Result: Effective and Efficient Management of Financial Operations - NZECO and the Crown Guarantee Schemes

What are we seeking to achieve?

From time to time, government decisions require the execution of certain ongoing or repeated Crown commercial financial transactions with significant fiscal implications or risks. The Treasury will administer key types of transaction, particularly where they require the use of powers of the Minister of Finance or the Treasury on an ongoing basis. There are currently three main areas of financial operations reported under this result: the New Zealand Export Credit Office, the Retail Deposit Guarantee Scheme and the Wholesale Funding Guarantee Facility. Financial operations included under other results include the management of ongoing contractual obligations of the Crown (such as under the SOEs, Maui gas contracts and the Treaty of Waitangi settlements), management of New Zealand House in London, unclaimed money, bona vacantia and the operation of the NZDMO. The evolution of this portfolio of financial operations over time will depend on what policy interventions the Government decides to make that involve administration of significant Crown commercial transactions, followed by consideration of what functions the Treasury is best placed to administer.

The overarching purpose of this result is to operate these functions efficiently and effectively on behalf of the Government.

New Zealand Export Credit Office (NZECO)

The purpose of the NZECO is to assist New Zealand companies to increase exports by providing government-guaranteed export credit insurance products to New Zealand exporters, particularly for those countries, sectors and contracts that the private sector may not have the capacity or willingness to cover. The products offered by the NZECO currently include: export credit guarantees, short-term trade credit guarantees, general contract bond guarantees, short-term working capital guarantees and US surety bond guarantees. The scope of the NZECO is set out in the Delegation Agreement between the Treasury and the Minister of Finance.

For more information on NZECO, visit: www.nzeco.govt.nz

Retail Deposit Guarantee Scheme (RDGS)

The purpose of the RDGS is to help maintain public confidence in New Zealand's financial system and deposit-taking financial institutions in the wake of the global financial crisis. If an institution that is party to the scheme defaults, eligible depositors will receive their money back. The original scheme expires in October 2010, before which a number of entities are expected to default. Last year, legislation was passed to extend the scheme on a reduced basis to 31 December 2011.

For more information on the RDGS, visit: www.treasury.govt.nz/economy/guarantee/retail

Wholesale Funding Guarantee Facility (WFGF)

The purpose of the WFGF was to facilitate access to wholesale financial markets by financial institutions with substantial New Zealand borrowing and lending operations, in a global environment where international investors remain highly risk averse and where many other governments have offered guarantees on their banks' wholesale debt. The facility enabled banks to issue sovereign-guaranteed debt in international wholesale markets. It is now closed to new issues but there is a tail of outstanding guaranteed issues at risk until their maturity (up to five years).

For more information on the WFGF, visit: www.treasury.govt.nz/economy/guarantee/wholesale

What will we do to achieve this?

NZECO

Capability and systems are in place to:

• market NZECO products to exporters and financial institutions
• assess applications for NZECO guarantees
• service the NZECO Advisory Board that oversees the management of NZECO and makes final recommendations
• make decisions and issue of guarantees under delegation from the Minister of Finance, and
• manage any claims made under the guarantees.

A report back to Cabinet, reviewing the suite of NZECO products, is due in 2011, when funding for some of the existing products ends. This may result in changes in the scope and mandate of the NZECO; these changes could take the form of expansion or contraction of existing services.

RDGS

Capability and systems are in place to:

• process and make decisions on applications for guarantees by eligible banks and non-bank deposit-takers
• monitor entities’ compliance with the guarantee deeds
• assess and collect Crown revenue from guarantee fees
• manage any claims from depositors in a timely and efficient way in the event of a default, and
• report the progress of the scheme, including provisioning in the Crown Financial Statements.

The RDGS operates under legislation that expires in December 2011, with a likely tail of claims management going into 2012.

WFGF

This facility is now closed to new issues, however there will be a tail of outstanding guaranteed issues at risk until their maturity (up to five years). Capability and systems are in place to:

• monitor entities’ compliance with the guarantee deeds
• manage any claims in a timely and efficient way in the event of default on guaranteed debt issues, and
• report on progress with the scheme, including provisioning, in the Crown Financial Statements.
• Unless a bank gets into difficulty or breaches deed provisions, future administration of the WFGF should require minimal resources.

How will we demonstrate success in achieving this?