NZ Extends Deposit Guarantee Scheme

by Mary Swire, for LawAndTax-News.com, Hong Kong

07 September 2010

New Zealand’s government has decided that it will repay all depositors of guaranteed financial institutions that default, including those that have already defaulted, regardless of any previous eligibility criteria, including tax residency, that were in place for the current Retail Deposit Guarantee Scheme.

The government’s decision has been taken following the appointment of receivers to South Canterbury Finance, a Timaru-based financial institution with around 35,000 depositors and approximately NZD1.6bn (USD1.15bn) in deposits. It has said that the scale and complexity involved with repaying South Canterbury Finance depositors has altered the costs involved in running the guarantee scheme.

Repaying all depositors of all guaranteed companies that default will save taxpayers from having to pay ongoing interest that otherwise would have accrued as thousands of claims were assessed, processed and paid.

"Criteria relating to citizenship and tax residency will no longer apply and depositors will not be assessed using those criteria. The criteria for being repaid is that you are on the register of debt securities at the date of default," said Acting Secretary to the Treasury, Gabriel Makhlouf.

Debt securities eligible for repayment include: call deposits, term deposits, non-guaranteed deposits, debentures, and bonds. Equity securities such as ordinary shares and preference shares remain ineligible for repayment under the government guarantee. The government’s decision to repay all depositors of government-guaranteed financial institutions that have defaulted means repayments will be made to some depositors who may not have previously been eligible for repayment.

The decision applies for defaults by approved institutions from the start of the current Retail Deposit Guarantee Scheme until it ends on October 12, 2010. Apart from South Canterbury Finance, the following government-guaranteed institutions have defaulted: Allied Nationwide Finance, Mutual Finance, Viaduct Capital, Vision Securities, Strata Finance, and Mascot Finance. The Treasury is to publish details in due course about the process for repaying previously ineligible depositors.

Eligibility criteria, that include citizenship and tax residency, will continue to apply in the event of a default after October 12, 2010 by institutions approved for the extension to the guarantee scheme, that runs until December 31, 2011.

Under that extension, eligible bank deposits will be covered up to a reduced maximum NZD500,000 per depositor per institution, and eligible non-bank deposits to a maximum NZD250,000 per depositor per institution. Deposit-taking institutions with a credit rating of BB or higher can apply to participate in the extended scheme. Institutions with a lower credit rating or no rating will not be eligible, even if they are included in the current Scheme.

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