The Deposit Takers Act upgrade spawns a new NBDT

Banking / news

For the first time in more than a decade a new registered non-bank financial institution is about to launch, Welcome Investments & Loans

8th Jan 25, 2:48pm by David Chaston

The imminent arrival of a deposit guarantee scheme in New Zealand (scheduled to roll out in mid 2025) has triggered a new Non Bank Deposit Taker (NBDT).

Although it hasn't operationally launched yet, Welcome Limited has secured registration as a NBDT by the Reserve Bank of New Zealand.

They say they are the first NBDT to be registered in at least ten years. Non-bank financial institutions are a sector that has been shrinking since the aftermath of the GFC, and the rout of finance companies from 2008 to 2014.

As a registered NBDT they will be eligible for the Depositor Compensation Scheme coverage when it is instituted. That will guarantee depositors at each institution for up to $100,000 of deposit account protection.

Welcome has been in development since late 2023, and applied to the RBNZ for NBDT registration in April 2024. It is a project led by Anton Douglas, the ex-CEO of Midlands Mortgage Trust and is based out of Hastings. Douglas has a 20% stake, and the company has a cornerstone 64% shareholding by the family investment office of Hawke's Bay's TUMU Group.

They say they are responding to "the growing demand from investors for higher returns, without sacrificing security and transparency. Welcome will offer higher deposit rates than banks, with more certainty of returns and better protection than mortgage funds and unregulated 'wholesale' alternatives."

Operational launch for both lending and investing is expected to be early April. They say they chose the capital-intensive NBDT regulated structure because it can scale sustainably.

Welcome will offer first mortgage loans to residential and commercial borrowers, "tailored to their needs". These will be the needs of borrowers who don’t fit into "rigid bank protocols or don’t get an answer quickly enough to move on an opportunity.” Essentially that means lending via mortgage brokers for clients outside the CCCFA realm.

Welcome Limited is not a registered bank. No money is currently being sought, and financial products cannot currently be applied for or acquired. The offer of secured term deposits, if made, will be made in accordance with the Financial Markets Conduct Act 2013.

(They will be offering residential home loans. But these will have nothing to do with the old Kāinga Ora/HNZ Welcome Home Loan program that was managed through some existing bank lenders. That official program has now been re-branded as the First Home Loan program, but its rather long history may make for some initial name confusion, even if the target borrowers will be quite different.)

When they launch, we will include their mortgage and deposit offerings in our comprehensive rate tables.

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14 Comments

by RichRoach | 8th Jan 25, 2:59pm 1736301587

Should be TUMU Group

by David Chaston | 8th Jan 25, 3:08pm 1736302104

You are right of course. Fixed now. Thank you.

by kiwiana02 | 8th Jan 25, 4:27pm 1736306855

Once the deposit guarantee scheme kicks in won’t many people move their savings term to any non-bank financial institutions with higher deposit rates than banks. Currently several non-banks are offering 6.5% on a one-year TD compared to banks whose offerings are mostly at or 4.75%. Given that up to $100,000 per institution is guaranteed under the scheme, the incentive to move seem quite strong. This would appear to encourage new entrants and incentivise mush greater risk-taking among the non-banks. Am I missing something?

by Chaosinflesh | 8th Jan 25, 4:31pm 1736307108

Looks like another way to socialize the losses to me.

by kiwikidsnz | 9th Jan 25, 12:44pm 1736379888

"Under the Act, the expectation is that levies from licensed deposit takers will fully fund the DCS over time. These levies will be managed in the DCS fund by Te Pūtea Matua – the Reserve Bank of New Zealand and exclusively used for DCS-related costs."

https://www.treasury.govt.nz/information-and-services/nz-economy/deposi…

As others have pointed out the higher risk NBDTs will pay higher levies, reducing their interest rates offered.

by Justa comment | 8th Jan 25, 4:40pm 1736307650

They are offering 6.5% 1 year TDs now because the guarantee doesn't start until mid year. Will be very interesting to see what they are offering when they are guaranteed. If one of these B grade finance companies does fail, I wonder how long you would have to wait to get your funds?

by Te Kooti | 8th Jan 25, 4:41pm 1736307669

I think it's a great development. It really boils down to how the deposit scheme is priced because a non-bank is clearly more risky than a large bank. How is this being captured, are the non-banks charged more?

by Justa comment | 8th Jan 25, 7:39pm 1736318387

yes the higher risk organisations will be charged more.

by MikeM | 8th Jan 25, 5:57pm 1736312225

Still no new banks though.

by Officebound | 8th Jan 25, 7:51pm 1736319116

I'm still waiting to hear what will be done with the revenue from the deposit guarantee scheme (before its needed for payouts).

