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1301.0 - Year Book Australia, 2009–10  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 04/06/2010   
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Contents >> Financial system >> Financial enterprises

FINANCIAL ENTERPRISES

Financial enterprises are institutions which engage in acquiring financial assets and incurring liabilities, for example, by taking deposits, borrowing and lending, providing superannuation, supplying all types of insurance cover, leasing, and investing in financial assets.

For national accounting purposes, financial enterprises are grouped into six sectors: Depository corporations; Life insurance corporations; Pension funds; Other insurance corporations; Central borrowing authorities; and Financial intermediaries n.e.c..

Depository corporations - are those included in the Reserve Bank of Australia's broad money measure (see Money supply measures). This includes: the Reserve Bank; authorised depository institutions supervised by APRA, including banks, building societies and credit unions; non-supervised depository corporations registered under the Financial Statistics (Collection of Data) Act 2001 (Cwlth), including merchant banks, pastoral finance companies, finance companies and general financiers; and cash management trusts.

Life insurance corporations - cover the statutory and shareholders' funds of life insurance companies, and similar activities undertaken by friendly societies and long-service-leave boards.

Pension funds - cover separately constituted superannuation funds.

Other insurance corporations - cover health, export and general insurance companies.

Central borrowing authorities - are corporations set up by state and territory governments to provide financial liability and asset management services for those governments.

Financial intermediaries n.e.c. - cover common funds, mortgage, fixed interest and equity unit trusts, issuers of asset-backed securities, economic development corporations and cooperative housing societies.

Table 27.2 shows the relative size of these sectors in terms of their financial assets. This table has been compiled on a consolidated basis, that is, financial claims between institutions in the same grouping have been eliminated. The total is also consolidated, that is, financial claims between the groupings have been eliminated. For this reason, and because there are a number of less significant adjustments made for national accounting purposes, the statistics in the summary table will differ from those presented later in this chapter and published elsewhere.

27.2 FINANCIAL INSTITUTIONS, Financial assets - 30 June

Depository corporations

Reserve Bank
Banks
Other
Life insurance corporations
Pension funds
Other insurance corporations
Central borrowing authorities
Financial intermediaries n.e.c.
Consolidated financial sector total
$b
$b
$b
$b
$b
$b
$b
$b
$b

2004
65.2
1 127.0
223.8
191.5
587.8
97.8
100.8
317.5
1 981.0
2005
75.5
1 243.0
250.6
212.8
666.3
102.7
113.9
348.7
2 181.1
2006
94.9
1 418.6
262.5
233.6
815.0
115.7
114.7
442.2
2 566.3
2007
113.9
1 656.5
333.3
261.1
1 070.8
133.9
127.5
592.9
3 128.1
2008
92.9
1 984.6
383.1
239.4
1 014.8
129.5
146.8
563.3
3 282.2
2009
101.5
2 131.6
364.6
223.1
909.9
126.4
186.2
557.9
3 263.1

Source: ABS Australian National Accounts: Financial Accounts (5232.0).


Banks

Between 1940 and 1959, central banking business was the responsibility of the Commonwealth Bank. The Reserve Bank Act 1959 (Cwlth) established the Reserve Bank of Australia as the central bank, and from 1959 to 1998 the Reserve Bank was responsible for the supervision of commercial banks. From 1 July 1998, APRA assumed responsibility for bank supervision while the Reserve Bank retained responsibility for monetary policy and the maintenance of financial stability, including stability of the payments system.

Banks are the largest deposit-taking and financial institutions in Australia. At the end of June 2009 there were 57 banks operating in Australia. All are authorised to operate by the Banking Act 1959 (Cwlth). The major banks account for over half the total assets of all banks. These four banks provide widespread banking services and an extensive retail branch network throughout Australia. The remaining banks provide similar banking services through limited branch networks, often located in particular regions. At 30 June 2009, banking services were provided at 27,108 Automatic Teller Machines (ATMs) throughout Australia.

The liabilities and financial assets of the Reserve Bank are set out in table 27.3. The liabilities and financial assets of the banks operating in Australia are shown in table 27.4.

