South Canterbury Finance guarantee comes in nick of time

The firm credits the government department with "smart thinking" in effectively propping up SCF for the $1.1 billion worth of maturing deposits in the coming six months. SCF faced the sceptre of another credit rating downgrade after it was placed on creditwatch negative.

"If SCF had been downgraded to BB- or worse before it had been accepted, Treasury would have found it much more difficult to justify granting SCF access into the scheme," McDouall Stuart said in its report. "We suspect there were a number of sighs of relief at the news of SCF's acceptance, and not just from those residing in the vicinity of Timaru."

The firm said it was unlikely that the banks will need the extended guarantee, while the PSIS and building societies would probably eschew the scheme now investor confidence was back on the rise.

The strength of the scheme is that it allows a "decent length of time to manage the transition back to an underwrite-free marketplace," the report said.