View Current

Interest Rate Risk Policy

This is the current version of this document. To view historic versions, click the link in the document's navigation bar.

Section 1 - Purpose and Context

(1) The objective of interest rate risk management is to minimise the impact of adverse movements of interest rates on the earnings of Western Sydney University.

Top of Page

Section 2 - Definitions

(2) For the purpose of this policy the following definition applies:

  1. Interest Rate Risk means - the risk of loss in earnings or economic value as a consequence of movements in interest rates i.e. the risk that the future cash flows or fair value of a financial instrument will fluctuate because of changes in market interest rates.
Top of Page

Section 3 - Policy Statement

Part A - Identifying Risk

(3) A sensitivity analysis will be performed by the Finance Office on any proposed new debt facility to understand the impact of changes in interest rates on the University's earnings. This will be done at the negotiation stage.

(4) For any new projects, the Finance Office is to perform an analysis to ascertain whether the University has the ability to pass through any changes in the interest rate through the income streams. If the University does have the ability to pass through movements in interest rates, an analysis of the re-pricing cycle is to be performed.

(5) Interest income from short term cash investments is to be monitored by the Finance Office to ensure that the returns are in line with benchmark target rate of returns (as detailed in the Investment Policy).

(6) Any interest rate derivative hedges that are in place are to be monitored by the Finance Office on a regular basis to ensure the hedging relationship remains appropriate and in line with the University's interest rate management objectives.

(7) If any covenants relating to interest rates exist, the Finance Office is responsible for monitoring these covenants on an ongoing basis.

(8) Other forms of interest rate risk are to be monitored by the Finance Office on an ongoing basis. These include:

  1. Finance and operating leases;
  2. Creditors' accounts offering a discount; and
  3. Debtors' accounts on which discounts are offered.

Part B - Strategies for Managing Interest Rate Risk

(9) For all floating rate interest bearing debt where the University does not have the ability to pass on any changes in interest rates, interest rate swap derivatives will be entered into, in accordance with the parameters of this policy and the Treasury Policy.

(10) Where the University has the ability to pass on any changes in interest rate risk but re-pricing of the underlying occurs at defined intervals, interest rate swap derivatives will be entered into for the duration of the pricing cycle, in accordance with the parameters of this policy and the Treasury Policy.

(11) Where the University has the ability to pass on any changes in interest rate risk and re-pricing of the underlying is on a continuous basis, no further action will be taken.

(12) No hedging will be performed on working capital facilities, unless a minimal level of debt (as determined by the Vice-President, Finance and Resources) is expected. Where there is a minimal level of debt, this will only be hedged by means of entering into interest rate swap derivatives.

(13) No hedging will be undertaken on short term investments, as investment target returns need to be benchmarked against market related interest rates.

(14) Scenario analysis will be performed by the Finance Office on net interest expense to ensure that any covenants will be adhered to by the University, if applicable.

(15) The parameters around which interest rate swaps may be used are set out in the Treasury Policy.

(16) Approved dealers need to ensure that interest rate swaps are negotiated on a timely basis and to ensure that the notional amounts of each swap match the value of the underlying debt.

(17) The Associate Director, Treasury is to maintain a register of financial and non-financial covenants relating to all debt facilities. The Associate Director, Treasury will monitor these covenants on an ongoing basis to ensure that no covenants in relation to interest rates are breached.

Top of Page

Section 4 - Procedures

Part C - Roles and Responsibilities for Executing Strategies

(18) A sensitivity analysis will be performed at the negotiation stage of any new debt facility to understand the impact of the changes in interest rates. This will be performed by the Associate Director, Treasury.

(19) An analysis of whether adverse changes could be passed on via the income streams will be undertaken by the Associate Director, Treasury. This will include information on the repricing cycle of income streams.

(20) The Vice-President, Finance and Resources is to consider the appropriateness of entering into interest rate derivatives and must approve the use of these instruments.

(21) If interest rate derivatives are entered into, the Vice-President, Finance and Resources is responsible for ensuring the execution of these within the parameters set out in the Treasury Policy.

(22) The Associate Director, Treasury is responsible for obtaining and recording quotes for the interest rate swaps from at least two of the authorised counterparties specified in the Treasury Policy.

(23) An authorised dealer (as specified in the Treasury Policy) is responsible for setting up the interest rate swap deals with the authorised counterparty that offers the most favourable commercial terms.

(24) An authorised signatory (as specified in the Treasury Policy) is responsible for approving the execution of a deal.

(25) The Associate Director, Treasury will perform scenario analysis on current debt levels on a monthly basis to ascertain if any interest rate covenants are likely to be breached.

(26) The Associate Director, Treasury will monitor any additional sources of interest rate risk on an ongoing basis.

Part D - Monitoring Policy Compliance

(27) Refer to the Treasury Policy.

Part E - Management Reporting

(28) Refer to the Treasury Policy.

Part F - Reassessment of Results and Policy Implications

(29) Refer to the Treasury Policy.

Top of Page

Section 5 - Guidelines

(30) Refer to Section 3 for guidelines.