27.3 RESERVE BANK OF AUSTRALIA, Financial assets and liabilities

Amounts outstanding at 30 June

2007
2008
2009
$m
$m
$m

FINANCIAL ASSETS

Monetary gold and SDRs(a)
2 195
2 679
3 172
Currency and deposits
54 166
10 606
11 702
Bills of exchange
1 502
762
133
One name paper
12 971
38 792
9 654
Bonds
42 647
39 643
75 657
Derivatives
-
-
-
Loans and placements
18
10
8
Other accounts receivable
361
412
1 130
Total
113 860
92 904
101 456

LIABILITIES

Currency and deposits
104 432
79 683
81 685
Derivatives
6
-
-
Unlisted shares and other equity(b)
9 703
10 616
11 964
Other
13 122
9 678
8 626
Total
127 263
99 977
102 275

- nil or rounded to zero (including null cells)
(a) Special Drawing Rights.
(b) Estimates based on net asset values.
Source: ABS Australian National Accounts: Financial Accounts (5232.0).


27.4 BANKS(a), Financial assets and liabilities

Amounts outstanding at 30 June

2007
2008
2009
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
70 339
106 245
138 538
Acceptance of bills of exchange
125 417
142 062
149 799
One name paper
23 694
33 095
32 425
Bonds
46 442
106 122
192 384
Derivatives
72 339
130 822
119 282
Loans and placements
1 174 707
1 344 108
1 387 078
Equities
135 145
111 547
103 367
Prepayments of premiums and reserves
2 001
2 059
2 213
Other accounts receivable
6 413
8 578
6 556
Total
1 656 497
1 984 638
2 131 642

LIABILITIES

Currency and deposits
814 183
929 822
1 104 935
Acceptance of bills of exchange
54 991
55 892
53 515
One name paper
253 154
334 224
240 831
Bonds
267 356
318 810
396 253
Derivatives
84 329
135 159
123 545
Loans and placements
49 977
77 183
116 156
Equity
320 050
234 255
239 977
Other accounts payable
5 860
9 120
10 138
Total
1 849 900
2 094 465
2 285 350

(a) Does not include the Reserve Bank of Australia.
Source: ABS Australian National Accounts: Financial Accounts (5232.0).


Other depository corporations

Other depository corporations are defined as those, apart from banks, with liabilities included in the Reserve Bank's definition of broad money. These include building societies, credit cooperatives, cash management trusts, money market corporations, merchant banks and finance companies.

The Financial Corporations Act 1974 (Cwlth) ceased on 1 July 2002. Corporations previously subject to the Financial Corporations Act 1974 (Cwlth) were then required to report statistical data to APRA as Registered Financial Corporations. From 31 March 2003, following changes to the Financial Statistics (Collection of Data) Act 2001 (Cwlth), only the following categories of other depository corporations are required to report to APRA:
  • Permanent building societies are usually organised as financial cooperatives. They are authorised to accept money on deposit. They provide finance principally in the form of housing loans to their members.
  • Credit cooperatives, also known as credit unions, are similar to building societies. As their name implies, they are organised as financial cooperatives which borrow from and provide finance to their members.
  • Money market corporations operate similar to wholesale banks and for this reason they are often referred to as merchant or investment banks. They have substantial short-term borrowings which they use to fund business loans and investments in debt securities.
  • Other registered financial corporations covers pastoral finance companies, finance companies and general financiers categories. These corporations engage in a variety of borrowing and lending activity.

The remaining category of other depository corporations is Cash management trusts. These are investment funds that are open to the public. They are not subject to supervision by APRA or registered under the Financial Statistics (Collection of Data) Act 2001 (Cwlth). They invest the pooled monies of their unit holders mainly in money-market securities such as bills of exchange and bank certificates of deposit. As with other public unit trusts their operations are governed by a trust deed and their units are redeemable by the trustee on demand or within a short time period.

Table 27.5 shows the total assets of each category of non-bank deposit-taking institution.

27.5 OTHER DEPOSITORY CORPORATIONS, Total assets

Amounts outstanding at 30 June

2007
2008
2009
$m
$m
$m

Permanent building societies
20 563
22 150
21 484
Credit cooperatives
38 709
42 468
46 005
Money market corporations
106 702
121 935
94 512
Other registered financial corporations
116 070
127 835
119 830
Cash management trusts
46 745
47 357
43 819
Total
328 789
361 745
325 650

Source: ABS Managed Funds, Australia (5655.0); APRA; Reserve Bank of Australia.



