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Northern Territory Treasury Corporation annual report 2011-2012



Northern Territory Treasury Corporation annual report 2011-2012


Department of Treasury and Finance reports; Reports; PublicationNT




Made available via the Publications (Legal Deposit) Act 2004 (NT).






Northern Territory Treasury Corporation -- Periodicals; Finance, Public -- Northern Territory -- Periodicals

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Northern Territory Treasury Corporation.

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60 interest rate risk arises from cash flow mismatches in the maturity profiles and repricing dates of its financial assets and liabilities. The Corporation aims to manage the interest rate exposure on its financial assets and liabilities at an acceptable level in an attempt to minimise the cost of its borrowing requirements within stated guidelines. The Corporations interest rate risk on its financial assets and liabilities is significantly extinguished as a result of its relationship with the CHA. As at 30June2012, approximately 54percent (2011:64percent) of the Corporations issued debt is onlent to CHA. The interest rates and maturity dates set on these loans are closely matched to the debt issued by the Corporation to external counterparties. The Corporations loans to CHA attract a margin over the cost of servicing the debt. When interest rate swaps are used to manage interest rate risk, those that convert floating rate debt to a fixed rate are designated as cash flow hedges. By using interest rate swaps, the Corporation agrees to exchange the difference between fixed and floating interest rate amounts calculated by reference to agreed notional principal, thereby enabling the Corporation to reduce the risk of rising interest rates now or at a future date. The Corporation enters into interest rate swaps that entitle it to receive interest at floating rates and oblige it to pay interest at fixed rates on the same amount. The interest rate swaps allow the Corporation to raise longterm borrowings at floating rates and effectively swap them into fixed rates. Notional principal amounts represent the contract or face value of the swap. The notional amounts do not represent amounts exchanged by the parties to the contract. (i) Sensitivity analysis Assuming the financial assets and liabilities at 30June2012were to remain until maturity or settlement without any action by the Corporation to alter the resulting interest rate risk exposure, an immediate and sustained increase of 1percent in market interest rates across all maturities would have the following impact on profit before tax for the financial year: Forecast Effect on Profit Before Tax201213 Forecast Effect on Profit Before Tax 201112 Rates Up by 1% Rates Down by 1% Rates Up by 1% Rates Down by 1% Financial assets $000 $000 $000 $000 Cash at bank1 5 290 (5 290) 266 (266) Floating rate loans 1 076 (1 076) 213 (213) NET SENSITIVITY 6 366 (6 366) 479 (479) 1 The high level of sensitivity is primarily due to $490million prefunding relating to the 201213 borrowing program, which is to be extinguished by 30 September 2012. If the sensitivity was applied to the 30 June 2012 cash balance exclusive of the $490million prefunding the amount would be $0.391million. Notes to the Financial Statements FOR THE FINANCIAL YEAR ENDED 30JUNE2012 Note 15 continued