WELLINGTON (AFP) — New Zealand's government and central bank insisted Monday the banking system remained sound despite the decision to guarantee depositors' funds.
Finance Minister Michael Cullen announced Sunday the guarantee scheme -- similar to one announced by Australia the same day -- would cover depositors in banks, finance companies and other non-bank savings institutions.
The two-year guarantee has a contingent liability of 150 billion dollars (90.3 billion US), but Cullen said Monday he did not expect it to be called on.
"There was the risk that if we were the only country that is not offering a guarantee... people might start transferring funds into Australian-based operations," he told Radio New Zealand.
"The deposit guarantee is designed to give assurance to New Zealand depositors. The New Zealand banking system remains sound," Cullen said.
"We want to ensure that ordinary New Zealanders feel that their deposits are safe in the current uncertain international financial market conditions," Cullen said.
Reserve Bank of New Zealand Governor Alan Bollard also said he did not expect the guarantee scheme would be needed to reimburse depositors.
"We've been talking to the banks and we wanted to be sure there was no worries about depositor confidence in the New Zealand system," Bollard said.
"The likely liability is very, very small," he added on Radio New Zealand.
"The fact is the financial system is stable in New Zealand. It has been for a long time and it doesn't show signs of changing."
New Zealand's four major banks -- all controlled by Australian parents -- confirmed they would take part in the voluntary scheme. They said their balance sheets remained sound, but added the guarantee would give depositors confidence amid the global turmoil.
The action by New Zealand and Australia came as the group of seven rich countries committed to supporting its most important financial institutions and European Union leaders Sunday agreed to put more capital into banks and support interbank lending.
The growing global crisis has slowed lending to a trickle, sent share markets crashing and caused mayhem in currency trading.
Prime Minister Helen Clark also said Monday the government planned to announce a mini-budget in December to cope with the effects of the financial crisis if it returns to power after the November 8 election.
"We're not looking to cut overall government spending but we have to look very carefully where we direct it," Clark said.
New Zealand shares fluctuated during the day as wary investors digested the global action, with the Wellington market's key NZX-50 index closing down 22.92 points, or 0.82 percent, at 2,782.39 on Monday.
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