Finance provisions reach $899m

The bill to the taxpayer from expected finance company failures over coming months leaped at twice its previous rate during October to just under $900 million, the Government's financial statements revealed yesterday.

In the accounts for the four months ended October 31, Treasury discloses the provision for net losses related to payouts under the Crown's Retail Deposit Guarantee rose to $899 million, an increase of $32 million in one month alone.

Crown financial statements for the three months to September put the figure at $867 million, in itself an increase of $47 million on the previous quarter, an average monthly rise of just under $16 million.

Treasury says the figure is "a net expected loss given default" or "the cost of future payments under the scheme after expected recoveries".

It yesterday refused to disclose the expected rate of recoveries it uses to calculate the provision which "represents a best estimate of likely loss" but adds "a significant range of outcomes are possible".

By the end of October, 73 institutions had joined the scheme and $133.1 million in deposits were covered.

The $899 million disclosed yesterday includes estimated losses on $34 million in claims paid out already from the failures of Mascot Finance and Strata Finance this year.

Treasury said the Government was managing its exposure to losses partly by requiring non-bank deposit takers to restrict distributions to shareholders, seeking assurances over related party transactions, reserving the right to appoint inspectors and reserving the right to withdraw the guarantee if the business is being deliberately run to undermine the intention of the guarantee.

It was also securing "personal undertakings" from the directors of institutions that they were complying with the terms of the guarantee.