Non-bank guarantee amended in NZ

The New Zealand Treasury has introduced flexibility in its Retail Deposit Guarantee Scheme by allowing institutions to offer both guaranteed and non-guaranteed debt securities.

The revised agreement will come into effect from January 2010 and institutions must sign the revised deed to ensure new deposits made after this date remain guaranteed by the Crown. Existing deposits will, however, continue to get the benefit from the existing guarantee till the expiry of the current guarantee scheme on October 12, 2010.

 The revised deed means the onus is on the retail investor to check if the entity he is making an investment in has signed a revised deed, and whether the account he is investing in is guaranteed or non-guaranteed. It is also the institution's responsibility to provide the information in its investment statement or prospectus.

The level of guarantee fees varies by both the credit rating and the type of organisation. A finance company with a rating of BB - the minimum rating it must obtain before the expiry of the current guarantee scheme - pays 150 basis points in fees, while for other institutions like banks, credit unions and building societies the fee is 60 basis points.