New funding is sought for debt repayment holidays

Monday May 18, 2020 Written by Published in Economy
Mark Brown. 20031816 Mark Brown. 20031816

Government in talks with New Zealand about under-writing two-year loan repayment holidays for small tourism operators.

The government is discussing two-year debt repayment holidays for small tourist accommodation owners, but it needs buy-in from banks here and potentially, the New Zealand Reserve Bank.

Finance Minister Mark Brown said the government was already in talks with lenders to help fund its multimillion dollar economic support package – but more innovative solutions are also required.

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The three-month repayment holidays that banks were offering to some property-owners didn’t go far enough, he told Newsroom.co.nz yesterday. Protecting the investments of the home-owners was an issue of economic sovereignty.

Brown said tourist accommodation in Cook Islands was locally-owned, but he worried that cash-strapped local owners’ debt might be sold off to overseas owners.

“We may have debt collateral being sold off only to people who can afford it, which may be more overseas owners coming into the country, which we don't want.”

So the government is in talks with New Zealand about collaborating with its Reserve Bank. With no central bank of its own and an inability to print money or issue bonds, the government could potentially work with the central bank on the creation of a special purpose vehicle, Newroom.co.nz reported.

Such an arrangement, Brown said, could provide a broad repayment holiday for owners for up to two years while still meeting the needs of the banks.

“The government is very keen to look at options as to how we can preserve that capital and how we can hibernate that debt, and put us into a holding pattern really while we see what happens around the rest of the world getting through this virus.”

Government has been keen to ensure locals have access to debt relief, with Brown going so far as to announce three month repayment holidays in the first phase of its economic support package.

But the overseas-owned banks, BSP and ANZ, have reluctant to offer the repayment holidays unconditionally, preferring to offer tailored solutions to address specific customers’ specific challenges.

This solution from Brown might get around that problem, with the New Zealand Reserve Bank funding the repayment holidays, instead of asking the commercial banks to do it.

The Cook Islands Banker’s Association had earlier reacted cautiously to calls from resort owner Tata Crocombe for the NZ Reserve Bank to be allowed to advance money to the four Cook Islands banks. He said they could then offer a wider range of services to the country’s struggling businesses on lower interest rates and with better terms and conditions.

Earlier this month, Association chairman David Street told Cook Islands News that integration into the New Zealand payment system would be a decision for the Cook Islands’ government and the regulator. “At present the Cook Islands banking sector is strong, resilient and stable and well placed to meet the challenges presented by the current Covid-19.”

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