Council considers investment policy

Ruapehu Bulletin, Volume 11, Issue 509, 26 October 1993, Page 6

Council considers investment policy

Councillors were asked to consider the Ruapehu District councill's investment policy when they met in Taumarunui this month. This was in order to "maintain the care, diligence and skill that a prudent person (or agent) of business would exercise in managing the (financial) affairs of others" (Trustee Amendment Act 1988). The current investment policy adopted by Council on 6 December 1991 reads: • Surplus funds be invested to ensure the best returns on the funds available while minimising the cost of bank overdraft fees and associated charges; • Surplus funds be invested with any of the following groups of financial institutions provided that, on any one day, the total invested in any one institution does not exceed the following limits: Council' s approved banker: $1,000,000; local trading, trust banks: $ 1 ,000,000 per bank; other trading, trust banks, National Provident Fund: $1,000,000 per bank/institution; building societies, finance houses being subsidiaries of trading banks:

$500,000 per institution; local government stock issues: $500,000 per authority; government stock: no limit; local authority trading enterprises shares ( in companies owned by the Ruapehu District Council): $100,000. Since December 1991 a number of consolidations have taken place in the banking industry with consequent changes to credit ratings. It would therefore be appropriate for Council to adopt a policy that reflects an internationally credit rating system to reduce the risk to Council when making investments. As a means of reducing risks and maintaining a balanced portfolio of investments a grading system developed by Standard and Poors shows the following credit ratings for short term (up to 12 months) and long term (more than 1 2 months) investments in three different categories: • Risk free investments (short term) A1+; (long term) AAA. • Near risk-free investments (short term) A 1 ; (long term) AA. • Low risk investments (short term) A2 and A3; (long term) A and BBB.

Councillors were presented with a schedule setting out New Zealand' s registered bank' s credit ratings by Standard and Poors as at September 1993 as follows (short term investment rating first followed by longterm investment rating); ANZ Bank (NZ) A2/A+; Auckland Savings Bank A1+/AA-; Bank of New Zealand A1+/AA; Country wide Banking Corporation Al/A; National Bank of

New Zealand A1+/AA-; State Bank of South Australia A1+/AA; Trust Bank New Zealand A2/A-; Westpac Banking Corporation A1/A+. Ruapehu District Council corporate services director Chris Ryan explained that the proposed investment policy sets up rules for Council' s investments with several levels of security. Cr Eddie Turley asked,

"if we have surplus funds should we not use them to pay off debts rather than invest the funds?" Mr Ryan said the policy document will address that option. Councillors agreed that the Standard and Poors rating system be used and that the credit ratings of the various banking institutions be monitored to ensure all investments comply with the category classification.