to appropriate risk parameters, on the Group’s investments
4.1.4 To stagger the maturities of loans within the debt portfolio in order to mitigate re-financing risk,
4.1.5 To monitor current and projected interest rates and manage potential interest rate exposures that might impede the Group’s ability to achieve its purposes.
4.1.6 To maintain flexibility in the short term to minimise borrowing requirements,
4.1.7 To balance the portfolio of loans between fixed and floating rate obligations,
4.1.8 To maximise the use of the Group’s security base,
4.1.9 Invest and borrow in compliance with the Group’s approved list of counterparties,
4.1.10 Ensure investments and borrowings are not ultra vires
4.1.11 To ensure that the Group has adequate liquidity at all times to meet its obligations, and
4.1.12 To ensure that financial covenants imposed by each loan agreement, statutory requirements, and prevailing treasury-related guidelines from the sector regulator are met at all times
4.2 TMP1 Risk Management
4.2.1 The Executive Director (Finance & Resources) will design, implement and monitor all arrangements for the identification, management and control of treasury management risk, will report at least annually on the adequacy / suitability thereof, and will report, as a matter of urgency, the circumstances of any actual or likely difficulty in achieving Progress Housing Group’s objectives in this respect, all in accordance with the procedures set out in TMP6 “Reporting requirements and management information arrangements”.
4.2.2 A- Liquidity Risk Management Progress Housing Group will ensure it has adequate though not excessive cash resources, borrowing arrangements and overdraft or standby facilities to enable it at all times to have the level of funds available to it which are necessary for the achievement of its business and service objectives. Whilst excessive cash resources will be minimised, a balance will be struck to ensure sufficient flexibility is provided to the Group to take advantage of opportunities. At all times when considering the management of excess cash other factors will be considered including (but not limited to) return on investment and current funding strategy.
4.2.3 The Group will only borrow in advance of need where there is a clear business case for doing so and will only do so for the current capital programme or to finance future debt maturities.
4.2.4 At all times the level of liquidity (defined as cash, available secured loan facility, plus available overdraft) that must be maintained shall be sufficient to cover 18 months’ total drawings for committed development across the Group. An alert will be triggered to Executive Team and Non Executive Directors if the liquidity headroom becomes equal to or less than the total agreed overdraft facilities, as these facilities are contractually repayable on demand.
Progress Housing Group must also maintain minimum operational liquidity equivalent to 4 weeks’ average expenditure in its current accounts, overdraft or on short-term deposit with the Group’s clearing bank, or through the money market with Approved Organisations for Investments as identified at TMP3.
In addition, Progress Housing Group should strive to keep no more than £1,000,000 in total across all companies in its current accounts, the remainder of its cash surpluses being placed on short-term deposit with the Group’s clearing bank or through the money market with Approved Organisations for Investments as identified at TMP3.
In the event that this overall threshold is exceeded, an event of non-compliance is defined as having excess funds of £1,000,000 over an unbroken period of 2 working days, or for more than 2 working days following an organisation shut down period. The Group will diversify its deposits of surplus funds within the constraints of operational requirements and will deposit funds in accordance with conditions described within TMP3 (Approved Instruments, Methods and Techniques).
4.2.5 B- Interest Rate Risk Management Progress Housing Group will manage its exposure to fluctuations in interest rates with a view to containing its interest costs, or securing its interest revenues, in accordance with the amounts provided in its budgetary arrangements, as amended in accordance with TMP5 (Reporting requirements and management information arrangements).
4.2.6 It will achieve this by the prudent use of its approved instruments, methods and techniques primarily to create stability and certainty of costs and revenues, but at the same time retaining a sufficient degree of flexibility to take advantage of unexpected, potentially advantageous changes in the level or structure of interest rates. The above are subject at all times to the consideration and, if required, approval of any policy or budgetary implications.
4.2.7 It will ensure that any hedging tools such as derivatives are only used for the management of risk and the prudent management of financial affairs and that the policy for the use of derivatives is clearly detailed in the annual strategy.
4.2.8 Progress Housing Group will ensure the balance of the Group’s debt portfolio adequately protects it from movements in interest rates. Its target debt portfolio is of fixed and floating interest liabilities in a ratio of between 50:50 and 100:00 – reviews and implementation of appropriate hedging activity will be effected through the annual treasury strategy. External advice will be sought from the Group’s treasury advisors on the most appropriate route for new debt.
4.2.9 Individual fixed rate loans shall not exceed 20% of total hedged borrowing obligations at the point of fixing the loan or £10m (whichever is the greater) within each RP’s loan portfolio. In addition, under normal circumstances it would not be expected that more than 20% of total hedging (based on debt at the time of loan fixing) for an individual company or £10m (whichever is the greater) should be allowed to mature within one financial year. Target periods for fixing debt will be between 3 and 10 years, but annual Treasury Strategy reports will address re-financing risk and the need to spread fixed rate maturities between financial years. Whilst fixings will, ideally, be restricted to no more than 10 years, it is recognised that in some instances it may be necessary and appropriate to enter longer term fixed rate obligations in support of specific projects.
4.2.10 C- Inflation Risk Management Progress Housing Group will ensure that it is aware of the potential impact of inflation on its ability to operate within its budgetary arrangements and the financial covenants on its loans, and that this is taken fully into account in establishing its interest rate strategy.
4.2.11 The effects of varying levels of inflation, insofar as they can be identified as impacting directly on its treasury management activities, will be controlled by Progress Housing Group as an integral part of its strategy for managing its overall exposure to inflation.
4.2.12 D- Credit and counterparty risk management Progress Housing Group regards a key objective of treasury management activities to be the security of the principal sums it invests. Accordingly it will ensure that its counterparty lists and limits reflect a prudent attitude towards organisations with which funds may be deposited, and will limit its investment activities to the instruments, methods and techniques referred to in TMP3 Approved instruments, methods and techniques. It also recognises the need to have, and will therefore maintain, a formal counterparty policy in respect of those organisations from which it may borrow, or with whom it may enter into other financing or derivative arrangements.
4.2.13 In assessing its exposure to any counterparty, Progress Housing Group will review the aggregate position, including any exposures that are incidental to the use of financial derivatives.
4.2.14 Progress Housing Group will only use UK based financial institutions that fall within the supervisory regime of the Financial Conduct Authority. These institutions will have minimum long term ratings across all three rating agencies (Moody’s, Standard and Poor’s and Fitch) of ‘A’ and minimum short ratings of ‘P1’, ‘A1’ and ‘F1’ . Barclays can be used as clearing bankers and short term deposit holders whilst it maintains its A2 rating. However, this approved exception will be reviewed as a minimum annually as part of the treasury policy review. The ratings will be monitored by the Treasury Advisors each quarter and any changes will be reported to the Group Board of Management.