16 Oct 2010

Reserve Bank ranked SCF among riskiest lenders

6:00 am on 16 October 2010

The Reserve Bank ranked South Canterbury Finance as one of the riskiest lenders covered by the Government's retail deposit guarantee scheme almost a year before it failed.

The South-Island based lender was placed in receivership in August, and the Government's subsequent payout cost taxpayers nearly $1.8 billion.

Treasury published hundreds of documents on Friday related to the company's participation in the guarantee scheme, and the events leading up to its demise.

They show that in June 2009 the Crown began thinking that the company was more likely than not to fail.

The documents show South Canterbury took many steps to shore up its balance sheet, including trying to sell assets and improve investment rates.

They also show that South Canterbury Finance found a wealthy new investor who was prepared to lend it $50 million, but the Crown refused to guarantee that investment in the company.

The lender also put forward a recapitalisation proposal to the Government shortly before it went into receivership, which included selling off parts the business to an unnamed buyer

But the Government rejected the idea as too risky and costly.

Treasury says more documents will be released later.

Repayment due

Meanwhile, the trustee of South Canterbury Finance says the 35,000 debenture and deposit holders will be repaid on Wednesday.

The trustee has already repaid about $350 million to bond holders.