FINANCIAL REPORT AND ACCOUNTS 2011 - States Assembly

NOTES TO THE ACCOUNTSNOTE 26: GUARANTEES NOT RECOGNISED ON THE BALANCE SHEET9.26 Note 26: Guarantees not Recognised on the Balance SheetJersey New Waterworks CompanyThe States of Jersey have provided a guarantee to HSBC Plc up to a maximum of £16.2 million (2010: £16.2million) for amounts outstanding in respect of a loan to the Jersey New Waterworks Company Limited. Thisguarantee was first provided in its current form in 1999, and historically no amounts have been drawn downin relation to it. As at the year end the amount guaranteed was £14.9 million (2010: £14.9 million). Due tothe stability of the company and the resulting low likelihood of default, the current value of total expectedoutflows under this guarantee will be very low and so no amount is recognised on the balance sheet.Jersey Arts TrustThe States of Jersey has provided a guarantee to Barclays Bank Plc for £3.8 million (2010: £4.1 million)for amounts outstanding in respect of a loan to the Jersey Arts Trust in connection with the renovation ofthe Opera House (as approved by P167/1998). In the same proposition the States increased the fundingprovided to the Trust to allow them to cover the loan repayments. Without this funding it is unlikely that theTrust could meet the repayments, and so the States would become liable under the guarantee. However, asthere are no plans to reduce the funding at present, no amounts are recognised on the States balance sheet.Student Loan GuaranteesFaced with increasing tuition fees and increased numbers of local young people seeking entry to highereducation, the Education, Sport and Culture Department has worked with local banks to offer a loan facilityvalued at up to £1,500 per year to all students attending programmes of higher education in the UK. Theintroduction of this facility helps to spread the costs of tuition by enabling the student to take responsibilityfor part of the costs. The interest rate was initially set at 1% above base rate and young people taking up theoffer commence repayments one year after graduation.The States of Jersey has given guarantees against these loans to the banks. As at the year end the value ofthe loans amounted to £1.7 million (2010: £1.3 million).There is no experience of default in the Jersey Scheme, and, whilst not directly comparable, the equivalentscheme in the UK experiences defaults on approximately 1% of the total balance each year. Using asimplified analysis of the guarantees this would suggest that the current value of total expected outflowsunder the scheme will be very low (less than £50,000) and so no amount is recognised on the balance sheetfor these guarantees.Small Firms Loan Guarantee SchemeThe Small Firms Loan Guarantee Scheme (SFLGS) commenced in January 2007. The Scheme approveslending by the Economic Development Department (by way of loan guarantees of up to £2 million), consistingof four separate £500,000 agreements with four banks. The underwriting of bank loans taken out by localbusinesses aims to encourage entrepreneurial activity in the Island. The main principle of the SFLGS is toprovide security to lenders in the cases where would-be entrepreneurs or growing businesses do not havethe necessary security to obtain a business loan.As at the year end the total value of the loans guaranteed amounted to £525,547 (2010: £686,203), ofwhich the States has exposure to 75% in accordance with the terms of the Scheme, giving a total exposure132