Finance Minister Michael Cullen says the Government will offer a wholesale funding guarantee facility to investment-grade financial institutions. Photo / Brett Phibbs
Finance Minister Michael Cullen says the Government will offer a wholesale funding guarantee facility to investment-grade financial institutions. Photo / Brett Phibbs
KEY POINTS:
inance Minister Michael Cullen today confirmed the Government will offer a wholesale funding guarantee facility to investment-grade financial institutions in New Zealand.
Dr Cullen also said he had exchanged letters with the major mortgage banks when handling mortgage customers facing servicing problems in the challenging economic times ahead.
The banks have indicated that where there was a reasonable expectation that mortgage-servicing could be resumed within a reasonable period, they would use their best endeavours to work with borrowers to avoid forced sales where appropriate.
They had a variety of ways of doing this such as by capitalising interest or temporarily reducing servicing obligations in order to help get borrowers get on their feet again after experiencing a financial shock.
"I welcome the assurances the bank chief executives have provided.
"Responsible borrowers can count on support from their banks through the challenging international economic times that will negatively impact on us here at home over the next few months," Dr Cullen said.
Treasury Secretary John Whitehead and Reserve Bank Governor Alan Bollard said in a statement the primary goal of the guarantee was to support the re-entry of New Zealand banks to regular foreign markets to raise cash.
There had been fears that banks based in New Zealand would have sources of cash dry up as overseas investors stayed clear of any bank that did not have a Government guarantee.
The facility would be available to financial institutions that had an investment grade credit rating and have substantial New Zealand borrowing and lending operations.
The facility will operate on an opt-in basis, by institution and by instrument. New issues of debt securities will be eligible for inclusion.
A guarantee fee will be charged, differentiated by the credit rating of the issuer and the term of the security being guaranteed.
"The fee schedule is designed to ensure that the facility is used while it is needed, but to encourage issuers to graduate from using the guarantee as market conditions permit.
"The guarantee fee will be reviewed regularly and may be adjusted in future for new issues, in light of experience with the scheme," the statement said.
