26 Aug 2009

Banks not expected to take up retail deposit guarantee

7:05 am on 26 August 2009

KPMG says it is unlikely that banks will take advantage of the Government's extension of the retail deposit guarantee.

The guarantee was due to end in October next year, but has been extended until the end of 2011.

Finance Minister Bill English said on Tuesday an early withdrawal of the guarantee could have left finance companies scrambling for deposits and at risk of collapse.

KPMG head of financial services Godfrey Boyce says the Crown is going to have to manage its exposure over next two years and he hopes this is the final extension of the guarantee.

He sees it as being replaced after 2011 by a move towards deposit insurance - to $100,000 level of deposits.

Under the extension, financial institutions will pay a fee for the Government's guarantee depending on their credit rating.

The Government paid $68 million under the existing guarantee to the end of June and received $64 million in fees.