The Government’s retail deposit guarantee scheme will be extended, in a slightly revised format, until 31 December 2011. The current guarantee is scheduled to end on 12 October 2010 and many investors are having concerns regarding locking-in to investments beyond that date as those investments would not be covered by the guarantee.

Bill English, the New Zealand Government’s Finance Minister, has announced that the guarantee is to be extended, but the scheme will include the following changes:

• The extended scheme will be voluntary.
• Higher fees will be levied for investment providers with lower credit ratings.
• Only investments with a BB rating or higher would qualify for the guarantee.
• The maximum investment/deposit per person is also to be reduced from the current $1,000,000 to $500,000 for bank deposits and $250,000 for other qualifying investments.

The planned extension is intended to help maintain confidence in New Zealand’s financial institutions, while achieving an orderly exit from a scheme that is in affect diversifying the risk from our country’s investors onto the whole population.

The deposit guarantee scheme was put into place last year to give New Zealand’s investors added confidence that their money would be safe in the event of a bank or approved investment provider failing. This followed a period when a number of high presence New Zealand and Australian investment companies failed leaving thousands of investors with significant losses.

Bill English has said that the transition would run along side the Reserve Bank's new regulatory regime for non-bank financial institutions, which requires all finance companies with more than $20 million in assets to get credit ratings. The changes and the notice given would allow for an orderly transition. "Some institutions may choose not to apply for the extended scheme and some won't meet the application criteria," said English. "Whether or not investors are covered beyond that date will depend upon whether their institutions join the new scheme. Participation in the new scheme will be voluntary."

The Government has so far paid out $68 million to cover guaranteed deposits, but did not say how much of this amount has been offset from the fees charged to banks and investment providers.

The Government does not envisage any extension past the end of 2011 as it is believed that the "high stress" point of the current financial crisis has passed, but there would still be shocks and surprises as the world’s economies overcame the massive loss of capital experienced in the past year. These decisions closer aligned New Zealand’s policy with that of Australia.