New Zealand Local Government Funding Agency Limited Analysis

Overview

The New Zealand Local Government Funding Agency (LGFA) is a Council-Controlled Organisation (CCO) operating under the Local Government Act 2002. LGFA specialises in financing the New Zealand local government sector, operating with the primary objective of optimising the debt funding terms and conditions for participating local authorities.

Among other things, this includes:

• Providing debt to participating local authorities at the lowest possible interest rates,
• Making longer-term borrowings available to participating local authorities, and
• Increasing the certainty of access to debt markets for participating local authorities

Performance

The following information was extracted from New Zealand Local Government Funding Agency Limited's full year results, released 29 August 2024:

2023-24 Financial and operational performance

Total interest income for the financial year of NZ$1,213 million increased 59% over the 2022-23 result of NZ$763.6 million. Net operating profit of NZ$10.05 million increased 301% on the 2022-23 result of NZ$2.5 million. The prior year result was negatively impacted by the sharp rise in interest rates.

Total operating income of NZ$$21.8 million was above the Statement of Intent (SOI) forecast of NZ$19.2 million due to larger than expected council and CCO lending and higher interest rates than forecast.

Operating expenses at NZ$11.8 million were NZ$1.7 million above the SOI budget. Operating expenses were higher than forecast due to Approved Issuer Levy payments to central government for our offshore issuance, as well as higher NZX and legal fees related to increased levels of bond issuance and lending to members.

Over the year, LGFA operations processed over 16,000 transactions with total gross cash flows of NZ$83 billion. Where possible, LGFA employ straight-through processing to minimise operational risk across our treasury operations. Improving our information technology control environment to mitigate emerging risks from cyber threats was another key focus over the past year. Independent consultants were engaged to review our cyber control environment for compliance against best practice cyber risk controls and were comfortable with our controls. There were no cyber issues.

We achieved fifteen out of our eighteen performance objectives, with the only objectives missed being operating expenses, driven by higher levels of issuance and on lending than forecast, and a lower number of new Green, Social and Sustainability (GSS) loans than forecast. Our objective for meeting Global Reporting Initiative reporting requirements was superseded by our inaugural climate-related disclosures under the Aotearoa New Zealand Climate Standards.

We continue to support the sector and promote best practice via sponsoring the LGFA Taituarā Local Government Excellence Awards and other Taituarā events. We also held quarterly business updates, the annual shareholder borrower day and economic updates for council and CCO members.