5232.0 - Australian National Accounts: Finance and Wealth, Sep 2017 Quality Declaration 
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 01/02/2018   
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SECTORAL ANALYSIS

NON-FINANCIAL CORPORATIONS

During September quarter 2017, private non-financial corporations invested $43.7b in gross fixed capital formation, funded through gross saving (net saving plus consumption of fixed capital) of $24.0b and net borrowing (change in net financial position) of $7.0b. Net borrowing was as a result of incurring $35.9b of liabilities, primarily through equity issuance of $30.7b, and loan borrowings of $6.3b. Private non-financial corporations acquired $28.9b in financial assets, which was driven by other accounts receivable ($9.2b), lending to the rest of world ($6.3b), and deposits ($6.3b).

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

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



The debt to equity ratio provides an assessment of a corporation's financial leverage calculated as [(total liabilities less equity) / equity]. The ratio indicates in what proportion the corporation is using equity and debt to finance its activities. During periods of buoyant income and stable interest rates, a leveraged corporation stands to make a substantial return on equity compared with an un-leveraged corporation. However, during more uncertain times a leveraged corporation is at risk from fluctuations in earnings and / or rising interest rates, such that debt servicing costs may not be met. The ratios presented here are averages for all private non-financial corporations.

The private non-financial corporations debt to equity ratio was 0.57 in September quarter 2017, decreasing slightly from June quarter 2017 ratio of 0.58.

In contrast, the adjusted debt to equity ratio, adjusted for price changes was 0.69 in September quarter 2017. This ratio has been trending downwards for the last 6 quarters, indicating that private non-financial corporations have a declining ‘real’ level of debt to equity.


FINANCIAL CORPORATIONS

FINANCIAL ASSETS AND LIABILITIES OF FINANCIAL CORPORATIONS

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

Assets of financial corporations
Central bank
200.5
-24.1
0.1
176.5
Banks
3 571.1
-35.1
6.7
3 542.7
Other depository corporations
227.5
1.3
-
228.8
Pension funds
2 242.0
21.4
-6.5
2 256.9
Life insurance corporations
274.5
0.4
0.1
275.0
Non-life insurance corporations
212.7
0.1
-0.3
212.5
Money market investment funds
40.8
-3.4
-
37.4
Non-money market investment funds
830.2
7.6
-5.4
832.4
Central borrowing authorities
357.8
-6.1
0.1
351.8
Securitisers
435.9
-10.4
0.1
425.5
Other financial corporations
144.0
1.2
1.2
146.3
Liabilities of financial corporations
Central bank
201.1
-24.7
-0.2
176.1
Banks
3 733.1
-17.4
4.4
3 720.2
Other depository corporations
218.3
6.5
-0.1
224.7
Pension funds
2 398.7
25.9
-6.8
2 417.8
Life insurance corporations
281.9
-
-1.0
281.0
Non-life insurance corporations
230.9
2.6
-4.9
228.6
Money market investment funds
40.8
-2.4
-1.0
37.4
Non-money market investment funds
919.5
14.7
-3.4
930.8
Central borrowing authorities
389.5
-1.9
-2.0
385.7
Securitisers
429.2
-14.3
5.4
420.3
Other financial corporations
103.1
0.7
-2.2
101.7

During September quarter 2017 financial corporations decreased their asset holdings by $19.0b, driven by settlements of derivative contracts (-$25.2b), and maturities of short term (-$15.4b) and long term debt securities (-$15.1b). These were partially offset by purchases of equity ($33.2b) and loan issuance ($9.9b).

Financial corporations incurred $17.9b of liabilities, driven by insurance technical reserves ($27.4b), and issuance of short term debt securities ($16.6b), and partially offset by maturity of derivative contracts ($31.1b).

Graph 2. Banks liabilities as a proportion of their financial assets

Graph 2 shows Banks liabilities as a proportion of their financial assets



Banks’ funding of their total financial assets was relatively unchanged this quarter. Funding through deposits increased to 59.7%, which is the highest proportion seen in the time series. The proportion of short term debt securities as a source of funding increased this quarter to 9.7% a proportion not seen since December quarter 2015, while the proportion of funding from equities increased slightly to 14.9%.

Financial asset portfolio of pension funds, life insurance corporations and non-money market investment funds at end of quarter

Graph 3. Financial assets of Pension funds, Life insurance corporations and Non-money market investment funds

Graph 3 shows Financial assets of Pension funds, Life insurance corporations and Non-money market investment funds



Graph 3 illustrates the financial asset mix at the end of September quarter 2017 of pension funds, life insurance corporations and non-money market investment funds. Overall, these three institutional sectors invest predominately in equity assets.

