SECTORAL ANALYSIS

NON-FINANCIAL CORPORATIONS

During March Quarter 2016, private non-financial corporations invested $38.9b in gross fixed capital formation, this was funded through gross saving (net saving plus consumption of fixed capital) of $14.7b and net borrowing of $34.5b (change in net financial position). This net borrowing figure was as a result of incurring substantial liabilities of $42.0b; mainly in the form of equity issuance of $22.7b and loans and placements of $12.7b. Private non-financial corporations acquired $7.5b in financial assets, which was driven by an increase in accounts receivables of $11.3b and offset by deposit withdrawals from the rest of the world of $3.6b.

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 0.76 in March quarter 2016, a slight increase of 0.006 from December quarter 2015. This ratio has remained relatively flat at 0.73 to 0.79 for the last 15 quarters.

In contrast, the adjusted ratio was 1.199 in March quarter 2016, recording a slight fall from the December quarter 2015 ratio of 1.207. 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 10 quarters and is 0.22 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
		Dec Qtr 2015	Mar Qtr 2016	Mar Qtr 2016	Mar Qtr 2016
		$b	$b	$b	$b
Assets of financial corporations
	Central bank	158.2	8.8	-0.5	166.5
	Banks	3 394.2	-7.4	55.9	3 442.7
	Other depository corporations	286.1	4.4	-1.1	289.4
	Pension funds	1 839.4	17.7	-34.8	1 822.2
	Life insurance corporations	295.1	0.4	-6.7	288.8
	Non-life insurance corporations	171.4	-1.9	-0.3	169.2
	Money market investment funds	36.2	0.6	0.0	36.9
	Non-money market investment funds	363.8	6.4	-7.4	362.8
	Central borrowing authorities	366.6	11.4	-0.5	377.5
	Securitisers	506.2	-1.5	-0.2	504.5
	Other financial corporations	115.8	0.7	-5.7	110.8
Liabilities of financial corporations
	Central bank	159.7	8.5	-2.7	165.5
	Banks	3 609.4	-9.4	-4.5	3 595.5
	Other depository corporations	209.6	4.4	-3.6	210.4
	Pension funds	1 957.5	18.1	-33.8	1 941.8
	Life insurance corporations	299.4	0.5	-6.5	293.4
	Non-life insurance corporations	211.7	-0.2	-1.2	210.3
	Money market investment funds	36.2	0.4	0.2	36.9
	Non-money market investment funds	459.3	-2.6	-10.7	446.0
	Central borrowing authorities	387.0	4.2	2.9	394.1
	Securitisers	506.2	-4.2	2.1	504.1
	Other financial corporations	95.8	-0.1	-0.8	94.9

During March quarter 2016 financial corporations acquired $31.6b in financial assets, driven by bond holdings ($18.8b). Loans and placements increased $10.3b during March quarter 2016, driven by loans to households ($25.4b) and other private non-financial corporations ($12.7b). The acquisition of loan assets were offset by a decrease in loans to the rest of the world ($33.8b), driven by short term lending.

To fund their asset acquisition, financial corporations incurred $11.8b of liabilities, acquired $19.9b from deposits and $17.1b from insurance technical reserves (most of which were superannuation reserves). These increases were offset by a net maturity of $20.9b of one name paper.

Graph 2. Banks liabilities as a proportion of their assets


In March quarter 2016 deposits, debt securities and equity combined for 94.1% of total bank funding, decreasing from 97.4% in December quarter 2015. Banks funding of their total assets through deposits decreased slightly to 55.8% during March quarter 2016. The proportion of banks debt securities (23.7%) and equity (14.6%) liabilities to total assets also decreased during the quarter, driven by large market price decreases and flat net 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


The graph above illustrates the financial asset mix at the end of March quarter 2016 of pension funds, life insurance corporations and non-money market investment funds. Overall, these three institutions invest predominately in equity assets.

