Note 17: Advances
| Forecast | Actual | |||
|---|---|---|---|---|
|
Original Budget $m |
Estimated Actuals $m |
30 June 2009 $m |
30 June 2008 $m |
|
By type |
||||
| 6,718 | 7,131 | Student loans | 6,553 | 6,741 |
| 8,137 | 7,219 | Kiwibank mortgages | 8,492 | 5,581 |
| 1,867 | 692 | Other advances | 559 | 626 |
| 16,722 | 15,042 | Total advances | 15,604 | 12,948 |
By source |
||||
| 11,797 | 11,175 | Core Crown | 10,429 | 10,278 |
| 453 | 443 | Crown entities | 379 | 434 |
| 8,427 | 7,414 | State-owned enterprises | 8,768 | 5,857 |
| (3,955) | (3,990) | Inter-segment eliminations | (3,972) | (3,621) |
| 16,722 | 15,042 | Total advances | 15,604 | 12,948 |
Student Loans |
||||
| 10,642 | 10,320 | Nominal value | 10,259 | 9,573 |
| (3,924) | (3,189) | Write-down on initial recognition and impairment | (3,706) | (2,832) |
| 6,718 | 7,131 | Total student loans | 6,553 | 6,741 |
| Gross carrying value | 7,635 | 7,044 | ||
| Impairment of student loans | (1,082) | (303) | ||
| Total student loans | 6,553 | 6,741 | ||
| Expected to be repaid within one year | 761 | 630 | ||
| Expected to be held for more than one year | 5,792 | 6,111 | ||
| Total student loans | 6,553 | 6,741 | ||
Movement During the Year |
||||
| 6,278 | 6,741 | Opening balance | 6,741 | 6,011 |
| 1,305 | 1,366 | Amount borrowed in current year | 1,350 | 1,201 |
| (525) | (539) | Less initial write down to fair value | (532) | (487) |
| (675) | (717) | Repayments made during the year | (710) | (629) |
| 445 | 480 | Interest unwind | 465 | 407 |
| (110) | (210) | (Impairment)/reversal of impairment | (779) | 231 |
| - | 10 | Other movements | 18 | 7 |
| 6,718 | 7,131 | Closing balance student loans | 6,553 | 6,741 |
Impairment Allowance of Student Loans |
||||
| Balance at beginning of the year | 303 | 533 | ||
| Impairment losses recognised on receivables | 779 | - | ||
| Amounts written off as uncollectible | - | - | ||
| Impairment losses reversed | - | (230) | ||
| Balance at end of the year | 1,082 | 303 | ||
Student loans are recognised initially at fair value plus transaction costs, and subsequently measured at amortised cost using the effective interest rate method, less any impairment loss. Fair value on initial recognition of student loans is determined by projecting forward expected repayments required under the scheme and discounting them back at an appropriate discount rate. The difference between the amount lent and the fair value on initial recognition is expensed on initial recognition. The subsequent measurement at amortised cost is determined using the effective interest rate calculated at initial recognition. This rate is used to spread the Crown's interest income across the life of the loan and determines the loan's carrying value at each reporting date.
| Actual | ||
|---|---|---|
|
30 June 2009 $m |
30 June 2008 $m |
|
| Significant assumptions behind the carrying value are: | ||
| Effective interest rate - current year | 9.4% | 8.4% |
| Effective interest rate - weighted average | 6.7% | 6.6% |
| Interest rate applied to loans for overseas borrowers | 6.7%-6.8% | 6.7%-6.8% |
| CPI | 1.5%-2.5% | 2.5%-4.0% |
| Future salary inflation | 1.5%-3.5% | 3.5%-4.7% |
Fair value is the amount for which the loan book value could be exchanged between knowledgeable, willing parties in an arm's-length transaction as at 30 June 2009. It is determined by discounting the cash flows at an appropriate discount rate.
| Actual | ||
|---|---|---|
|
30 June 2009 $m |
30 June 2008 $m |
|
| The estimated fair value of the student loan portfolio and key assumptions underpinning the fair valuation are: |
||
| Fair value | 5,464 | 5,521 |
| Fair value discount rate | 9.2% | 9.2% |
| Impact on fair value of a 1% increase in discount rate | (276) | (321) |
| Impact on fair value of a 1% decrease in discount rate | 308 | 366 |
The fair value differs from the carrying value due to changes in market interest rates at reporting date. The carrying value is not adjusted for such changes as it is valued using the effective interest rate determined when the loan was initially drawn. However, the fair value was calculated on a discount rate that was current at 30 June 2009. At that date the fair value was calculated on a discount rate of 9.2% whereas a weighted average effective interest rate of 6.7% was used for the carrying value. Therefore, the lower fair value does not represent an impairment of the asset.
Through the everyday operations of the student loan scheme the Government is exposed to the risk that borrowers will default on their obligation to repay their loans or die before their loan is repaid. The student loan scheme does not require borrowers to provide any collateral or security to support their borrowings. As the total sum advanced is widely dispersed over a large number of borrowers, the scheme does not have any material individual concentrations of credit risk. The credit risk is reduced by collection of repayments through the tax system.
The Student Loan Scheme Annual Report contains more information on the student loan scheme.
