$1.6 billion bailout of SCF defended

Finance Minister Bill English is defending the Government's $1.6 billion bailout of South Canterbury Finance depositors, saying despite indications of the company's deterioration, there was no cause to remove it from the Crown's retail deposit guarantee scheme.

As more details emerge on the staggering losses of South Canterbury and how it came to have just $7 million in the bank and no deal on urgent recapitalisation in place by a receivership deadline last week, analysts have been questioning what the Government and Treasury knew of its predicament.

Now, Labour, the Green Party and Maori Party are demanding full disclosure of South Canterbury's situation before the receivership and are asking for a parliamentary inquiry, prompting Mr English to respond that all questions would be answered "in due course".

He said before South Canterbury was admitted to the deposit guarantee scheme in November 2008, it "appeared sound", citing rating agency Standard and Poor's `stable BBB-rating' at the time.

But during 2009, it "became clear that much of this additional lending was not high quality".

"Assessing the potential risk [of South Canterbury] was complicated by related-party lending, generally poor credit and accounting processes, and more recently the departure of most of the senior management," Mr English said in a statement yesterday.

"Despite this deteriorating position, South Canterbury Finance remained in compliance with its Deed of Guarantee, and as such, there was no ability or cause for the Crown to withdraw their guarantee," he said.

Labour's finance spokesman, David Cunliffe, asked whether the cost to taxpayers was "really minimised", what the Government knew, and when, whether South Canterbury should have been in the scheme, whether it breached its guarantee eligibility and what deals had been on the table to save it.

"Serious questions need to be answered so we can ensure this doesn't happen again," he said.

Green Party co-leader Russel Norman said Parliament's finance and expenditure select committee should hold an open inquiry into South Canterbury and the Government's actions.

Maori Party MP Te Ururoa Flavell said Maori were comparing the $1.6 billion with the $1 billion cap put on Treaty of Waitangi settlements 15 years ago to cover the following 10 years.