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1301.0 - Year Book Australia, 2005  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 21/01/2005   
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Contents >> Financial system >> 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). The Reserve Bank itself is a depository corporation; authorised depository institutions are those supervised by APRA and include banks, building societies and credit unions; non-supervised depository corporations registered under the Financial Statistics (Collection of Data) Act 2001 (Cwlth) include merchant banks, pastoral finance companies, finance companies and general financiers; finally cash management trusts are also included in depository corporations.

Life insurance corporations - cover the statutory and shareholders' funds of life insurance companies and similar businesses 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 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

1999
44.6
637.9
179.5
170.8
344.7
68.4
97.0
163.8
1,216.1
2000
51.1
728.6
197.0
185.7
423.9
72.9
91.3
214.3
1,400.3
2001
55.1
805.7
228.2
188.8
451.1
78.0
91.8
220.0
1,506.5
2002
54.7
875.3
245.5
190.7
451.2
77.5
93.9
240.3
1,600.5
2003
55.3
976.0
243.4
183.4
474.9
87.8
103.3
253.3
1,694.6
2004
62.3
1,116.0
233.0
193.1
572.1
90.4
101.2
324.4
1,946.1

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 2004 there were 52 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 2003 banking services were provided at 4,858 branches, 2,990 giroPost locations, and 20,339 Automatic Teller Machines (ATMs).

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

2002
2003
2004
$m
$m
$m

FINANCIAL ASSETS

Monetary gold and SDRs(a)
1,661
1,555
1,729
Currency and deposits
12,367
11,093
24,043
One name paper
1,897
549
2,560
Bonds
38,056
41,749
31,668
Derivatives
-
8
2
Loans and placements
637
91
23
Other accounts receivable
122
221
261
Total(b)
54,740
55,266
62,345

LIABILITIES

Currency and deposits
35,169
34,320
36,417
Unlisted shares and other equity(c)
11,399
11,678
12,514
Other
3,795
6,783
4,780
Total
50,363
52,781
53,711

(a) Special Drawing Rights.
(b) Excludes non-financial assets (e.g. fixed assets, property, inventories, etc.).
(c) 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

2002
2003
2004
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
41,119
30,879
34,650
Acceptance of bills of exchange
77,783
76,984
83,398
One name paper
15,130
12,882
16,653
Bonds
26,161
28,776
34,941
Derivatives
41,089
57,276
58,290
Loans and placements
604,106
689,397
803,359
Equities
67,096
75,517
79,265
Prepayments of premiums and reserves
1,535
1,616
1,743
Other accounts receivable
1,319
2,645
3,728
Total(b)
875,338
975,972
1,116,027

LIABILITIES

Currency and deposits
450,250
504,533
567,084
Acceptance of bills of exchange
37,148
39,304
42,308
One name paper
88,391
113,464
145,645
Bonds
109,015
107,528
151,233
Derivatives
44,144
63,337
53,071
Loans and placements
43,040
45,898
39,789
Equity
181,787
171,717
180,002
Other accounts payable
3,560
3,280
2,528
Total
957,335
1,049,061
1,181,660

(a) Does not include the Reserve Bank of Australia.
(b) Excludes non-financial assets (e.g. fixed assets, property, inventories, etc.).

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, and corporations registered under the Financial Statistics (Collection of Data) Act 2001 (Cwlth) which include money market corporations, pastoral finance companies, finance companies and general financiers.

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 to APRA as Registered Financial Corporations. From 31 March 2003 reporting requirements and categorisation for Registered Financial Corporations changed, reducing the number of categories of other depository corporations to five.

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 are 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 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. They are not subject to supervision by APRA or registered under the Financial Statistics (Collection of Data) Act 2001 (Cwlth).

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

2002
2003
2004
$m
$m
$m

Permanent building societies
12,456
12,986
14,567
Credit cooperatives
25,542
28,527
29,215
Money market corporations
85,837
99,995
67,715
Other registered financial corporations
88,466
80,204
76,243
Cash management trusts
33,023
30,031
29,586
Total
245,324
251,743
217,326

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 37 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 the 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

2002
2003
2004
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
14,487
10,890
11,190
Bills of exchange
3,651
3,294
3,243
One name paper
12,159
14,622
15,391
Bonds
39,708
42,373
40,630
Derivatives
351
309
-38
Loans and placements
5,925
4,503
3,306
Equities
106,385
101,670
114,272
Other accounts receivable
8,045
5,705
5,076
Total
190,711
183,366
193,070

LIABILITIES

Bills of exchange
36
4
49
One name paper issued in Australia
-
-
-
One name paper issued offshore
416
-
1,287
Bonds etc. issued in Australia
1,095
1,010
778
Bonds etc. issued offshore
975
633
385
Derivatives
-
-
85
Loans and placements
3,568
3,328
3,447
Listed and unlisted equity
35,509
24,418
30,424
Net equity in reserves
49,961
40,154
38,240
Net equity of pension funds
120,236
121,129
134,716
Other accounts payable
5,705
5,661
6,164
Total
217,501
196,337
215,575

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
  • 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), but are also footnoted in table 26.8 for completeness.