During September quarter 2017, pension funds increased shares and other equity holdings by 2.0%. At the end of September quarter 2017, pension funds held $1,468.8b in shares and other equity (65.1% of their financial assets), of which $1,197.2b were issued by domestic sectors and $271.6b were issued by the rest of world. Of the domestic sectors, non-money market financial investment funds shares contributed the largest share at 39%.

At the end of September quarter 2017, life insurance corporations held $218.2b in shares and other equity (79.3% of their financial assets), a decrease of 0.1 percentage point from the June quarter 2017. Life insurance corporations predominately hold shares and other equities in non-money market financial investment funds ($129.5b) and other private non-financial corporations ($53.7b).

Financial claims between the household sector, pension funds, life insurance corporations, rest of world and investment managers at end of quarter

At the end of September quarter 2017 the household sector claims on the net equity in reserves of pension funds and of life insurance corporations were $2,376.6b and $106.4b respectively, while shareholders of life insurance corporations had claims of $29.2b. Of the total $2,417.8b assets of pension funds, 43.4% was invested through investment managers, 51.0% was directly invested in financial markets and 5.6% 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

During September quarter 2017, general government invested $13.6b in gross fixed capital formation, with state and local general government accounting for the majority of this investment ($9.6b). National general government invested $3.9b in gross fixed capital formation. State and local general government and national general government recorded gross saving of $7.5b and -$5.2b respectively during the quarter. State and local general government funded their gross fixed capital formation by borrowing, while national general government funded their gross fixed capital formation by disposal of its financial assets in September quarter 2017.

Graph 4. Change in net financial position, General government

Graph 4 shows Change in net financial position, General government



National General Government

During September quarter 2017, the net change in financial position for national general government was -$10.3b. This was made up of national general government disposing of $13.1b of financial assets driven by the withdrawal of deposits with the central bank ($23.4b).

At the end of the September quarter 2017, national general government had total financial assets of $433.1b and total liabilities of $857.9b.

State and Local General Government

During September quarter 2017, the net change in financial position of state and local general government was -$5.4b. State and local general government acquired $0.5b of financial assets, while incurring a net $5.9b of liabilities. State and local general government's net incurrence of liabilities was driven by long-term loans and placements ($2.3b) and accounts payable ($2.2b). At the end of September quarter 2017, state and local general government had total financial assets of $549.8b and total liabilities of $335.7b.

Graph 5. Net issue of debt securities, National general government and Central Borrowing Authorities

Graph 5 shows Net issue of debt securities, National general government and Central Borrowing Authorities



Graph 5 illustrates the quarterly net issuance of debt securities for the operations of the national and state and local general governments. During September quarter 2017, the Commonwealth government issued $1.0b of one name paper and $0.7b of bonds. For state and local general government, the central borrowing authorities are responsible for the issuance of their debt. During September quarter 2017, the central borrowing authorities repaid $0.4b of bonds and issued $0.03b one name paper.

During September quarter 2017, central borrowing authorities disposed of $6.1b of financial assets, driven by the withdrawal of deposits ($3.5b). Central borrowing authorities repaid $1.9b of liabilities, this was driven by settlement of accounts payable ($3.1b), partly offset by issuance of short term loans and placements ($2.6b). At the end of September quarter 2017, central borrowing authorities had total financial assets of $351.8b and total liabilities of $385.7b.


REST OF WORLD

Australia’s net international investment position at the end of September quarter 2017 was a net foreign liability of $958.8b (net financial asset position of the rest of world), an increase of $13.2b from the previous quarter with net transactions of $14.2b (net change in financial position) and valuation decreases of $1.0b.

Non-residents investment in Australia recorded transactions of -$0.8b and valuation increases of $0.2b, which resulted in a decrease of their holdings of Australian assets to $3,219.6b during September quarter 2017. The negative transactions were driven by the settlement of derivative contracts ($31.1b) and disposal of deposits ($11.6b). These were offset by acquisition of equities ($24.7b). The valuation increases were predominantly driven by holding of derivative contracts of $8.3b.

During September quarter 2017, non-residents decreased their liabilities to Australia, with net transactions of -$15.1b and valuation increase of $1.2b, resulting in $2,260.8b of rest of world assets held by Australian residents. The negative transactions were driven by the maturity of derivative contracts ($25.5b) and one name paper ($12.1b), offset by shares and equities ($31.4b) and accounts payable ($11.7b). The valuations were driven by the derivatives market ($7.3b) and bonds ($5.7b).