The Crown provided $849 million as at February 28 for its Retail Deposit Guarantee Scheme, up from $771m as at January 31.The scheme covers 73 financial institutions with deposits totalling $133 billion.The Crown continually updates both the likelihood of
The Crown provided $849 million as at February 28 for its Retail Deposit Guarantee Scheme, up from $771m as at January 31.
The scheme covers 73 financial institutions with deposits totalling $133 billion.
The Crown continually updates both the likelihood of further defaults and the expected loss from them. The $849m figure is the latest estimate of the cost of future payments under the scheme after expected recoveries.
So far the scheme has dealt with defaults by Strata Finance, which had 21 depositors with a total $448,000 in deposits, Vision Securities, which had 1000 depositors with $30m in deposits, and Mascot Finance. At the date of receivership Mascot had 2511 investors with a total principal outstanding of $68.5m.
The scheme was started on October 12, 2008 to ensure confidence in New Zealand's financial system when international financial markets were turbulent. It has been extended to December 31, 2011 with changed conditions. The current scheme ends on October 12, 2010.
The Crown assesses the potential failure of institutions with deposits exceeding $5 billion as being remote and makes no provision for them.
Earlier this week Standard&Poor's Ratings Services predicted more failures and consolidation in the New Zealand non-bank deposit taker sector, which includes finance companies.
It said the Crown Retail Deposit Guarantee Scheme played a critical role in averting the sector's total collapse after a sharp drop in debenture reinvestment.
"We are somewhat comforted by evidence that most non-bank deposit takers have sought to fortify their capital positions and buffer against possible losses on problem loans," S&P's credit analyst Peter Sikora said.
"That said, liquidity and refinancing vulnerabilities continue to trouble our view of the sector's creditworthiness and are likely to result in further company failures and consolidation."
The non-bank deposit takers most vulnerable to liquidity and refinancing risks were those not covered by the extended scheme because they were not rated or were rated below BB.
Mr Sikora said that while the sector's asset quality problems were showing signs of having peaked and regulatory oversight had improved, most non-bank deposit takers had limited back-up external liquidity in the form of committed bank or other funding lines.
Most non-bank deposit takers were small, geographically highly concentrated, and had a narrow business focus.
Their operating environment remained competitive and their market niches provided little competitive advantage.
