N.Z. to Guarantee Global Funds' Wholesale Deposits (Update1)

By Gavin Evans

Nov. 1 (Bloomberg) -- New Zealand will guarantee overseas debt sales by the nation's banks to help maintain access to international wholesale funding, Finance Minister Michael Cullen said.

The guarantee will be available for investment-grade institutions seeking funds in all the major currencies, according to the nation's Treasury. Institutions opting into the program will be charged a fee based on their credit rating and the term of the issue. It won't be available for corporate borrowers.

New Zealand last month said it would guarantee retail deposits to bolster confidence in financial institutions. It was forced to widen the support to include wholesale investments after similar programs in nations including Australia and South Korea risked disadvantaging New Zealand-based lenders seeking funds in global markets.

``While the New Zealand banking system is very sound, we are in an environment where international investors remain risk- averse and where many other governments have guaranteed their banks' debt,'' Cullen said in an e-mailed statement. It is ``in the public interest to offer a wholesale funding guarantee that can help maintain the economy's access to foreign credit.''

Guarantee Costs

Banks and lenders rated AA minus and above will pay 85 basis points for the guarantee on terms of less than a year and 140 points for longer maturities. A BBB minus rated issuer will pay 195 basis points and 250 basis points respectively, Treasury said on its Web Site. A basis point is 0.01 percentage point.

New Zealand's program is more expensive than those offered by the U.S. and Australia and similar to the pricing of the U.K. facility, the country's Treasury Secretary John Whitehead said. It is designed to encourage issuers to opt out of the program as soon as market conditions improve, he said.

Guarantees will cover securities for a maximum of five years and the facility will be withdrawn for new issues as soon as conditions ``normalize'' he said.

New Zealand has 18 registered banks, all rated BBB or better. Locally incorporated units of Australia's biggest banks handle about 90 percent of all New Zealand deposits and can use the guarantee for funds raised in any currency.

Branches of foreign banks, including Deutsche Bank AG and Rabobank Groep NV, will be eligible only for New Zealand dollar issues. About 20 institutions are likely to qualify for the guarantee, Treasury spokeswoman Chris Major said.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net.