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1301.0 - Year Book Australia, 2007  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 24/01/2007   
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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 business 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 26.2 shows the relative size of these groups of financial enterprises 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.


26.2 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

2002
54.7
875.6
245.3
190.5
470.1
78.8
93.9
237.6
1,610.8
2003
56.5
991.0
244.7
183.9
492.8
88.1
103.6
246.5
1,725.6
2004
64.7
1126.0
235.3
192.5
590.1
93.9
101.6
320.3
1,986.3
2005
75.1
1237.0
259.9
211.1
688.1
98.2
111.2
393.8
2,212.2
2006
93.5
1423.5
265.8
230.7
840.6
117.2
112.0
521.0
2,612.6

Source: 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 2006 there were 54 banks operating in Australia. All are authorised to operate by the Banking Act 1959 (Cwlth). Four major banks: the Australia and New Zealand Banking Group, Commonwealth Bank of Australia, National Australia Bank, and the Westpac Banking Corporation, 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 2006, banking services were provided at 3,188 giroPost locations and 24,616 Automatic Teller Machines (ATMs) throughout Australia.

The liabilities and financial assets of the Reserve Bank are set out in table 26.3. The liabilities and financial assets of the banks operating in Australia are shown in table 26.4.


26.3 RESERVE BANK OF AUSTRALIA, Financial assets and liabilities

Amounts
outstanding
at 30 June

2004
2005
2006
$m
$m
$m

FINANCIAL ASSETS

Monetary gold and SDRs(a)
1,729
1,719
2,383
Currency and deposits
24,043
33,472
33,067
Bills of exchange
636
615
930
One name paper
3,626
4,103
12,972
Bonds
34,359
34,806
43,719
Derivatives
2
31
7
Loans and placements
23
21
20
Other accounts receivable
261
290
362
Total
64,679
75,057
93,460

LIABILITIES

Currency and deposits
51,697
63,972
79,570
Unlisted shares and other equity(b)
12,514
11,241
12,685
Other
5,792
7,169
10,577
Total
70,003
82,382
102,832

(a) Special Drawing Rights.
(b) Estimates based on net asset values.
Source: Australian National Accounts: Financial Accounts (5232.0).

26.4 BANKS(a), Financial assets and liabilities

Amounts outstanding at 30 June

2004
2005
2006
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
34,605
40,540
51,105
Acceptance of bills of exchange
83,398
91,697
105,413
One name paper
15,441
16,094
16,545
Bonds
35,839
39,809
39,479
Derivatives
58,180
53,827
62,981
Loans and placements
801,354
888,305
1,019,856
Equities
91,492
101,575
123,221
Prepayments of premiums and reserves
1,745
1,837
1,900
Other accounts receivable
3,943
3,340
3,000
Total
1,125,997
1,237,024
1,423,500

LIABILITIES

Currency and deposits
559,595
593,527
666,699
Acceptance of bills of exchange
42,398
49,924
53,607
One name paper
144,764
151,573
188,992
Bonds
149,404
184,477
242,591
Derivatives
52,969
58,444
56,761
Loans and placements
39,789
45,200
37,813
Equity
180,021
214,264
249,359
Other accounts payable
5,373
9,806
12,238
Total
1,174,313
1,307,215
1,508,060

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


OTHER DEPOSITORY CORPORATIONS

In addition to banks, financial institutions such as building societies, credit unions and merchant banks play an important part in the Australian financial system. In the Australian financial accounts, other depository corporations are defined as those, apart from banks, with liabilities included in the Reserve Bank's definition of broad money. Non-bank institutions included in broad money are other authorised depository institutions (building societies and credit cooperatives), cash management trusts, money market corporations, 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. This category covers what were pastoral finance companies, finance companies and general financiers categories. These corporations engage in a variety of borrowing and lending activity.

Cash management trusts are investment funds which 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 26.5 shows the total assets of each category of non-bank deposit-taking institution.


26.5 OTHER DEPOSITORY CORPORATIONS, Total assets

Amounts outstanding at 30 June

2004
2005
2006
$m
$m
$m

Permanent building societies
14,563
16,053
17,868
Credit cooperatives
31,086
33,097
35,719
Money market corporations
67,689
80,130
78,991
Other registered financial corporations
76,243
86,533
97,265
Cash management trusts
32,452
36,544
38,181
Total
222,033
252,357
268,024

Source: Managed Funds, Australia (5655.0); Australian Prudential Regulation Authority; 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 35 direct insurers, including six reinsurers. As with the banking industry, the life insurance industry is dominated by a few very large companies holding 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.

Table 26.6 shows the financial assets and liabilities arising from both policyholder and shareholder investment in life insurance corporations and APRA regulated friendly societies.


26.6 LIFE INSURANCE CORPORATIONS, Financial assets and liabilities

Amounts outstanding at 30 June

2004
2005
2006
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
10,865
12,028
13,490
Bills of exchange
3,404
2,585
2,824
One name paper
15,347
15,819
15,035
Bonds
40,046
42,128
46,216
Derivatives
-
155
-
Loans and placements
3,309
3,596
4,612
Equities
114,418
128,422
142,314
Other accounts receivable
5,142
6,388
6,246
Total
192,531
211,121
230,737

LIABILITIES

Bills of exchange
49
3
6
One name paper issued in Australia
-
-
-
One name paper issued offshore
967
-
-
Bonds etc. issued in Australia
240
-
-
Bonds etc. issued offshore
289
1,258
1,187
Derivatives
123
64
245
Loans and placements
3,452
4,890
5,258
Listed and unlisted equity
30,412
33,365
42,247
Net equity in reserves
50,184
58,810
60,128
Net equity of pension funds
124,689
137,328
154,071
Other accounts payable
6,056
4,214
4,606
Total
216,461
239,932
267,748

Source: 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 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. Public sector funds, being funds sponsored by a government employer or government controlled business enterprise, are exempt from direct APRA supervision.

