Hamilton and Tauranga based First Credit Union has been assigned a BB long term credit rating by Standard and Poor's, which would make it eligible to continue to be covered by the government's retail deposit guarantee scheme when it is extended in October 2010.

The extended guarantee scheme bill was passed in Parliament under urgency yesterday and will see the guarantee's entry conditions tightened and it's fee structure switched around. Only firms with a BB credit rating or better will be eligible to join the extended scheme which will run from October 13, 2010, to December 31, 2011.

The fee structure for the extended scheme looks favourably on credit unions, putting them in the same category as banks, building societies and PSIS in having to pay lower fees than finance companies. (See chart below.)

First Credit Union is an amalgamation of Credit Union Hamilton, Credit Union Bay of Plenty and Credit Union Health.

Here is the Standard and Poor's release on First Credit Union:

Standard & Poor's Ratings Services said today its 'BB' long-term counterparty credit rating on New Zealand-based First Credit Union (FCU) reflects the credit union's good franchise and supportive member base. At the same time, Standard & Poor's also assigned its 'B' short-term counterparty credit rating. The outlook is stable.

"FCU has a good business position in the Hamilton and Tauranga regions of New Zealand," said Standard & Poor's credit analyst, Peter Sikora. "This is underpinned by its ability to generate good interest margins to contend with a recent increase in delinquent loans, and to contend with recent liquidity- and funding-based credit-market pressures."

These strengths are moderated by FCU's exposure to lower socioeconomic customers in its personal-loan portfolio and its property-development mortgage exposures.

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"But we expect that FCU's business and financial profiles will remain sound during New Zealand's current economic downturn, and through regulatory changes affecting the credit union sector," said Mr. Sikora. "Importantly, the stable outlook factors in our expectation that FCU will soon reduce its property-development-type lending exposures, and that its financial profile will improve in the current fiscal year as a result of increased earnings stemming from interest-margin improvement and lower loan provisioning."