A "significant blow" to the Southern economy was avoided by having the Government's extended deposit guarantee scheme in place, but the loss of South Canterbury Finance could leave a "lending hole" for several years, Massey University centre of banking studies director David Tripe says.
The Government scheme would pay all South Canterbury investors about $1.6 billion owed, and that would be recirculated in the economy, but dairy farm prices could be adversely affected, Dr Tripe said.
He said South Canterbury got in trouble when it moved away from its historically "cautious" funding of farms, homes and equipment, and went into the riskier second-tier "mezzanine" funding.
It was the riskier funding of property developers which went sour and contributed to much of $200 million of losses on its books and undermining of investor confidence.
"It was very lucky the deposit guarantee scheme was in place, otherwise there could have a been a significant blow to South Canterbury and other areas in the South," Dr Tripe said.
However, to put the $1.6 billion receivership in perspective, Dr Tripe said, at March, the total lending of rural, residential and commercial sectors, for the ANZ, BNZ, National Bank, Westpac and TSB was $250 billion and, according to the Reserve Bank, at July, private sector lending was $290 billion.
"That figure [of South Canterbury at $1.7 billion] is around, or less than, 0.5% of those totals," Dr Tripe said.
He said the funds returned to South Canterbury investors under the guarantee "might act as a stimulus" package to some degree in the South.
However, he emphasised since the 1980s the major banks had shied away from the riskier lending sector, prompting the popularity of finance companies, and there was no-one to fill that gap.
"Who will finance property developers in two years' time?"He said Westpac had stepped into the riskier lending arena since the 1980s, but it had since delivered the most losses of all four big banks.
Dr Tripe expected the receivership and sale of farms by owners under pressure to pay South Canterbury loans could depress land prices.
