ASB says its participation in the Crown retail deposit guarantee scheme has cost the bank almost NZ$37 million.
In an unusual step, ASB has made a precise disclosure in its latest General Disclosure Statement (GDS). ASB says it paid non-refundable fees to Treasury for the Crown guarantee of NZ$18.3 million for the first 12 months of the guarantee period and NZ$18.5 million for the second 12 months. That makes a total of NZ$36.8 million.
The retail deposit guarantee scheme was introduced by the then Labour-led government on October 12, 2008 at the height of the Global Financial Crisis. Just how much the Crown has been paid in total fees from entities participating in the guarantee scheme is unclear, although it would be in the hundreds of millions of dollars.
The Treasury only releases the total sum collected from companies participating in the scheme with its June year end financial statements. The June 2010 year statements won’t be released until mid-October.
From its October 2008 introduction until June 30, 2009, Treasury had received NZ$228 million in fees from the 70 odd entities participating in the scheme. The total figure includes NZ$74 million collected in guarantee fees plus another NZ$154 million paid in advance by firms to cover future participation in the scheme.
The bulk of the fees have been paid by the big four banks - ANZ, ASB, BNZ and Westpac. Under the guarantee, financial institutions with total guaranteed retail deposits above NZ$5 billion are charged a fee of 10 basis points per annum on the amount of deposits above NZ$5 billion. Treasury says this means a bank with NZ$20 billion in retail deposits, for example, would pay NZ$15 million a year in fees.
After last month’s collapse into receivership of South Canterbury Finance (SCF), Prime Minister John Key predicted the net cost to the taxpayer of Crown guaranteed finance companies that fail would be between NZ$300 million and NZ$400 million. Treasury loosened the rules after SCF's demise meaning some depositors and stockholders in other failed but guaranteed companies who may not have previously been repaid will now be repaid by the Crown.
Treasury says while this will incur an upfront cost, it is cheaper overall because it facilitates immediate payout of depositors and avoids the need for the Crown to make future interest payments.
So far eight firms covered by the guarantee have defaulted:
SCF owing 35,000 depositors about NZ$1.6 billion, plus bondholders NZ$250 million and prior charge holders including Pyne Gould Corporation's Torchlight Investment Fund about NZ$175 million.
Allied Nationwide Finance owing about 4,500 depositors approximately NZ$130 million in deposits.
Mutual Finance owing 340 depositors NZ$9.3 million.
Viaduct Capital with 94 depositors owed NZ$7.3 million.
Vision Securities with 958 debenture holders owed NZ$28.4 million.
Strata Finance with 21 depositors and $448,000 in deposits.
Mascot Finance with 2,558 debenture holders with NZ$70 million invested.
Rockforte Finance owing 70 depositors about NZ$3.2 million.
The guarantee ends on October 12. However, the extended Crown retail deposit guarantee scheme then kicks in running until December 31 next year. So far eight companies, including SCF, have gained approval to participate in the extended scheme.
The others are Canterbury Building Society, Equitable Mortgages, Fisher & Paykel Finance, Marac Finance, PGG Wrightson Finance, Southern Cross Building Society and Wairarapa Building Society.
Reserve Bank governor Alan Bollard has said there is no need for banks to enter into the extended guarantee scheme. ASB says it has not applied to be covered by the extended guarantee scheme but hasn't yet definitively decided whether it will or won't. ANZ, BNZ Kiwibank and SBS Bank say they won’t be applying.
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