Wellington - New Zealand will guarantee customer deposits in banks and other financial institutions which opt into a scheme designed to shore up confidence in the current international financial crisis, the government announced on Sunday.

Finance Minister Michael Cullen said, "The scheme will cover all retail deposits of participating New Zealand-registered banks and retail deposits by locals in non-bank deposit-taking entities. This would include building societies, credit unions and deposit-taking finance companies."

He said the opt-in scheme would take the form of a bilateral contractual agreement between the government and the individual institutions which took up the guarantee.

The scheme will be free for institutions with total retail deposits under 5 billion New Zealand dollars (about 2.95 billion US dollars).

Cullen said a fee of 10 basis points a year would be charged on total deposits above that amount, meaning a bank with 20 billion New Zealand dollars in retail deposits would pay 15 million New Zealand dollars in annual fees.

He said the scheme would operate for two years initially, giving time to see how well international financial markets stabilised in the months ahead.

New Zealand and Australia, which recently announced a limited guarantee scheme covering deposits up to 20,000 Australian dollars, were the only developed countries without some form of deposit insurance or guarantee.

"The deposit guarantee is designed to give assurance to New Zealand depositors. The New Zealand banking system remains sound. We want to ensure that ordinary New Zealanders feel that their deposits are safe in the current uncertain international financial market conditions," Cullen said.

The Reserve Bank of New Zealand was expected to release further details of the plan, which Cullen said would not include related-party liabilities, later. (dpa)