SECTORAL ANALYSIS

NON-FINANCIAL CORPORATIONS

During June Quarter 2016, private non-financial corporations invested $42.2b in gross fixed capital formation, this was funded through gross saving (net saving plus consumption of fixed capital) of $41.1b and net borrowing of $3.7b (change in net financial position). This net borrowing figure was as a result of incurring financial liabilities of $25.6b, mainly due to equity issuance of $22.8b. Private non-financial corporations acquired $21.9b in financial assets, which was driven by an increase in accounts receivables of $10.4b, deposits of $6.1b and equity holdings of $4.5b.

Graph 1 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 0.73 in June quarter 2016, a slight decrease of 0.02 from March quarter 2016. This ratio has remained relatively flat, recording ratios between 0.72 and 0.78 for the last 16 quarters.

In contrast, the adjusted ratio was 1.19 in June quarter 2016, recording a slight fall from the March quarter 2016 ratio of 1.22. The adjusted ratio reflects the removal of price change from the original series and therefore provides an indicator of leverage without the market price changes. This ratio has been trending downwards for the last 11 quarters and is 0.14 lower than in September 2013. This indicates that private non-financial corporations have a declining 'real' level of debt to equity.


FINANCIAL CORPORATIONS

		Outstanding at end	Transactions during	Other changes during	Outstanding at end
		Mar Qtr 2016	Jun Qtr 2016	Jun Qtr 2016	Jun Qtr 2016
		$b	$b	$b	$b
Assets of financial corporations
	Central bank	166.5	-3.6	4.2	167.0
	Banks	3 376.7	11.5	64.1	3 452.3
	Other depository corporations	294.7	-3.6	-6.6	284.4
	Pension funds	1 847.0	30.1	36.6	1 913.7
	Life insurance corporations	289.3	0.7	-1.0	289.0
	Non-life insurance corporations	174.7	-1.3	2.5	175.9
	Money market investment funds	36.9	-0.3	-	36.6
	Non-money market investment funds	362.3	1.0	4.9	368.3
	Central borrowing authorities	377.6	-4.3	0.0	373.3
	Securitisers	465.0	10.4	0.2	475.5
	Other financial corporations	110.7	1.7	2.6	115.0
Liabilities of financial corporations
	Central bank	165.5	-0.3	2.6	167.9
	Banks	3 582.0	9.4	64.9	3 656.3
	Other depository corporations	208.1	1.2	-5.2	204.1
	Pension funds	1 959.0	29.1	39.7	2 027.9
	Life insurance corporations	293.9	0.5	-3.0	291.3
	Non-life insurance corporations	217.5	3.5	-0.9	220.1
	Money market investment funds	36.9	-0.3	-	36.6
	Non-money market investment funds	447.8	-5.6	8.1	450.3
	Central borrowing authorities	394.1	-7.5	4.9	391.4
	Securitisers	457.0	12.0	-1.1	467.9
	Other financial corporations	98.6	0.3	-0.5	98.3
- nil or rounded to zero (including null cells)

During June quarter 2016 financial corporations acquired $31.1b in financial assets. Loans to households ($31.7b), the rest of the world ($7.1b), and public non-financial corporations ($5.7b), along with the acquisition of $12.9b in shares and other equity drove the acquisition in assets. To fund their asset acquisition, financial corporations incurred $31.2b of liabilities, with $30.9b from deposits and $29.7b from insurance technical reserves.

Graph 2. Banks liabilities as a proportion of their assets


In June quarter 2016 deposits, debt securities and equity comprised 95.3% of total bank funding, remaining fairly constant with March quarter 2016 (95.5%). Banks funding of their total assets through deposits increased to 57.1%, with net transactions totalling $45.2b. The proportion of bank debt securities (23.9%) and equity (14.3%) liabilities to total assets both decreased slightly during the quarter, reflecting growth in deposit liabilities and flat equity issuance.


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

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


Graph 3 illustrates the financial asset mix at the end of June quarter 2016 of pension funds, life insurance corporations and non-money market investment funds. Overall, these three institutional sectors invest predominately in equity assets.

