5232.0 - Australian National Accounts: Finance and Wealth, Dec 2017 Quality Declaration 
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 29/03/2018   
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SECTORAL ANALYSIS

NON-FINANCIAL CORPORATIONS

During December quarter 2017, private non-financial corporations invested $45.8b in gross fixed capital formation, funded through gross saving of $47.0b and net borrowing (change in net financial position) of $13.9b. This change in financial position was as a result of incurring $25.8b of liabilities, primarily through equity issuance of $30.1b, and loan borrowings of $9.2b. Private non-financial corporations acquired $11.9b in financial assets, with $5.5b increased holdings of equities, $3.2b in deposits, and loan assets of $3.4b.

Graph 1. Private non-financial corporations, Debt to equity ratio

Graph 1 shows Private non-financial corporations, Debt to equity ratio



The private non-financial corporations debt to equity ratio adjusted for price changes was 0.69 in December quarter 2017. This ratio has been trending downwards for the last 7 quarters, indicating that private non-financial corporations have a declining ‘real’ level of debt to equity. This is also illustrated in Graph 2 which shows that non-financial corporations sourced more funds through equity markets rather than debt borrowing in recent quarters.

On a non-adjusted basis, the debt to equity ratio was 0.53 in December quarter 2017, decreasing from September quarter 2017 ratio of 0.57.

Graph 2. Non-financial Corporations Transactions in Equity and Debt

Graph 2 shows Non-financial Corporations Transactions in Equities and Debt



FINANCIAL CORPORATIONS

FINANCIAL ASSETS AND LIABILITIES OF FINANCIAL CORPORATIONS

Outstanding at end
Transactions during
Other changes during
Outstanding at end
Sep Qtr 2017
Dec Qtr 2017
Dec Qtr 2017
Dec Qtr 2017
$b
$b
$b
$b

Assets of financial corporations
Central bank
176.4
13.2
0.9
190.5
Banks
3 543.7
-3.7
25.9
3 565.8
Other depository corporations
229.0
2.4
-0.4
231.0
Pension funds
2 100.5
26.1
57.4
2 184.0
Life insurance corporations
275.8
1.2
9.9
286.9
Non-life insurance corporations
214.1
-0.6
3.6
217.1
Money market investment funds
37.4
-1.4
0.0
36.0
Non-money market investment funds
839.1
1.6
33.7
874.4
Central borrowing authorities
351.8
6.9
0.3
359.0
Securitisers
425.5
24.0
0.0
449.5
Other financial corporations
138.8
1.1
3.4
143.4
Liabilities of financial corporations
Central bank
176.1
12.0
1.0
189.2
Banks
3 721.7
-5.9
26.7
3 742.6
Other depository corporations
221.2
-0.3
-0.8
220.1
Pension funds
2 262.3
26.0
57.4
2 345.7
Life insurance corporations
281.8
1.2
9.3
292.3
Non-life insurance corporations
227.1
-0.7
7.0
233.3
Money market investment funds
37.4
-1.1
-0.3
36.0
Non-money market investment funds
928.0
8.8
30.8
967.7
Central borrowing authorities
385.7
5.7
1.2
392.5
Securitisers
424.8
28.2
-4.0
449.0
Other financial corporations
101.5
1.8
2.4
105.8


Financial corporations increased their asset holdings by $51.2b, driven by acquisition of loan assets, purchase of equity, and deposits during December quarter 2017. This was partially offset by settlement of derivative asset contracts.

Financial corporations incurred $56.0b of liabilities, driven by deposit acceptances, and insurance technical reserves, partially offset by settlement of derivative liability contracts.

Graph 3. Banks liabilities as a proportion of their financial assets

Graph 3 shows Banks liabilities as a proportion of their financial assets



Banks’ funding through deposits increased to 60.0%, which is the highest proportion seen in the time series and has been slowly increasing since March quarter 2015. The proportion of short term debt securities as a source of funding decreased this quarter to 9.3%, returning to the funding proportion seen in June quarter 2017. The proportion of funding from equities and long term debt securities remained unchanged this quarter.

Graph 4. Proportion of total household loans by type of financial lending institution

Graph 4 shows Proportion of total household loans by type of financial lending institution


The proportion of total household loans borrowed from the financial sector changed composition this quarter, driven by an increase in securitisers loan assets to $434.0b at 31 December 2017. The increase in securitisers loan assets is reflective of the combined effect of the changes in regulatory requirements and the favourable changes in the bond market for securitisers. Authorised Deposit-taking Institutions (ADIs) internal residential mortgage backed securities increased this quarter after a short period of decreased activity. The increase was primarily due to the Australia Prudential Regulation Authority announcing an upcoming increase of the committed liquidity facility, effective as of 1 January 2018. This change is to maintain the ability for ADIs to meet their high-quality liquid asset targets through participation in repurchase agreements with the Reserve Bank of Australia. Internal residential mortgage backed securities, as treated by the ABS, moves household borrowing from banks, as initially reported, to household borrowing from securitisers.

Market securitisation also increased this quarter, due to increased supply, particularly of asset backed securities with higher yields, following strong investor demand both domestically and offshore.


