Financial markets now 'back to normal' says English

Finance Minister Bill English. File photo / Mark Mitchell

New Zealand's financial markets are "back to normal" and government guarantees for banks, set up during the global financial crisis, will be phased out at the end of next month, says Finance Minister Bill English.

Speaking at the New Zealand-Australia Investment Forum in Auckland today, English mixed caution with optimism as he encouraged investment - including expanding mining in New Zealand - while admitting the Government was ready to reinstate the banking guarantee if global markets soured again.

"We know how to do it [now] - we can put it back quickly," he said.

Signals that financial markets had gone back to normal did not mean the global economy would have no more ups and downs - as evidenced by a recent crisis in Greece," said English.

"Interest rates are likely to go up towards the end of the year and banks are cautious," he said.

"But banks can now raise money overseas without a government guarantee."

In his speech, English praised Economic Development Minister Gerry Brownlee, who was also attending the forum, for "single-handedly" making the expansion of mining in New Zealand a publicly palatable prospect - "a no-go zone just a few years ago", he said.

"New Zealand is open for business," English told the forum.

The Government's wholesale funding guarantee was set up in November 2008 when the liquidity crisis hit global credit markets.

English said the scheme had helped the banks access funding during the crisis, but international conditions had now improved.

"New Zealand banks are now raising funds without using the guarantee, which was always envisaged as a temporary measure for extraordinary times," he said.

Today's announcement follows confirmation last month that the Australian wholesale funding guarantee will end on March 31. Other countries have also ended their guarantee schemes or are in the process of doing so.

English said the wholesale guarantee facility was separate from the retail deposit guarantee scheme. No changes are planned for the retail deposit scheme beyond those announced last year, which take effect from October 13, 2010.

Since the wholesale guarantee was set up, 24 guarantee certificates have been issued, covering $10.3 billion of borrowing by banks. The scheme has made no payouts and the Government will receive almost $290 million in fees.

English said that New Zealand's banks were now successfully raising funds in the wholesale market without using the guarantee and the Government did not expect there would be any further use of the facility between now and the end of April.

He said Treasury and the Reserve Bank had consulted with the major New Zealand banks - along with some international investment banks - in recent weeks.

"In general, the feedback was that they were all looking to raise non-guaranteed funds and have no plans to further use the New Zealand wholesale guarantee," said English.