CBS Canterbury applies for extended Crown guarantee (Update 1)

By Gareth Vaughan Sharemarket listed CBS Canterbury wants an extended Crown Retail Deposit Guarantee and is seeking changes to its NZ$30 million loan facility with Westpac to reduce its complete reliance on funding from retail investors. (Updated to include interview with CBS Canterbury CEO Bryan Inch, bank facility detail and credit rating details). Chief executive Bryan Inch told interest.co.nz the building society expected to gain Treasury approval and be included in the extended Crown Retail Deposit Guarantee. CBS is covered by the existing guarantee which runs out on October 12 this year. The group has a BB+ credit rating from Standard & Poor’s, the credit rating agency’s highest speculative grade, or non investment grade, rating. Institutions require a credit rating of at least BB to qualify for the extended guarantee scheme. Meanwhile CBS Canterbury, with its bank Westpac, is reviewing its NZ$30 million undrawn standby bank loan. The review is considering the relevance of the facility and its covenants given current market conditions. The loan has never been drawn and is not intended to be. Inch said it was a “necessary evil” given CBS Canterbury’s 100% retail funding base. Although the group had weathered the recession well and was well positioned for growth, Inch noted it was in a “very competitive” retail market which it relied on for all its funding. “If we are to maximise the opportunity in terms of growth, plus ride through what I think is still a distorted market due to the retail guarantee, we’re better to have a drawable wholesale line that will reduce the dependence solely on retail,” Inch said. He expected settlement of the bank facility within three to four months. The building society, due to reveal its March year results within the next couple of months, had achieved “reasonable” growth in deposits from the NZ$465.95 million total at September 30 last year. And Inch said reinvestment rates had been maintained near 90%. Here's CBS Canterbury's full statement below:

CBS Canterbury has today confirmed that it has made application to The Treasury for the extended Crown Retail Deposit Guarantee. CBS Canterbury is already covered by the existing guarantee through until 12 October 2010, however the extended guarantee would cover retail depositors up to $250k through until 31 December 2011. The organisation is also reviewing with its bankers the suitability of the banking arrangements relating to its undrawn standby facility, the relevance of the current facility and the covenants in that facility, given the current market conditions. The current standby facility has never been drawn on and not ever intended to be drawn. To that end and in recognition of the significant growth opportunities available to CBS Canterbury in the Canterbury market, discussions are underway to develop a more flexible longer term wholesale funding facility, which will add more value to the business, diversify the funding base, and which may replace the standby facility. Any final changes to facilities will be subject to further announcement as appropriate. CBS Canterbury can trace its roots back 135 years and is now strongly positioned to build market share based on its strong local identity and unique point of difference as “Canterbury’s” building society. Currently the Society has assets of approximately $540 million with 70 staff operating out of branches in Christchurch, Rangiora and Ashburton. CBS Canterbury’s key strength is on providing loans secured by first ranking mortgages over residential, commercial and farming property (split: 59% residential, 34% commercial and 7% farming sector). This is complimented with a wide range of general banking accounts and services aimed at increasing the wealth of CBS Canterbury customers. With an 88% reinvestment rate for deposits by customers, CBS Canterbury is well supported and extremely competitive with major banks. CBS Canterbury is proud of the quality of its loan book – showing steady growth during the past year to now exceed $440m with the majority of this growth being in the residential home loan sector. CBS Canterbury is also the only publicly listed Building Society, being on the NZAX market of the New Zealand Stock Exchange.