During June quarter 2016, pension funds increased shares and other equity holdings by $44.2b or 4.1%, driven mainly by revaluations ($31.8b). At the end of June quarter 2016, pension funds held $1,125.9b in shares and other equity (58.8% of their assets) of which $775.1b were issued by domestic sectors and $350.8b were issued by the rest of world.

At the end of June quarter 2016, life insurance corporations held $231.3b in shares and other equity (80.0% of their assets), a decrease of $3.5b or 1.5%. Life insurance corporations predominately held shares and other equities in non-money market financial investment funds ($194.1b) and other private non-financial corporations ($15.0b).


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 June quarter 2016 the household sector claims on the net equity in reserves of pension funds and of life insurance corporations were $2,000.5b and $59.7b respectively, while shareholders of life insurance corporations had claims of $22.9b. Of the total $2,027.9b assets of pension funds, 44.5% was invested through investment managers, 45.7% was directly invested in financial markets and 9.8% was invested directly in life insurance corporations.



GENERAL GOVERNMENT

During June quarter 2016, general government invested $18.4b in gross fixed capital formation with state and local general government ($12.7b) accounting for majority of this investment. National general government invested $5.7b in gross fixed capital formation. State and local general government and national general government recorded gross saving of $2.7b and $5.8b respectively during the quarter. State and local general government and national general government were net borrowers in June quarter 2016.

Graph 4. Change in net financial position, General government



National General Government

During June quarter 2016, the net change in financial position (net borrowing) for national general government was -$6.2b. This was driven by the national general government incurring $5.7b in financial liabilities while recording a flat net disposal of financial assets (-$0.5b). The net incurrence of liabilities was predominately driven by $5.8b in net issuances of Commonwealth government bonds.

At the end of the June quarter 2016, national general government had total financial assets of $508.7b and total liabilities of $885.8b.


State and Local General Government

During June quarter 2016, the net change in financial position (net borrowing) of state and local general government was -$1.4b. State and local general government disposed of $3.1b in financial assets while reducing $1.8b of financial liabilities.

Net disposal of financial assets was due to receiving loans and placements ($2.6b) repayments from central borrowing authorities as well as decreasing in deposits with banks (-$0.9b).

State and local general government reduced financial liabilities through repayments of long-term loans ($3.1b).

At the end of June quarter 2016, state and local general government had total financial assets of $476.3b and liabilities of $350.9b.

Graph 5. 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 June quarter 2016, Commonwealth government issued $5.8b of bonds. For state and local general government, the central borrowing authorities are responsible for the issuance of their debt.

Central borrowing authorities, net transactions in liabilities (-$7.5b) were driven by total bonds and one name paper recording net maturities of $7.6b and $2.3b respectively, which was partially offset by increased borrowings of short term loans($2.3b). At the end of June quarter, central borrowing authorities had total assets of $373.3b and total liabilities of $391.4b. Central borrowing authorities disposed of $4.3b in financial assets, which was driven by maturities of one name paper (-$6.8b) and partially offset by increases in deposits ($2.8b).


REST OF WORLD

Australia’s net international investment position at the end of June quarter 2016 was a net foreign liability of $1,035.9b (net financial asset position of the rest of world), an increase of $28.0b from the previous quarter with net transactions of $14.2b (net change in financial position) and valuation increases of $13.8b.

Non-residents investments in Australian financial assets recorded valuation increases of $95.5b, which resulted in an increase in their holdings of Australian financial assets to $3,213.1b during June quarter 2016. The valuation increases were driven by derivatives ($51.6b), listed shares and equities ($19.3b), and bonds ($16.1b).

During June quarter 2016, non-residents increased their financial liabilities to Australia, with net transactions of -$13.4b, offset by valuation increases of $81.6b, resulting in $2,177.3b of rest of world assets held by Australian residents. The negative transactions were driven by derivatives (-$31.5b) and short term debt issuance (-$5.7b). The valuation increases were driven by derivatives ($50.0b), and unlisted shares and other equities ($18.1b).