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1301.0 - Year Book Australia, 2006  
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 20/01/2006   
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Contents >> Chapter 26 - 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). 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 inter-
mediaries n.e.c.
Consol-
idated financial sector
total
$b
$b
$b
$b
$b
$b
$b
$b
$b

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
875.6
245.3
190.5
470.1
78.8
93.9
237.6
1,610.8
2003
55.3
978.8
243.6
182.9
500.9
87.8
103.6
249.1
1,711.4
2004
62.6
1,111.6
232.4
192.4
608.9
92.1
101.7
313.3
1,961.3
2005
70.5
1,214.9
258.3
211.8
715.1
96.6
111.6
404.1
2,209.5

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 2005 there were 51 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 2005, banking services were provided at 3,191 giroPost locations and 24,173 Automatic Teller Machines (ATMs) throughout Australia (table 26.36).

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

2003
2004
2005
$m
$m
$m

FINANCIAL ASSETS

Monetary gold and SDRs(a)
1,555
1,729
1,719
Currency and deposits
11,093
24,043
33,472
One name paper
548
2,614
2,831
Bonds
41,749
32,251
30,290
Derivatives
8
2
31
Loans and placements
91
23
21
Other accounts receivable
221
261
290
Total
55,265
60,923
68,654

LIABILITIES

Currency and deposits
34,484
36,769
38,759
Unlisted shares and other equity(b)
11,678
12,514
11,241
Other
6,783
5,363
3,231
Total
52,945
54,646
53,231

(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

2003
2004
2005
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
30,879
34,595
40,526
Acceptance of bills of exchange
76,680
83,398
91,697
One name paper
12,020
15,558
16,272
Bonds
28,668
32,842
36,245
Derivatives
57,276
58,180
53,827
Loans and placements
693,628
802,545
887,348
Equities
75,517
78,968
83,812
Prepayments of premiums and reserves
1,616
1,745
1,837
Other accounts receivable
2,484
3,815
3,329
Total
978,768
1,111,646
1,214,893

LIABILITIES

Currency and deposits
502,622
561,423
596,978
Acceptance of bills of exchange
39,000
42,398
49,924
One name paper
78,832
94,878
97,729
Bonds
17,217
24,311
37,816
Derivatives
63,337
52,969
58,444
Loans and placements
45,898
39,789
45,200
Equity
171,712
179,996
216,272
Other accounts payable
4,512
2,532
4,188
Total
923,130
998,296
1,106,551

(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, and corporations registered under the Financial Statistics (Collection of Data) Act 2001 (Cwlth) which include 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 to APRA as Registered Financial Corporations. From 31 March 2003 the number of categories of other depository corporations reduced to five following changes to the Financial Statistics (Collection of Data) Act 2001 (Cwlth).

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

2003
2004
2005
$m
$m
$m

Permanent building societies
12,987
14,563
16,053
Credit cooperatives
28,498
31,086
33,096
Money market corporations
98,994
(a)67,869
80,130
Other registered financial corporations
80,204
76,243
86,535
Cash management trusts
30,031
32,452
36,520
Total
250,714
222,213
252,334

(a) A large MMC became a bank during 2003-04

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

2003
2004
2005
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
11,036
10,782
12,216
Bills of exchange
3,299
3,390
3,425
One name paper
14,631
15,260
15,470
Bonds
42,311
40,760
47,383
Derivatives
309
-
155
Loans and placements
4,505
3,261
2,805
Equities
101,109
113,858
124,260
Other accounts receivable
5,738
5,099
6,078
Total
182,938
192,410
211,792

LIABILITIES

Bills of exchange
4
49
3
One name paper issued in Australia
-
-
-
One name paper issued offshore
-
967
805
Bonds etc. issued in Australia
1,009
240
-
Bonds etc. issued offshore
633
289
240
Derivatives
-
123
50
Loans and placements
3,328
3,405
5,017
Listed and unlisted equity
24,444
30,417
33,870
Net equity in reserves
38,536
37,359
47,154
Net equity of pension funds
120,618
134,254
147,635
Other accounts payable
5,661
6,056
4,349
Total
194,233
213,159
239,123

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 include any provision for the pension liabilities of governments to public sector employees in respect of unfunded retirement benefits. At 30 June 2005 the ABS estimate for claims by households on governments for these outstanding liabilities was $147.7b.