Will the government of the day simply treat it as revenue, and spend it?

Will they invest it in low risk financial products, thus letting it incur some risk, and erode against inflation?

Will they invest it in higher risk assets that will likely perform well, except for the crisis times when they're needed?

Crazy that this isn't already known.

by morepork | 9th Jan 25, 11:47am 1736376459

There are some details here: https://www.interest.co.nz/sites/default/files/2024-05/consultation-sec…

The Reserve Bank will be responsible for setting an investment strategy that achieves the

investment objectives set out in the SoFA. We propose that the SoFA will also include

constraints on the investment strategy to ensure the strategy pursued aligns to investment

objectives and risk appetite. Consistent with the investment objectives, the constraints on the

investment strategy for the DCS should balance higher rates of return against the certainty

that funds will be available when needed and guards against the loss of principal.

We expect that the SoFA will include authorised asset classes that the Reserve Bank

can choose to invest in as the main constraint on the investment strategy. Consistent with

international practice, such as the European Union Directive on Deposit Insurance Schemes,

the SoFA is expected to enable the DCS fund to invest in some or all of the following asset

classes:

• cash and deposits in specified currencies as long as they are not held with New Zealand

or Australian deposit takers

• highly-rated money-market instruments in specified currencies (at least A+/A1) as long

as they are not held with New Zealand or Australian deposit takers

• specified countries’ sovereign bonds and treasury bills (at least A+/A1)

• fixed interest instruments issued by local and regional authorities (at least A+/A1)

• fixed interest instruments issued by international organisations and development banks

(at least A+/A1)

• highly-rated non-banking sector corporate bonds issued in specified countries (at least

A+/A1)

• covered bonds issued in specified countries (at least A+/A1)

• any other assets which are considered to be of “similar risk and liquidity” by the Treasury

(to be considered on a case-by-case basis)

• derivatives, such as futures and swaps, used for hedging or liquidity purposes as long as

they do not add financial leverage to the DCS fund and the counterparty used has a credit

rating of at least A+/A1 and for Exchange transactions the Exchange has a credit rating of

at least A+/A1.

by nigelh | 9th Jan 25, 8:17am 1736363823

In some ways I preferred the OBR. It affected all depositors whether large non non bank financial institutions eg investment funds and Kiwisaver or retail depositors. Everyone took the same % haircut. Now we have retail depositors protected but what of the large financial institutions where individuals money is bulked up into one large bank account. All these large financial institutions have their funds in one bank. I suspect once the $100k is paid out and those funds run out the large financial institutions with cash/TD deposits will be hit far harder, even to the extent that all their cash is "robbed" by the RBNZ in sorting out the failed bank.

Under the OBR scheme a commentator once said that with a fund manager your funds were held in a trust account and thus were immune to an OBR. Not so. The trust account is more for financial fraud by the institution. For an OBR, RBNZ is only interested in the funds held in the bank, not the mechanism by which they are held.

Anyone more knowledgeable on this mater I'd certainly like to know. The above is my understanding, not derived from an actual knowledge of the regs.

by rastus1 | 9th Jan 25, 9:01am 1736366518

I can't help, but I wonder how would the OBR operate in your funds were held by say a law firms trust account. Law firm gets haircut via OBR on their deposit with X bank, but where does client stand? Is the Law Firm liable to client?

by morepork | 9th Jan 25, 11:54am 1736376850

The disadvantage of the OBR is you are at a higher risk of bank runs on rumours until the RBNZ comes along and freezes assets.

The problem with larger deposits is real, and as we saw in the crash of SVB, the FDIC came in and paid back all deposits despite the $250k cap. I wouldn't be surprised if we saw something similar in NZ, imagine the outcry if there was a bank crash and those unlucky enough to have money to purchase a house in their lawyer's trust account getting a haircut.