About us
15. Provisions
| Group and Parent | |||
| Sold mortgage provisions ($m) |
Lease commitments provisions ($m) |
Total (4m) | |
| At 1 July 2007 | 12 | 1 | 12 |
| Release of unused amounts | (2) | 0 | (2) |
| Utilised | (1) | 0 | (1) |
| Discount rate adjustment | 1 | 1 | 1 |
| At 30 June 2007 | 10 | 2 | 10 |
| Current 2008 | 2 | 2 | 4 |
| Non-current 2008 | 8 | 0 | 8 |
| 10 | 2 | 12 | |
| Current 2007 | 3 | 1 | 4 |
| Non-current 2007 | 9 | 0 | 9 |
| 12 | 1 | 13 | |
Mortgage sale provision
As part of the agreements to sell mortgages to Westpac Banking Corporation in 1996, 1998 and 1999, the Corporation guaranteed a certain number of those mortgages. The mortgage sale provision is an amount, actuarially assessed, likely to be payable under that insurance. The actuarial assessment was made, as at 30 June 2008, by John Errington and Andrea Gluyas, of PricewaterhouseCoopers, who are both Fellows of the New Zealand Society of Actuaries and of the Institute of Actuaries of Australia. The value of the provision depends on various factors, some of which are the value of loans expected to default, the number of active mortgages, and the average loan balance. The Corporation's liability under this guarantee is currently estimated to continue until 2022 (being the latest repayment date of the guaranteed mortgages). The maximum combined liability for the Corporation under the guarantee is $109 million (2007, $112 million), being the outstanding amount owed under the guaranteed mortgages.
As part of the agreement to sell a further group of mortgages to Westpac Banking Corporation in 1998, the Corporation guaranteed all of these mortgages. However, to minimise its guarantee obligations under the sale, the Corporation obtained an indemnity on losses of more than $23.3 million from Raukura Whare Limited (a wholly owned subsidiary of Waikato Raupatu Lands Trust). The Raukura Whare Limited indemnity does not, however, relieve the Corporation from its primary liability to Westpac Banking Corporation under the guarantee. The Trustee of the Waikato Raupatu Lands Trust has guaranteed (capped at $20 million) Raukura Whare Limited's liability to the Corporation. The maximum liability for the Corporation under the above guarantee is $38 million (2007, $41 million), being the outstanding amount owed under the guaranteed mortgages.
a. Westpac Banking Corporation was sold approximately $196 million of mortgages in September 1998. The Crown has indemnified HNZC for its payment obligations in respect of this sale. In particular, HNZC has insured the purchaser against credit losses under insurance agreements and for interest rate movements under an interest rate adjustment agreement. These indemnities last for as long as the underlying loan remains outstanding. The Crown's exposure under this transaction is approximately $20 million and the Crown's current risk for the same loan sales is $15 million. A provision of $0.35 million has been made.
b. Westpac Banking Corporation was sold approximately $98 million of mortgages in December 1998. HNZC has fully insured the purchaser for any credit losses on the portfolio, with the Crown guaranteeing this obligation. These indemnities last for as long as the underlying loan remains outstanding. The Crown's exposure under this transaction is approximately $38 million and the Crown's current risk for the same loan sales is $38 million. A provision of $7.7 million has been made.
c. Westpac Banking Corporation was sold approximately $34.5 million of mortgages in November 1999. HNZC has fully insured the purchaser for any credit losses on the portfolio, with the Crown guaranteeing this obligation. These indemnities last for as long as the underlying loan remains outstanding. The Crown's exposure under this transaction is approximately $8.8 million and the Crown's current risk for the same loan sales is $5.8 million. A provison of $0.9 million has been made.
d. Westpac Banking Corporation was sold approximately $250 million of mortgages in 1996. HNZC has fully insured the purchaser for any credit losses on the portfolio, with the Crown guaranteeing this obligation. These indemnities last for as long as the underlying loan remains outstanding. The Crown's exposure under this transaction is approximately $80 million and the Crown's current risk for the same loan sales is $21 million. A provision of $0.76 million has been made.
As part of the Homebuy Programme, the Corporation agreed with PMI Mortgage Insurance Limited (PMI) to indemnify PMI for any claims made with respect to lenders mortgage insurance provided by PMI at the Corporation's request. At 30 June 2008, the Corporation had a maximum exposure under this indemnity of $10 million (2007, $10 million).
Lease commitment provision
In the past the Corporation held a number of accommodation leases which had become surplus to requirements.
There is only one lease remaining in this category, at 61-63 Taranaki Street, Wellington, which expires in December 2008. The cost of terminating this lease commitment has been estimated at 30 June 2008. The property is currently subleased and will be until termination. The value of each payment is dependent on the net amount of rent. The last lease payment will be made on 31 December 2008. A make good provision of $685,000 has been made along with provision for lease commitments of $574,000.
Housing New Zealand has 44 office leases to meet current office accommodation requirements of its neighbourhood units and service centres. Over the past nine years the Corporation has exited 24 leased neighbourhood unit offices and a sum of $86,000 has been paid in make good contributions, surrender fees and actual reinstatement costs. A make good provision of $550,000 has therefore been included, for the first time this year, to meet any liability in respect of these 44 head leases for neighbourhood unit offices.