Pension funds, life insurance corporations and non-money market financial investment funds

Graph 5. Financial assets of pension funds

Graph 5 shows Financial assets of pension funds



Graph 5 illustrates the long-term trend in the financial asset composition of pension funds. Pension funds' investment into shares and other equity has continued to grow over time, and makes up the majority of their investment.

Pension funds increased their holdings of shares and other equity by 5.4% during December quarter 2017. Pension funds held 70.9% of their financial assets in shares and other equity. Non-money market financial investment fund shares and other equity contributed the largest share of this investment at 39.1%. Non-money market financial investment fund shares and other equity held by pension funds includes investments in units in retail and wholesale trusts. These trusts invest into both debt and equity assets, with investment into debt securities being more than pension funds (Graph 6), illustrating pension funds indirect exposure via these trusts into debt securities.


Graph 6. Financial assets of Pension funds, Life insurance corporations and Non-money market investment funds

Graph 6. Shows Financial assets of Pension funds, Life insurance corporations and Non-money market investment funds


Non-money market financial investment funds held $564.9b in shares and other equity (64.6% of their financial assets) and $240.0b in debt securities (27.5% of their financial assets).

Life insurance corporations held $230.0b in shares and other equity (80.2% of their financial assets), a increase of 0.8 percentage points from the September quarter 2017. Life insurance corporations predominately hold shares and other equities in non-money market financial investment funds and other private non-financial corporations.

Household sector claims on the net equity in reserves of pension funds and of life insurance corporations were $2,304.8b and $111.7b respectively, while shareholders of life insurance corporations had claims of $33.4b. Of the total $2,345.7b assets of pension funds, 47.3% was directly invested in financial markets, 46.8% was invested through investment managers, and 5.9% was invested directly in life insurance corporations.

Diagram: Financial claims between households, pension funds, life insurance corporations, rest of world and investment managers at end of quarter




GENERAL GOVERNMENT

General government invested $16.8b during December quarter 2017, state and local general government accounting for the majority of this. State and local general government funded their gross fixed capital formation mainly through gross saving of $10.0b, while national general government funded their investment both through gross saving, $2.5b and borrowing $4.3b.

Graph 7. Change in net financial position, General government

Graph 7 shows Change in net financial position, General government


National General Government

The net change in financial position (net borrowing) for national general government was -$4.3b in December quarter 2017. This was made up of national general government incurring $10.2b of liabilities, largely driven by the issuance of bonds. National general government also acquired $5.9b of financial assets. This acquisition of financial assets was through deposits with the central bank and the purchase of equity securities. These were offset by a reduction in holdings of one name paper issued by banks.

National general government had total financial assets of $444.7b and total liabilities of $873.5b at the end of the December quarter 2017.

State and Local General Government

The net change in financial position (net lending) of state and local general government was $0.2b during December quarter 2017. State and local general government acquired $3.0b of financial assets, driven by loans and deposits. State and local general government also incurred a net $2.8b of liabilities, this incurrence of liabilities was driven by loans.

State and local general government had total financial assets of $554.8b and total liabilities of $335.0b at the end of December quarter 2017.

Graph 8. Net issue of debt securities, National general government and Central Borrowing Authorities

Graph 8 shows Net issue of debt securities, National general government and Central Borrowing Authorities



Graph 8 illustrates the quarterly net issuance of debt securities for the operations of the national and state and local general governments. During December quarter 2017, the Commonwealth government issued $15.1b of bonds. For state and local general government, the central borrowing authorities are responsible for the issuing of debt. The central borrowing authorities issued $2.9b of bonds during December quarter 2017.

Central Borrowing Authorities

Central borrowing authorities acquired $6.9b of financial assets, driven by loans. Central borrowing authorities incurred $5.7b of liabilities, this was driven by bond issuances and loans. At the end of December quarter 2017, central borrowing authorities had total financial assets of $359.0b and total liabilities of $392.5b.


REST OF WORLD

Australia’s net international investment position at the end of December quarter 2017 was a net foreign liability of $986.2b (net financial asset position of the rest of world), an increase of $27.8b from the previous quarter with net transactions of $14.0b (net change in financial position) and valuation increases of $13.8b.

Non-residents investment in Australia recorded transactions of $34.2b and valuation increases of $73.3b, which resulted in a increase of their holdings of Australian assets to $3,324.6b during December quarter 2017. The positive transactions were driven by shares and other equities, deposits and bonds, offset by settlement of derivatives. The valuation increases were predominantly driven by holdings of shares and other equities.

Graph 9. Long term debt securities, issued by national general government held by rest of world

Graph 9 shows debt securities, issued by national general government held by rest of w



Graph 9 illustrates the non-resident ownership of national general government bonds as a share of total issuance has increased this quarter from 55% to 55.4%. Non-resident investors have resumed increasing their level of investment in national general government bonds from previous quarters of flat growth.

Non-residents increased their liabilities to Australia, with net transactions of $20.2b and valuation increases of $59.4b during the December quarter 2017. Australian residents now hold assets of $2,338.4b from rest of world. The positive transactions were driven by issuing shares and other equities and accepting deposits. These were partially offset by settlement of derivatives contracts. The valuation increases were driven by unlisted equities and the derivatives market.