Life insurance corporations

Life insurance corporations offer termination insurance and investment policies. Termination insurance includes the payment of a sum of money on the death of the insured or on the insured receiving a permanent disability. Investment products include annuities and superannuation plans. The life insurance industry in Australia consists of 32 direct insurers, including 6 reinsurers. As with the banking industry, the life insurance industry is dominated by a few very large companies which hold a majority of the industry's assets.

Life insurance companies are supervised by APRA under the Life Insurance Act 1995 (Cwlth). APRA also regulates friendly societies which offer services similar to life insurance corporations, and consist of 19 societies.

Table 27.6 shows the financial assets and liabilities arising from both policyholder and shareholder investment in life insurance corporations and APRA regulated friendly societies.


27.6 LIFE INSURANCE CORPORATIONS, Financial assets and liabilities

Amounts outstanding at 30 June

2007
2008
2009
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
13 183
9 795
13 679
Bills of exchange
2 043
1 830
3 317
One name paper
14 006
12 311
13 720
Bonds
47 773
45 562
47 284
Derivatives
248
354
3 820
Loans and placements
4 572
4 737
4 895
Equities
174 526
158 166
129 482
Other accounts receivable
4 747
6 665
6 911
Total
261 098
239 420
223 108

LIABILITIES

Bills of exchange
9
5
5
Bonds etc. issued in Australia
-
-
-
Bonds etc. issued offshore
1 488
1 825
1 541
Derivatives
-
-37
3 060
Loans and placements
1 490
2 434
2 899
Listed and unlisted equity
37 220
26 212
23 439
Net equity in reserves
54 833
58 741
61 467
Net equity of pension funds
182 801
166 208
146 494
Other accounts payable
9 669
4 896
4 304
Total
287 510
260 284
243 209

- nil or rounded to zero (including null cells)
Source: ABS Australian National Accounts: Financial Accounts (5232.0).


Pension funds

Pension funds have been established to provide retirement benefits for their members. Members make contributions during their employment and receive the benefits of this form of saving in retirement. There are two basic types of contribution - employer contributions in the form of the superannuation guarantee and voluntary member contributions. In order to receive concessional taxation treatment, a pension fund must elect to be regulated under the Superannuation Industry (Supervision) Act 1993 (Cwlth) (SIS Act).

These funds are supervised by either APRA or the ATO. Some public sector funds are exempt from direct APRA supervision, but are required to report to APRA under an agreement between the Commonwealth Government and each of the state and territory governments.

The largest group of pension funds is self-managed superannuation funds. From 1 July 2000, the ATO assumed responsibility for regulating self-managed superannuation funds.

Self-managed superannuation funds are superannuation funds that have less than five members and generally all members of the fund need to be trustees or directors of a company which is a trustee.

Corporate funds are established for the benefit of employees of a particular entity or a group of related entities, with joint member and employer control. Industry funds generally have closed memberships restricted to the employees of a particular industry and are established under an agreement between the parties to an industrial award.

Public sector funds provide benefits for government employees, or are schemes established by a Commonwealth, state or territory law. Retail funds offer superannuation products to the public on a commercial basis. All eligible rollover funds and multi-member approved deposit funds are also classified as retail funds. Superannuation funds regulated by APRA with less than five members and an Extended Public Offer Entity Licensee are known as small APRA funds.

In addition to separately constituted funds, the SIS Act also provides for special accounts operated by financial institutions earmarked for superannuation contributions, known as Retirement Savings Accounts, that also qualify for concessional taxation and are under the supervision of APRA. The liabilities represented by these accounts are liabilities of the institutions concerned and are included with the relevant institution in this chapter (e.g. retirement savings accounts operated by banks are included in bank deposits in table 27.4).

The number of pension funds is shown in table 27.7. The assets of pension funds are shown in table 27.8. The assets in the table do not separately identify any provision for the pension liabilities of governments to public sector employees in respect of unfunded retirement benefits. These pension liabilities are recorded in the government accounts. At 30 June 2009, the ABS estimate for claims by households on governments for these outstanding liabilities was $195.4b.