The largest number of pension funds comprise 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 for which:
    • each individual trustee of the fund is a fund member
    • each member of the fund is a trustee
    • no member of the fund is an employee of another member of a fund, unless they are related
    • if the trustee of the fund is a body corporate each director of the body corporate is a member of the fund.

Corporate funds are funds sponsored by a single non-government employer, or group of employers. 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 are those funds sponsored by a public sector employer. Retail funds are pooled superannuation products sold through an intermediary to the general public. Funds with less than five members, but which do not qualify as self-managed superannuation funds, 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 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 26.4).

The number of pension funds is shown in table 26.7. The assets of pension funds are shown in table 26.8 and include unfunded pension claims by pension funds on the Australian Government where these have been formally recognised in accounting systems. 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. At 30 June 2006, the ABS estimate for claims by households on governments for these outstanding liabilities was $155.4b.


26.7 PENSION FUNDS - 30 June

Type of fund
2004
2005
2006

Corporate
1,394
963
557
Industry
115
92
84
Public sector
41
43
42
Retail
235
226
187
Small funds(a)
289,132
306,993
326,839
Total
290,917
308,317
327,709

(a) Small funds include small Australian Prudential Regulation Authority funds, single member approved deposit funds and self managed superannuation funds.
Source: Australian Prudential Regulation Authority.
26.8 PENSION FUNDS, Financial assets

Amounts outstanding at 30 June

2004
2005
2006
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
43,282
53,134
64,766
Bills of exchange
15,212
14,712
15,448
One name paper
15,394
14,397
16,169
Bonds
54,487
61,178
75,475
Loans and placements
18,498
21,707
28,343
Equities
308,323
375,989
474,010
Unfunded superannuation claims
1,546
7
5
Net equity of pension funds in life office reserves
124,689
137,328
154,071
Other accounts receivable
8,666
9,631
12,288
Total
590,097
688,083
840,575

LIABILITIES

Loans and placements
334
405
603
Net equity in reserves
611,102
716,869
871,291
Other accounts payable
6,015
4,562
4,763
Total
617,451
721,836
876,657

Source: 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 2006, there were 39 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 2006, there were 99 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 26.9 sets out the financial assets and liabilities of other insurance corporations at 30 June 2006 and the preceding two years.


26.9 OTHER INSURANCE CORPORATIONS, Financial assets and liabilities

Amounts outstanding at 30 June

2004
2005
2006
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
8,606
8,767
8,580
Bills of exchange
1,899
1,816
2,081
One name paper
4,979
7,043
8,094
Bonds
28,275
27,550
33,885
Derivatives
92
79
112
Loans and placements
8,632
8,253
8,748
Equities
26,393
30,737
40,965
Other accounts receivable
15,025
13,933
14,766
Total
93,901
98,178
117,231

LIABILITIES

Bills of exchange
25
11
7
One name paper on issue
327
405
445
Bonds on issue
2,241
3,059
3,004
Derivatives
62
54
-
Loans and placements
2,596
2,119
2,613
Listed shares and other equity
22,081
28,072
32,170
Unlisted shares and other equity
18,297
21,731
23,035
Prepayment of premiums
58,115
61,177
63,251
Other accounts receivable
6,465
6,524
6,743
Total
110,209
123,152
131,268

Source: Australian National Accounts: Financial Accounts (5232.0); Australian Prudential Regulation Authority; Private Health Insurance Administration Council.


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 26.10 shows the financial assets and liabilities held by the central borrowing authorities at 30 June of the most recent three years.


26.10 CENTRAL BORROWING AUTHORITIES, Financial assets and liabilities

Amounts outstanding at 30 June

2004
2005
2006
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
3,560
2,273
3,996
Bills of exchange
6,388
7,864
5,425
One name paper
8,390
12,345
10,546
Bonds
5,471
5,772
6,564
Derivatives
6,386
7,026
6,811
Loans and placements
70,698
74,377
77,205
Other accounts receivable
756
1,522
1,468
Total(a)
101,649
111,179
112,015

LIABILITIES

Drawings of bills of exchange
One name paper
6,807
6,610
6,083
Bonds
74,741
81,460
81,045
Derivatives
7,169
6,888
7,838
Loans and placements
16,124
17,188
20,706
Equity
30
30
30
Other accounts payable
729
707
661
Total
105,600
112,883
116,363

(a) Excludes non-financial assets (e.g. fixed assets, property, inventories, etc.).
Source: 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:

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.

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.

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 they too 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 26.11.

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 here.


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

Amounts outstanding at 30 June

2004
2005
2006
$m
$m
$m

Public unit trusts(a)
117,162
127, 095
165,253
Equity unit trusts
92,946
102,196
137,610
Other unit trusts
24,216
24,899
27,643
Common funds
9,687
9,954
10,687
Securitisers
163,903
186,658
217,782
Other(b)
29,553
70,050
127,293
Total
320,305
393,757
521,015

(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: Assets and Liabilities of Australian Securitisers (5232.0.55.001); Australian National Accounts: Financial Accounts (5232.0); Managed Funds, Australia (5655.0).


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