Procedures

Loans Receivable and Payable - Procedures

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1. Purpose and Objectives

These procedures set out the processes in relation to managing loans receivable and payable (borrowings).

2. Definitions, Terms, Acronyms

Borrowing - The raising and obtaining, in any way, of money, credit and other financial accommodation.

Fixed Rate Loan - A borrowing debt that has a fixed interest rate applied to it.

Floating Rate Loan - A borrowing debt that has a variable interest rate applied to it.

Core Debt - The minimum level of debt as shown by the University’s three (3) year rolling monthly cash flow forecast.

3. Procedures Scope/Coverage

These procedures apply to all monetary loans entered into by the University, in the capacity as either borrower or lender.

Not included within the scope of this policy are loans involving the temporary transfer of usage rights/beneficial use of property, plant or equipment.

4. Procedures Statement

The University may:

a)   Borrow funds in accordance with part 5 – borrowing powers of the Statutory Bodies Financial Arrangements Act 1982; or

b)   Notionally loan funds internally (e.g. Faculties, Schools) in exceptional circumstances; or

c)   Loan funds to subsidiaries or related entities.

5. Loans Payable – Borrowings

5.1 General provisions

All borrowing facilities must be approved by the Senate before being referred to the Treasurer of Queensland for approval.

The borrowing must be in Australian dollars and undertaken in Australia.

The University will not create an encumbrance or offer security over University assets for general borrowings. In exceptional circumstances, this can be approved jointly by the Senate and Treasurer of Queensland.

Funds are to be borrowed from reputable lending institutions. The lenders S&P Credit Rating (Long Term) must be A- or above.

The amount that can be borrowed is at the discretion of the lender.

The agreed terms and conditions associated with borrowings are the responsibility of the Chief Financial Officer.

5.2 Interest rate risk management

The Senate should confirm, annually, what proportion of the total committed facilities are required for core debt purposes, in order that lower, more appropriate standby facilities are allocated for liquidity/funding management purposes.

No more than 50% of total debt facilities may mature within the next twelve months (excluding facilities that are going to be retired within the next twelve months).

Outstanding borrowings, at any given time, must not exceed an amount equal to the total of committed bank facilities.

5.3 Interest rate control limits

It is considered prudent for the University to hold a mix of fixed rate and floating rate borrowings.  This establishes an element of certainty to the University in terms of interest expense, which provides comfort to management and Senate, as well as to the University’s bank lenders.

The policy parameters are for the level of core fixed rates to be within the following bands:

 

Period                            Minimum Fixed Rate               Maximum Fixed Rate

0 – 1 years                               30%                                        100%

1 – 3 years                               30%                                          75%

3 – 5 years                                 0%                                          75%

 

 

 

 

 

 

 

 

Core debt is determined to be the minimum level of debt as shown by the University’s three (3) year rolling monthly cash flow forecast.

All interest rate hedging beyond five (5) years requires specific Senate approval.

The above percentages are cumulative. Example: a $6 million fixed rate borrowing for a five (5) year term on a core debt profile of $30 million will contribute 20% to all the time buckets above.

5.4 Interest rate derivatives

The following instruments have been approved for use in hedging floating interest rate exposures:

  • Interest Rate Swaps (“IRS”)
  • Interest Rate Caps (“Cap”)
  • Interest Rate Collars (“Collar”)

The use of other instruments is not permitted except with the authorisation of the Finance Committee.

Each proposed use of an interest rate derivative must be approved by the Finance Committee prior to execution.

Interest Rate Swaps involving terms exceeding five (5) years and valued at AUD$10 million (each transaction) must be authorised by the UQ Senate Committee.

Interest Rate Cap strike rates must be within 200 basis points (2.00%) of applicable market interest rates.

Interest Rate Caps with strike rates more than 200 base points (2.00%) of the prevailing market rates are disregarded for reporting purposes.

Outstanding/open option contracts cannot exceed 100% of total floating rate debt.

Where using Interest Rate Collars, the interest rate on the purchased borrower (ceiling rate) option must be higher than the interest rate on the sold option (floor rate). This is the only circumstance in which the University may sell an option.

6. Loans Receivable

6.1 General provisions

Internal loans may be made in exceptional circumstances, to fund the purchase of equipment or construction of small buildings.

Internal loans are to be granted on the basis that it would be more beneficial to fund a proposed purchase internally, as opposed to leasing the same items.

Loans may be made to associated bodies for working capital and for the purchase of equipment.

Loans to organisational units will not be granted if the procurement of the equipment can be made from existing or forthcoming operating or research funds.

Proposals for internal loans must be approved by the Finance Committee following endorsement from the Chief Financial Officer.

All requests for a loan are to be signed by the Head of the organisational unit, and forwarded to the Associate Director, Accounting and Reporting within FBS. Requests should contain a proposed repayment schedule and evidence to support the serviceability of such repayments.

All internal loans are subject to a formal loan agreement, which should detail the term, interest rates, drawdown and repayments schedule. The loan agreement must be signed by the requesting Head of the organisational unit before funds can be made available for release.

Where a drawdown is requested in excess of the original loan amount, approval by the Chief Operating Officer is required.

A loan register is to be maintained by Treasury Unit.

The Associate Director, Accounting and Reporting within FBS is required to review the register and loan account reconciliation regularly.

No loan may be written off without the approval of the Chief Financial Officer.

It is the borrower's responsibility to ensure repayments are made per the agreed repayment schedule. If repayments are incorrect or not received in a timely manner, the Treasury Unit may debit them from the borrower's accounts.

Where a loan is split between a number of organisational units, it is the borrower's responsibility to ensure that the Treasury Unit are notified of any changes to the loan agreement.

Custodians
Chief Financial Officer
Mr Andrew Betts
Custodians
Chief Financial Officer
Mr Andrew Betts