27.7 PENSION FUNDS - 30 June

Number of entities

Type of fund
2006
2007
2008

Corporate
555
287
226
Industry
80
72
70
Public sector
45
40
40
Retail
192
176
169
Small funds(a)
323 200
363 112
393 611
Pooled superannuation trusts
123
101
90
Total
324 195
363 788
394 206

(a) Small funds include small APRA funds, single member approved deposit funds and self managed superannuation funds.
Source: Australian Prudential Regulation Authority.


27.8 PENSION FUNDS, Financial assets

Amounts outstanding at 30 June

2007
2008
2009
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
133 103
138 724
165 768
Bills of exchange
12 870
13 134
14 608
One name paper
22 690
25 946
30 621
Bonds
82 040
94 872
99 174
Loans and placements
6 532
6 686
7 730
Equities
610 403
553 088
433 120
Unfunded superannuation claims
17
45
29
Net equity of pension funds in life office reserves
182 801
166 208
146 494
Other accounts receivable
20 385
16 092
12 380
Total
1 070 841
1 014 795
909 924

LIABILITIES

Loans and placements
1 104
1 491
1 882
Net equity in reserves
1 114 474
1 065 183
966 747
Other accounts payable
7 487
7 223
3 844
Total
1 123 065
1 073 897
972 473

Source:ABS Australian National Accounts: Financial Accounts (5232.0).



Other insurance corporations

This sector includes all corporations that provide insurance other than life insurance. Included are general, fire, accident, employer liability, household, health and consumer credit insurers.

Private health insurers are regulated by the Private Health Insurance Administration Council under the National Health Act 1959 (Cwlth). At 30 June 2009, there were 37 private health insurers, including health benefit funds of friendly societies. Other private insurers are supervised by APRA under the Insurance Act 1973 (Cwlth). At 30 June 2009, there were 107 insurers authorised to conduct new or renewal general insurance supervised by APRA. There are 10 separately constituted public sector insurance corporations with significant assets. Table 27.9 shows the financial assets and liabilities of other insurance corporations.
27.9 OTHER INSURANCE CORPORATIONS, Financial assets and liabilities

Amounts outstanding at 30 June

2007
2008
2009
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
9 699
15 213
15 833
Bills of exchange
2 135
1 989
2 632
One name paper
9 568
9 114
7 997
Bonds
36 532
36 759
37 929
Derivatives
27
74
1 009
Loans and placements
5 438
5 248
4 752
Equities
50 356
41 579
34 126
Other accounts receivable
20 172
19 563
22 139
Total
133 927
129 539
126 417

LIABILITIES

Bills of exchange
15
18
24
One name paper on issue
423
578
695
Bonds on issue
3 182
3 268
2 383
Derivatives
-
-
794
Loans and placements
2 962
3 065
2 954
Listed shares and other equity
37 612
27 245
28 058
Unlisted shares and other equity
35 731
34 421
32 153
Prepayment of premiums
66 646
68 624
73 790
Other accounts receivable
9 832
6 987
7 873
Total
156 403
144 206
148 724

- nil or rounded to zero (including null cells)
Source:ABS Australian National Accounts: Financial Accounts (5232.0).



Central borrowing authorities

Central borrowing authorities are institutions established by the state governments and the Northern Territory Government primarily to provide finance for public corporations and quasi-corporations, and other units owned or controlled by those governments. They also arrange investment of the units' surplus funds. The central borrowing authorities borrow funds, mainly by issuing securities, and on-lend them to their public sector clientele. However, they also engage in other financial intermediation activity for investment purposes, and may engage in the financial management activities of the parent government.

Table 27.10 shows the financial assets and liabilities held by the central borrowing authorities.
27.10 CENTRAL BORROWING AUTHORITIES, Financial assets and liabilities

Amounts outstanding at 30 June

2007
2008
2009
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
4 631
3 918
6 619
Bills of exchange
7 322
6 287
6 239
One name paper
18 750
18 547
19 254
Bonds
5 663
5 649
5 877
Derivatives
10 083
16 149
14 824
Loans and placements
79 426
94 546
129 488
Other accounts receivable
1 625
1 713
3 896
Total
127 500
146 809
186 197

LIABILITIES

Drawings of bills of exchange
-
-
-
One name paper
6 224
9 735
18 302
Bonds
89 158
97 665
127 700
Derivatives
9 261
16 125
15 700
Loans and placements
14 945
18 500
15 348
Equity
30
30
30
Other accounts payable
1 324
2 267
2 867
Total
120 942
144 322
179 947

- nil or rounded to zero (including null cells)
Source: ABS Australian National Accounts: Financial Accounts (5232.0).



