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1301.0 - Year Book Australia, 2008  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 07/02/2008   
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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 27.2 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.

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

2003
56.3
982.4
228.8
183.4
492.0
90.7
103.6
246.5
1 725.6
2004
65.2
1 127.0
223.8
191.5
587.8
97.8
100.8
317.5
1 981.0
2005
75.5
1 241.9
246.5
210.0
687.1
105.1
112.3
372.0
2 203.5
2006
95.0
1 421.8
257.1
227.2
850.8
116.2
112.3
481.6
2 615.0
2007
113.6
1 653.5
329.0
254.3
1 072.5
129.5
127.5
628.0
3 150.6

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 financial institutions in Australia. At the end of June 2007 there were 55 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 2007, banking services were provided at 25,681 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
2005
2006
2007
$m
$m
$m

FINANCIAL ASSETS

Monetary gold and SDRs(a)
1 719
2 383
2 195
Currency and deposits
33 472
33 067
54 166
Bills of exchange
615
930
1 502
One name paper
4 103
12 972
12 971
Bonds
35 248
45 214
42 647
Derivatives
31
7
-
Loans and placements
21
20
18
Other accounts receivable
290
362
91
Total
75 499
95 955
113 590

LIABILITIES

Currency and deposits
63 976
79 571
104 446
Derivatives
-
-
-6
Unlisted shares and other equity(b)
11 241
12 685
9 703
Other
7 169
10 577
13 122
Total
82 386
102 833
127 265

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


27.4 BANKS(a), Financial assets and liabilities

Amounts outstanding at 30 June
2005
2006
2007
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
42 906
51 806
70 329
Acceptance of bills of exchange
92 104
105 863
125 417
One name paper
18 871
21 759
22 876
Bonds
39 076
39 607
44 516
Derivatives
53 827
62 981
81 328
Loans and placements
888 964
1 018 752
1 164 176
Equities
100 961
116 092
136 487
Prepayments of premiums and reserves
1 843
1 903
1 971
Other accounts receivable
3 340
3 000
6 423
Total
1 241 892
1 421 763
1 653 523

LIABILITIES

Currency and deposits
599 226
680 552
796 579
Acceptance of bills of exchange
50 331
54 057
60 143
One name paper
154 886
196 458
229 118
Bonds
184 477
231 842
267 356
Derivatives
58 444
56 987
93 321
Loans and placements
45 200
37 813
48 354
Equity
222 539
260 752
315 394
Other accounts payable
4 193
6 416
5 909
Total
1 319 296
1 524 877
1 816 174

(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 Act 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 similarly 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 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 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
2005
2006
2007
$m
$m
$m

Permanent building societies
16 334
18 144
20 385
Credit cooperatives
33 106
35 725
38 730
Money market corporations
80 130
78 991
106 714
Other registered financial corporations
86 533
97 267
116 267
Cash management trusts
36 544
38 181
46 745
Total
252 647
268 308
328 841

Source: 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 34 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 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
2005
2006
2007
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
11 947
13 303
13 714
Bills of exchange
2 538
2 738
2 473
One name paper
15 595
14 394
15 749
Bonds
44 157
48 506
49 876
Derivatives
155
-
253
Loans and placements
3 588
4 637
5 337
Equities
125 766
137 614
159 349
Other accounts receivable
6 224
5 972
7 539
Total
209 970
227 164
254 290

LIABILITIES

Bills of exchange
3
6
9
Bonds etc. issued in Australia
-
-
-
Bonds etc. issued offshore
1 258
1 186
1 484
Derivatives
64
189
-
Loans and placements
4 890
5 380
5 814
Listed and unlisted equity
23 122
31 692
36 665
Net equity in reserves
57 668
58 309
57 773
Net equity of pension funds
137 114
153 834
176 421
Other accounts payable
4 214
4 384
6 974
Total
228 333
254 980
285 140

- nil or rounded to zero (including null cells)
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 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. Select exempt 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 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 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 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 financial assets and liabilities 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. At 30 June 2007, the ABS estimate for claims by households on governments for these outstanding liabilities was $181.1b.

27.7 PENSION FUNDS - 30 June

Number of entities
Type of fund
2005
2006
2007

Corporate
962
555
290
Industry
90
81
75
Public sector
43
44
39
Retail
228
192
171
Small funds(a)
305 230
324 782
365 537
Total
306 553
325 654
366 112

(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 and liabilities

Amounts outstanding at 30 June
2005
2006
2007
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
69 294
84 760
119 320
Bills of exchange
12 251
11 308
13 740
One name paper
14 993
17 178
21 793
Bonds
59 861
78 690
86 930
Loans and placements
22 168
28 937
36 672
Equities
361 526
462 872
600 113
Unfunded superannuation claims
7
5
17
Net equity of pension funds in life office reserves
137 114
153 834
176 421
Other accounts receivable
9 852
13 247
17 539
Total
687 066
850 831
1 072 545

LIABILITIES

Loans and placements
405
728
1 104
Net equity in reserves
714 725
884 275
1 108 251
Other accounts payable
4 542
3 781
7 322
Total
719 672
888 784
1 116 677

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 2007, there were 38 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 2007, there were 99 insurers authorised to conduct new or renewal general insurance supervised by APRA. There are ten 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
2005
2006
2007
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
8 780
8 586
9 546
Bills of exchange
1 816
2 081
2 135
One name paper
7 845
8 200
9 146
Bonds
30 992
33 682
33 340
Derivatives
79
112
147
Loans and placements
8 272
8 687
8 134
Equities
33 348
39 860
48 271
Other accounts receivable
13 965
14 972
18 808
Total
105 097
116 180
129 527

LIABILITIES

Bills of exchange
11
7
15
One name paper on issue
405
445
423
Bonds on issue
3 059
3 013
2 511
Derivatives
54
-
-
Loans and placements
2 119
2 695
2 961
Listed shares and other equity
28 071
32 169
37 612
Unlisted shares and other equity
28 642
25 439
36 288
Prepayment of premiums
61 382
63 418
65 663
Other accounts receivable
6 568
6 507
8 608
Total
130 311
133 693
154 081

- nil or rounded to zero (including null cells)
Source: 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
2005
2006
2007
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
2 273
3 946
4 631
Bills of exchange
7 864
5 425
7 322
One name paper
12 979
10 814
15 272
Bonds
6 299
6 564
6 693
Derivatives
7 026
6 838
11 154
Loans and placements
74 377
77 205
80 775
Other accounts receivable
1 522
1 468
1 625
Total
112 340
112 260
127 472

LIABILITIES

Drawings of bills of exchange
-
-
-
One name paper
5 995
5 374
6 194
Bonds
81 862
82 900
86 232
Derivatives
6 888
7 838
10 333
Loans and placements
17 161
20 706
20 506
Equity
30
30
30
Other accounts payable
707
661
1 324
Total
112 643
117 509
124 619

- nil or rounded to zero (including null cells)
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 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 here.

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
2005
2006
2007
$m
$m
$m

Public unit trusts(a)
127 095
165 520
180 626
Equity unit trusts
102 196
134 876
152 726
Other unit trusts
24 899
30 644
27 900
Common funds
9 949
10 683
12 086
Securitisers
184 505
216 461
276 077
Other(b)
50 444
88 927
159 163
Total
371 993
481 591
627 952

(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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