During March quarter 2016, pension funds decreased shares and other equity holdings by $27.4b or 2.5%, driven mainly by revaluations (-$34.0b). At the end of March quarter 2016, pension funds held $1,065.8b in shares and other equity (58.5% of their assets) of which $733.2b were issued by domestic sectors and $332.7b were issued by the rest of world.

At the end of March quarter 2016, life insurance corporations held $234.2b in shares and other equity (81.1% of their assets), a decrease of $7.9b or 3.3%. Life insurance corporations predominately held shares and other equities in non-money market financial investment funds $194.9b and other private non-financial corporations $17.2b.


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 March quarter 2016 the household sector claims on the net equity in reserves of pension funds and of life insurance corporations were $1,917.4b and $59.5b respectively, while shareholders of life insurance corporations had claims of $22.6b. Of the total $1,941.8b assets of pension funds, 44.5% was invested through investment managers, 45.2% was directly invested in financial markets and 10.3% was invested directly in life insurance corporations.


GENERAL GOVERNMENT

During March quarter 2016, general government invested $11.8b in gross fixed capital formation with state and local general government accounting for majority of this investment at $7.9b. State and local general government investment in gross fixed capital formation was funded through $4.2b in net savings plus consumption of fixed capital and $5.0b in net borrowings.

Graph 4. Change in net financial position, General government



National General Government

During March quarter 2016, the net change in financial position (net borrowing) for national general government was -$9.6b. National general government acquired $16.7b in financial assets while incurring $26.3b in financial liabilities. Net incurrence of liabilities was predominately driven by $22.1b in net issuances of Commonwealth government bonds.

National general government acquired financial assets through deposits with the central bank ($8.2b) and accounts receivable ($5.9b) during March quarter 2016.

At the end of the March quarter 2016, national general government had total financial assets of $497.1b and total liabilities of $834.8b.


State and Local General Government

During March quarter 2016, the net change in financial position (net borrowing) of state and local general government was -$5.0b. State and local general government recorded flat net acquisition of financial assets ($0.1b) while incurring $5.0b in liabilities.

Net acquisition of financial assets was driven by deposits with banks ($0.8b) offset by net maturities in holdings of one name paper ($0.2b) and bonds ($0.2b) as well as repayments in loans and placements ($0.5b).

Net transactions in liabilities were driven by unfunded superannuation claims ($2.8b) and borrowings in long term loans ($1.8b). At the end of March quarter 2016, state and local general government had total financial assets of $473.6b and liabilities of $332.9b.

Graph 5. Net issue of debt securities, National general government and Central Borrowing Authorities


The graph above illustrates the quarterly net issuance of debt securities for the operations of the national and state and local general governments. During March quarter 2016, Commonwealth government issued $22.1b 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 ($4.2b) were driven by total bonds and one name paper recording net issuances of, $2.4b and $1.4b respectively, adding to a total of $3.8b. At the end of March quarter, central borrowing authorities had total assets of $377.5b and total liabilities of $394.1b. Central borrowing authorities acquired $11.4b in financial assets, driven by loans and placements ($5.6b) and holdings of one name paper ($3.0b).


REST OF WORLD

Australia’s net international investment position at the end of March quarter 2016 was a net foreign liability of $1,012.1b (net financial asset position of the rest of world), an increase of $51.4b from the previous quarter with net transactions of $20.7b (net change in financial position) and valuation increases of $30.7b.

Non-residents had net transactions of -$21.0b in Australian financial assets and valuation increases of $41.0b, which resulted in an increase in their holdings of Australian financial assets to $3,122.2b during March quarter 2016. The valuation increases were driven by derivatives ($66.5b), partially offset by a valuation decrease in bonds (-$15.8b) and equities(-$11.4b).

During March quarter 2016 non-residents reduced their financial liabilities to Australia, with net transactions of -$41.6b, offset partly by valuation increases of $10.3b, resulting in $2,110.1b of rest of world assets held by Australian residents. The negative transactions were driven by short-term loans (-$22.5b) and derivatives (-$18.4b). The valuation increases were driven by derivatives ($65.3b), partially offset by a valuation decrease in equities (-$40.0b).