26.7 PENSION FUNDS(a) - 30 June

Type of fund
2004
2005

Corporate
1,404
973
Industry
107
84
Public sector
39
41
Retail
235
226
Small funds (a)
289,367
310,901
Total
291,152
312,225

(a) Small funds include small APRA funds, single member approved deposit funds and self managed superannuation funds.

Source: APRA


26.8 PENSION FUNDS(a), Financial assets

Amounts outstanding at 30 June

2003
2004
2005
$m
$m
$m

Currency and deposits
34,646
41,820
54,070
Bills of exchange
12,459
17,738
16,823
One name paper
13,617
17,381
17,047
Bonds
55,983
67,003
73,434
Loans and placements
16,038
20,434
22,170
Equities
231,156
294,010
364,073
Unfunded superannuation claims
4,891
1,546
4
Net equity of pension funds in life office reserves
120,618
134,254
147,635
Other accounts receivable
11,468
14,704
19,796
Total
500,876
608,890
715,052

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 2005 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 106 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 26.9 sets out the financial assets and liabilities of other insurance corporations at 30 June 2005 and the preceding two years.

26.9 OTHER INSURANCE CORPORATIONS, Financial assets and liabilities

Amounts outstanding at 30 June

2003
2004
2005
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
8,033
8,598
8,317
Bills of exchange
2,651
1,899
1,706
One name paper
4,446
4,961
6,918
Bonds
28,750
26,716
27,374
Loans and placements
9,462
10,154
10,142
Equities
21,288
24,911
28,624
Other accounts receivable
13,079
14,728
13,425
Total
87,709
91,967
96,506

LIABILITIES

One name paper on issue
190
311
413
Bonds on issue
2,538
2,227
3,141
Loans and placements
2,272
2,561
2,057
Listed shares and other equity
14,796
22,081
28,072
Unlisted shares and other equity
15,442
18,297
21,731
Prepayment of premiums
53,815
58,115
61,158
Other accounts receivable
6,916
6,382
6,128
Total
95,801
109,974
122,700

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. 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

2003
2004
2005
$m
$m
$m

FINANCIAL ASSETS

Currency and deposits
6,352
3,560
2,273
Bills of exchange
5,495
6,388
7,864
One name paper
5,689
8,441
13,050
Bonds
4,461
5,471
5,472
Derivatives
7,688
6,386
7,026
Loans and placements
72,936
70,698
74,377
Other accounts receivable
633
756
1,522
Total(a)
103,560
101,670
111,584

LIABILITIES

Drawings of bills of exchange
One name paper
8,016
6,807
6,610
Bonds
70,664
74,741
81,559
Derivatives
7,335
7,169
6,888
Loans and placements
17,291
14,285
13,290
Equity
30
30
30
Other accounts payable
923
729
707
Total
104,259
103,761
109,084

(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. At 30 June 2005 eight trustee companies reported assets and liabilities data on behalf of a number of common funds included in this subsector.

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. At 30 June 2005 there were 612 unit trusts (of which 491 were equity trusts) included in this subsector. 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. At 30 June 2005 there were 144 securitisation vehicles included in this sub-sector.

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. At 30 June 2005 there were 253 cooperative housing societies.

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. At 30 June 2005 there were 65 fee-for-service fund managers.

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

2003
2004
2005
$m
$m
$m

Public unit trusts(a)
99,024
n.p.
121,396
Equity unit trusts
78,056
n.p.
102,380
Other unit trusts
20,968
18,430
19,016
Common funds
8,929
9,687
9,954
Securitisers
128,986
159,863
185,463
Other(b)
12,117
32,331
87,254
Total
249,056
313,257
404,067

(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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