Mr Smith told the Otago Daily Times it would cost SBS up to $5 million a year to be part of the new scheme.
"We have to decide whether that cost is worth paying, or whether our customers have sufficient faith in us not to be concerned.
"That's a decision we will have to make and, to be fair, we haven't had time to consider that."
ABN Amro Craigs broker Chris Timms said finance companies had been singled out by changes to the Government's scheme, with costs reflecting the risk in the sector.
He estimated the changes to the scheme would cost a prominent financial company more than $20 million a year if it decided to take part.
The new scheme is scheduled to start on October 12, 2010.
Finance Minister Bill English had earlier told the Otago Daily Times he wanted finance companies to get organised before the previous guarantee scheme ran out.
Yesterday, Mr English extended the scheme.
But he made some changes that may not please the many finance companies within it.
Mr Smith said the higher costs for finance companies reflected their higher risk.
"Really, in the last four years we have seen the collapse of a significant number of finance companies. There is an underlying risk in them.
"I guess that this is the Reserve Bank's assessment of that risk.
"Given the performance of those companies in the last few years, that's the risk profile they get," he said.
The main changes are:
• Fees paid by participating institutions will be changed to reflect their risk profile. These fees have been set by Mr English. They are intended to approximately match longer-term normal market pricing. Thresholds in the current scheme will be discontinued, and the fees will apply to all funds in the new scheme.
• Eligible bank deposits will be covered up to a maximum $500,000 per depositor per institution, and eligible non-bank deposits to a maximum $250,000 per depositor per institution. The maximum in the current scheme is $1 million per depositor per institution.
• Deposit-taking institutions with a credit rating of BB or higher can apply to participate in the extended scheme. Institutions with a lower credit rating will not be eligible, despite being included in the current scheme.
• Collective investment schemes (CIS) will not be eligible for the new scheme.
Mr Timms believed South Canterbury Finance and Marac would qualify for the new scheme, being finance companies with a BB rating or higher.
However, as both of those were at the bottom end of Mr English's new list, they were paying 1.5% interest on their deposits to the Government to be part of the scheme.
Another finance company, UDC, was in the top end of the credit ratings and would pay a lot less.
Where it could be seen as unfair was that SBS with its BBB+ rating paid 0.25% to the Government and a finance company with the equivalent rating would pay 0.6%.
"If the market improves sufficiently, some finance companies may decide not to be part of the scheme because of the costs. It may not be an issue if the financial climate improves," Mr Timms said.
The Reserve Bank's prudential regulations require that from next year, any financial institution with more than $20 million in deposits needs to have a credit rating.
Mr Smith estimated a credit rating cost between $30,000 to $40,000 annually.
While that was not much for a $60 billion bank, it was a significant amount for a smaller operation.
"That's what Bill English is saying: if you are not big enough to have a credit rating, you are not big enough to take deposits from the public."
Asked about the reduction in cover for deposits from $1 million, Mr Smith said it would mean some SBS clients would spread their money around other institutions.
He saw that as unfair, because SBS wanted customers to keep their money with the Invercargill-based bank.
The fact that everyone was paying to be part of the scheme was equitable, he said.