Financial intermediaries not elsewhere classified (n.e.c.)

This subsector comprises all institutions that meet the definition of a financial enterprise and have not been included elsewhere. It includes:

Public unit trusts - are investment funds open to the Australian public. Their operations are governed by a trust deed which is administered by a management company. Under the Managed Investments Act 1997 (Cwlth), the management company has become the single responsible entity for both investment strategy and custodial arrangements; the latter previously had been the responsibility of a trustee. These trusts allow their unit holders to dispose of their units relatively quickly. They may sell them back to the manager if the trust is unlisted, or sell them on the Australian Stock Exchange (ASX) if the trust is listed. While public unit trusts are not subject to supervision by APRA or registered under the Financial Statistics (Collection of Data) Act 2001 (Cwlth), they are subject to the provisions of corporations law which includes having their prospectus registered with ASIC.

Common funds - are set up by trustee companies and are governed by state Trustee Acts. They allow the trustee companies to combine depositors' funds and other funds held in trust in an investment pool. They are categorised according to the main types of assets in the pool, for example, cash funds or equity funds.

Securitisers - issue short- and/or long-term debt securities which are backed by specific assets. The most common assets bought by securitisation trusts/companies are residential mortgages. These mortgages are originated by financial institutions such as banks and building societies or specialist mortgage managers. Other assets can also be used to back these securities, such as credit card receivables and financial leases. Securitisers generally pool the assets and use the income on them to pay interest to the holders of the asset-backed securities.

Cooperative housing societies - are similar to permanent building societies. In the past they were wound up after a set period, but now are continuing bodies. They raise money through loans from members (rather than deposits) and provide finance to members in the form of housing loans. Over recent years many cooperative housing societies have originated mortgages on behalf of securitisers.

Investment companies - are similar to equity trusts in that they invest in the shares of other companies. However, investors in investment companies hold share assets, not unit assets.

Fund managers, insurance brokers and arrangers of hedging instruments - are classified as financial auxiliaries as they engage primarily in activities closely related to financial intermediation, but they themselves do not perform an intermediation role. Auxiliaries primarily act as agents for their clients (usually other financial entities) on a fee-for-service basis, and as such the financial asset remains on the balance sheet of the client, not the auxiliary. However, a small portion of the activities of auxiliaries is brought to account on their own balance sheet, and these amounts are included in table 27.11.

Economic development corporations - are owned by governments. As their name implies, these bodies are expected to finance infrastructure developments mainly in their home state or territory.

Wholesale trusts - are investment funds that are only open to institutional investors - life insurance corporations, superannuation funds, retail trusts, corporate clients, high net worth individuals -- due to high entry levels (e.g. $500,000 or above). They may issue a prospectus, but more commonly issue an information memorandum. Only those which invest in financial assets are included in table 27.11.

Table 27.11 shows the financial assets held by financial intermediaries not elsewhere classified.

27.11 FINANCIAL INTERMEDIARIES n.e.c., Financial assets

Amounts outstanding at 30 June

2007
2008
2009
$m
$m
$m

Public unit trusts(a)
205 655
175 666
147 281
Equity unit trusts
175 882
149 530
124 937
Other unit trusts
29 773
26 136
22 344
Common funds
12 086
12 016
7 681
Securitisers
273 977
239 448
194 256
Other(b)
101 203
136 159
208 640
Total
592 921
563 289
557 858

(a) Excludes property and trading trusts.
(b) Includes investment companies, economic development corporations, fund managers, insurance brokers, hedging instrument arrangers, wholesale trusts, cooperative housing societies and state government housing schemes.
Source: ABS Assets and Liabilities of Australian Securitisers (5232.0.55.001); ABS Australian National Accounts: Financial Accounts (5232.0); ABS Managed Funds, Australia (5655.0).



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