The number of pension funds at 30 June 2004 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 include any provision for the pension liabilities of governments to public sector employees in respect of unfunded retirement benefits. At 30 June 2004 the ABS estimate for claims by households on governments for these outstanding liabilities was $147.3b.


26.7 PENSION FUNDS(a) - 30 June 2004

Type of fund
no.

Corporate
1,406
Industry
103
Public sector
55
Retail
234
Small funds(a)(b)
290,440
Total(b)
292,238

(a) Small funds include small APRA funds, single member approved deposit funds and self-managed superannuation funds.
(b) Approximate number, final data not yet available.

Source: APRA.


26.8 PENSION FUNDS(a), Financial assets

Amounts outstanding at 30 June

2002
2003
2004
$m
$m
$m

Currency and deposits
30,333
35,254
38,000
Bills of exchange
5,805
7,929
8,884
One name paper
11,360
14,131
17,156
Bonds
41,284
46,739
54,568
Loans and placements
15,954
15,392
19,239
Equities
215,867
224,815
286,703
Unfunded superannuation claims
5,688
4,891
1,711
Net equity of pension funds in life office reserves
120,236
121,129
134,716
Other accounts receivable
4,660
4,603
5,903
Total
451,187
474,883
572,075

(a) Retirement savings accounts were valued at $1,063m at 30 June 2004 (APRA).

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 2004 there were 40 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 2004 there were 109 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 shows the financial assets and liabilities of other insurance corporations at 30 June 2004 and the preceding two years.


26.9 OTHER INSURANCE CORPORATIONS, Financial assets and liabilities

Amounts outstanding at 30 June

2002
2003
2004
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
7,285
8,043
8,558
Bills of exchange
3,043
2,651
1,930
One name paper
2,482
4,450
5,038
Bonds
21,829
28,750
26,080
Loans and placements
9,286
10,105
10,594
Equities
23,746
20,140
23,434
Other accounts receivable
9,823
13,530
14,715
Total
77,495
87,769
90,349

LIABILITIES

One name paper on issue
40
99
161
Bonds on issue
1,944
2,019
1,562
Loans and placements
2,250
2,258
2,175
Listed shares and other equity
8,905
14,798
22,081
Unlisted shares and other equity
16,484
15,442
18,297
Prepayment of premiums
51,175
53,815
58,022
Other accounts receivable
9,403
6,850
6,281
Total
90,201
95,281
108,577

Source: Australian National Accounts: Financial Accounts (5232.0); APRA; 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, and to 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 past three years.


26.10 CENTRAL BORROWING AUTHORITIES, Financial assets and liabilities

Amounts outstanding at 30 June

2002
2003
2004
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
2,341
6,352
3,560
Holdings of bills of exchange
5,232
5,495
6,388
One name paper
4,201
5,689
7,923
Bonds
4,939
4,461
5,471
Derivatives
5,689
7,688
6,399
Loans and placements
70,729
72,488
70,698
Other accounts receivable
779
633
756
Total(a)
93,910
103,260
101,195

LIABILITIES

Drawings of bills of exchange
-
-
-
One name paper
8,167
8,016
6,550
Bonds
66,007
70,664
74,741
Derivatives
5,066
7,335
7,181
Loans and placements
13,781
16,797
13,339
Equity
87
30
30
Other accounts payable
1,527
923
729
Total
94,635
103,765
102,570

(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:
  • economic development corporations owned by governments
  • cash, mortgage, equity and fixed interest common funds
  • mortgage, fixed interest, balanced and equity public unit trusts
  • wholesale trusts
  • securitisers
  • investment companies
  • cooperative housing societies
  • housing finance schemes established by state governments to assist first home buyers.

In addition to enterprises which engage directly in intermediation, the subsector also includes enterprises which undertake activity closely associated with intermediation such as:
  • fund managers
  • insurance brokers
  • arrangers of hedging instruments such as swaps, options and futures.

Table 26.11 shows the financial assets of selected groups of financial intermediaries n.e.c.


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

Amounts outstanding at 30 June

2002
2003
2004
$m
$m
$m

Public unit trusts(a)
(b)n.p.
104,482
(b)n.p.
Equity unit trusts
(b)n.p.
78,056
(b)n.p.
Other unit trusts
28,431
26,426
24,244
Common funds
7,899
8,886
9,686
Securitisers
110,640
129,030
159,793
Other(b)
(b)n.p.
10,950
(b)n.p.
Total
240,310
253,348
324,495

(a) Excludes property and trading trusts.
(b) Not separately published, included in total.
(c) 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 (5232.0.40.001); Australian National Accounts: Financial Accounts (5232.0); Managed Funds, Australia (5655.0).


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

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. Public unit trusts are categorised according to the main types of assets in the pool; for example, property or equity. Only those which invest primarily in financial assets - mortgages, fixed interest, futures or equity securities - are included here. 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.

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.

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.

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.

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.

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.

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