Treasury cuts wholesale guarantee fee again to encourage bond issue

Treasury has announced a second cut this year in the fee it charges banks to use the government's guarantee for wholesale bond issues. This cuts the fee for a AA- or better rated bank to issue a non NZ dollar bond to 70 basis points from 90 basis points. It was first cut in January from the original fee of 140 basis points set in November. New Zealand's banks have yet to issue a guaranteed wholesale bond offshore, although ANZ National is understood to be marketing a US$500 million 3 year issue at the moment. A cut in the fee would further encourage ANZ National and others to issue these bonds. The Reserve Bank has been encouraging banks to lengthen the maturities for their NZ$100 billion of offshore borrowing to reduce New Zealand's vulnerability to a freeze on global financial markets, given more than a quarter of this debt has to be rolled over every 90 days, according to this set of RBNZ data. "The Wholesale Funding Guarantee Scheme exists to enable New Zealand financial institutions to access international markets in a risk-averse global environment where many other governments have offered guarantees on their banks' wholesale debt," Treasury said in announcing the fee cut. "The downwards revision is part of a regular review to take into account the changing market environment," it said.