It cost Scottish Borders Council well over £1million in lost capital and interest when two Icelandic banks crashed in 2008.
Despite that much-publicised debacle, councillors have now backed a plan to deposit up to £5m in another Nordic financial institution – Svenska Handelsbanken.
The Swedish bank, recently accorded a triple A (AAA) credit rating, is “one of the safer bets”, according to SBC’s chief financial officer David Roberston.
Presenting his mid-year treasury management report to the full council, Mr Robertson said: “I am, of course, aware of previous issues relating to the Icelandic banks.
“By opening an account with Handelsbanken, the council has instant access to its short-term deposits. The bank is registered in the UK and, based on an objective assessment, it is one of the safer bets.”
Mr Robertson said the council’s updated investment policy reflected “a prudent approach to risk and the council’s concerns about the security of investments”.
Such concerns sprang from the decision by unnamed past finance officers with the council to invest in two Icelandic banks, which offered interest rates of 6.5 per cent, before they spectacularly collapsed in 2008.
When the crash came, the council had £5million in Landsbanki and £5million in another bank called Heritable.The council eventually recovered £4.7million of the latter investment.
Earlier this year, in an auction organised by the Local Government Association, the council sold off its £2.4m claim on the unpaid balance of its Landsbanki holding for just over £2m – thus finally netting £4.68m of its investment with that bank.
Interest on the two deposits, estimated at around £600,000, was never recouped.
Mr Roberston explained that, at September 30, the council had £17.6m in interest-bearing accounts with an investment yield for the first six months of this financial year of 0.37 per cent.
“It is a very difficult investment market in terms of earning the level of interest rates commonly seen in previous decades,” he stated. “The potential for a prolonging of the Eurozone sovereign debt crisis and its impact on banks prompts a low risk and short-term strategy and investment returns are likely to remain low.”
He said the use of Handelsbanken for deposits of up to £5m – in addition to the £17.6m already invested – reflected the need for the council to “explore opportunities to invest surplus balances in the short term”.
Councillor Michelle Ballantyne, chair of SBC’s audit committee, said: “Our treasury management team does an excellent job and the first thing they do every morning is check that our money is safe.
“The banking system is not as secure as we once believed it to be, but I know our staff are extremely prudent and use sound judgement to make the best decisions.”