LA lending to money market funds and other authorities on the rise

Last week we sent out our multiple choice Counterparty Trends Survey to Room151 readers and the following is a summary of the results.

The survey was designed to establish three broad sets of data: 1) who was taking part in the survey 2)  how much would they lend in 2012/13 compared to 2011/12 and 3) how would they lend to different types of counterparty, again comparing this financial year to last.

Of the 41 senior finance, resource and accounting officers who took part in the survey there was a fair spread across different types of councils with the majority coming from either unitaries or boroughs and cities being the least well represented. 42% said they would be lending over £100m in 2012/13 with a further 15% lending £50-£100m.

Lending across the board was clearly down on last year with 59% of respondents lending 0-25% less and only 19% of respondents saying they would be lending more money in total.

The individual types of counterparties we surveyed readers on were UK banks, UK building societies, money market funds, the DMO, other local authorities, non-UK banks (directly), UK Gov gilts and, finally, supra-nationals.

The question we put to participants about these the various borrowers was phrased as follows: As things stand, how do you think your lending to counterparty X will change in the financial year 2012/13? Do you think you’ll lend a) more, b) less or c) roughly the same, compared to 2011/12 or d) do you not lend to X at all?

It would seem entirely reasonable, given the overwhelming trend towards less lending in general, that all or most of these counterparty types would suffer to some extent. The picture was not so clear, however. 34% said they would be lending more to money market funds with another 32% saying they would lend roughly the same to the pooled funds. Only 3 of the 41 respondents said they would lend less to money market funds, signifying a trend perhaps towards further diversification of capital assets.

80% said they would either be lending the same (53%) or more (27%) to other local authorities with only 1 respondent reducing their lending to local authority peers. 61% said they would not be lending directly to non-UK banks while an eye-catching 27% said they would lending more to that group. It would be interesting to hear comments on which non-UK banks stand to be the beneficiaries of that increase.

Where then were the net losers? With lending down for the most part, borrowing could not be up for all the counterparties. Step forward UK banks and the Debt Management Office. The big loser of the survey was the DMO with 29% not lending to it at all and a further 39% lending less than last year. The picture was not quite as bad for UK banks but a chunky 29% said they would be lending less to UK banks this year compared to 19% opting to lend them more.

With only 41 completed surveys, and consequently less than 10% of UK local authority treasury functions represented, the results are far from scientific but nonetheless some fascinating results perhaps offer a suggestion of what trends could be emerging in the wider market for the coming financial year. Thanks to all those who took part.

Other Highlights of Lending Trends in 2012/13 (percentages have been rounded up or down to the nearest whole number, as above) 

1. 10% of respondents will be lending more to UK building societies while 39% will lend them nothing. 
2. 83% will lend nothing to supra-national institutions while 10% will lend more. 
3. 78% will lend nothing to UK Government gilts compared to 15% who will lend more. 
4. 17% will not be lending to other local authorities
5. 27%  will not be lending to money market funds
6. 10% will lend more to the DMO