Financial performanceFinancial Snapshot7
Interest rates have continued to trend down during 2015–16 with the Reserve Bank of Australia cutting the benchmark cash rate by 25 basis points in May 2016 to 1.75 per cent.
These rates have impacted interest incomes from the home loan and business loan portfolios but have generally had a positive impact on IBA’s concessional rate loan valuations discounts. IBA’s investment portfolio has increased with the establishment of the Indigenous Prosperity Funds and increase in property values. Industrial and retail portfolios have remained steady while tourism has continued to decline.
The financial statements are presented on a consolidated basis with its subsidiaries.
The 2015–16 consolidated operating result for IBA is a surplus of $18.5 million against the previous year’s surplus of $12.1 million. Valuation losses forming part of other comprehensive income amount to $2.2 million (2014–15: $5.3 million), bringing the total comprehensive income to a surplus of $16.4 million (2014–15: $6.9 million surplus).
Total income has increased from $191.5 million in 2014–15 to $225.1 million in 2015–16 due mainly to sale of goods and services. Total expenses have increased from $179.1 million in 2014–15 to $206.3 million in 2015–16 due mainly to increased supplier expenses.
IBA’s total assets as at 30 June 2016 are valued at $1.3 billion, an increase of $62 million over the previous year primarily due to the increase in the value of the home loan portfolio. Net assets as at that date were valued at $1.2 billion. Figure 26 shows the growth in consolidated net assets over the past nine years and Figure 27 shows the composition of total assets.
The income base of the consolidated IBA entity is a mix of departmental receipts from the Australian Government and self-generated revenue. In 2015–16, IBA received $34 million in departmental receipts and $190 million in self-generated revenue..
The self-generated revenue is largely from interest earnings on the loan portfolio, rental receipts, and sale of goods and services within IBA’s subsidiary investments. IBA also received a $37 million equity injection from the Australian Government to fund its lending operation and $3 million to fund its leasing operation (on a separate arrangement). Figure 28 shows the composition of IBA’s consolidated income.
Legal and financial framework
IBA’s financial performance and balance sheet must be read in the context of its enabling legislation, the Aboriginal and Torres Strait Islander Act 2005 (ATSI Act), and the impact of accounting standards on the valuation of financial assets.
The ATSI Act requires that funds available under the New Housing Fund, including interest earnings, are to be used exclusively for housing loans. Consequently, income earned on the New Housing Fund is not available for operational expenses but is directed back into new loans. A separate set of financial statements is provided for the New Housing Fund (see Note 18).
Accounting standards require IBA’s financial assets to be valued at their fair market value. The housing and business loans portfolio is issued at concessional interest rates. A market valuation of the portfolio requires discounting the portfolio value to equate interest earned to market yield for comparable risk. The annual incremental discount is taken as a noncash charge to the income statement.
For the investment portfolio, valuation at fair market value results in cyclical movements in property and business valuations impacting the comprehensive income statement.
IBA expects stability in its lending and investment operations in 2016–17. However, any volatility in economic parameters and interest rates would impact IBA’s asset valuations and operating results.
IBA will continue to invest in cost-effective information management systems to improve its customer support activities and document management systems. There will be a strong focus on reducing the cost of services that support the three main programs.
IBA’s net asset base is expected to continue its steady growth during 2016–17, with total assets budgeted at $1.3 billion as at 30 June 2017. Total consolidated revenue is budgeted at $208 million, including departmental receipts from the Australian Government of $11 million.