5232.0 - Australian National Accounts: Finance and Wealth, Mar 2020 Quality Declaration 
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 25/06/2020   
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Sectoral analysis

Private non-financial corporation's increase liquidity through record loan borrowing

Private non-financial corporations sourced $41.8b worth of funds through record loan borrowings of $47.0b, with businesses drawing down on existing lines of credit. This was partly offset by a $9.6b net maturity in bonds, the largest maturity in three years. Deposits of private non-financial corporations grew by a record $46.1b, as the demand for liquidity increased significantly. Funds sourced through raising of equity was $4.8b, the lowest amount since December quarter 2012.

Graph 1. Private non-financial corporations transactions in loan liability and deposit asset
Graph 1 shows Private non-financial corporations transactions in loan liability and deposit asset

The debt to equity ratio on an adjusted basis increased from 0.67 to 0.69, reflecting the large increase in loan borrowings this quarter. On a non-adjusted basis the ratio increased significantly from 0.50 to 0.61, reflecting the substantial revaluation losses on equity caused by the declines in the stock market, as a result of the uncertainty created by the pandemic.

Graph 2. Private non-financial corporations - Debt to equity ratio
Graph 2 shows Private non-financial corporations - Debt to equity ratio


Financial assets and liabilities of financial corporations


Outstanding at end
Transactions during
Other changes during
Outstanding at end
Dec Qtr 2019
Mar Qtr 2020
Mar Qtr 2020
Mar Qtr 2020
$b
$b
$b
$b

Assets of financial corporations
Central bank
184.2
81.7
13.6
279.6
Authorised deposit taking institutions
4 046.4
194.6
259.3
4 500.3
Other broad money institutions
194.1
17.5
2.8
214.4
Pension funds
2 504.6
14.3
-268.0
2 250.9
Life insurance corporations
263.0
-9.6
-27.9
225.5
Non-life insurance corporations
240.3
3.0
-13.8
229.5
Money market investment funds
41.2
3.4
0.1
44.8
Non-money market investment funds
1 036.9
-36.9
-88.4
911.6
Central borrowing authorities
411.7
29.7
-3.1
438.3
Securitisers
500.1
165.4
0.1
665.5
Other financial corporations
82.6
5.9
-8.2
80.2
Liabilities of financial corporations
Central bank
185.9
86.8
8.6
281.4
Authorised deposit taking institutions
4 162.4
165.2
155.4
4 483.0
Other broad money institutions
159.7
8.2
-2.4
165.5
Pension funds
2 706.2
21.4
-269.8
2 457.8
Life insurance corporations
260.1
-9.2
-32.0
218.9
Non-life insurance corporations
255.0
1.6
-15.0
241.7
Money market investment funds
41.2
3.4
0.1
44.8
Non-money market investment funds
1 193.4
-9.4
-114.1
1 070.0
Central borrowing authorities
400.1
26.0
3.3
429.3
Securitisers
508.8
171.4
5.6
685.9
Other financial corporations
189.6
1.2
-11.4
179.4

- nil or rounded to zero (including null cells)


Financial corporations' assets increased $185.6 to $6,641.7b this quarter. The rise was driven by increases in derivatives ($250.5b), loans and placements ($119.7b) and bonds ($74.4b), offset by a decrease in equities (-$301.3b). Liabilities rose $45.2b, driven by increases in deposits ($115.8b) and derivatives ($266.5b), offset by decreases in insurance technical reserves (-$299.4b) and equities (-$94.5b).


Authorised deposit taking institutions (ADIs) deposit funding increases

ADIs funding from deposits increased 6.9% during the quarter. The rise in deposits was due to most sectors, but was driven by other private non-financial corporations (private trading corporations) ($45.5b), pension funds ($35.5b) and households ($14.7b), in response to increased liquidity requirements due to COVID-19. Funding from loans ($37.2b) and bonds ($46.0b) also increased this quarter, while funding from equity fell due to negative movements in the stock market.

Graph 3. Growth in deposit liabilities of ADIs
Graph 3 shows Growth in deposit liabilities of ADIs


ADIs undergo record amount of internal securitisation in response to RBA's repurchase agreement program

Lending from ADIs to households fell by 9.9% this quarter as major banks sold pools of mortgages internally to their securitiser arms in exchange for debt securities that can be sold to the RBA as part of its repurchase agreement program. This led to a 36.6% increase in lending from securitisers to households.

The overall growth rate in loans to households from ADIs and securitisers remains weak, up $8.9b this quarter. With the exception of September quarter 2019, this was the smallest increase in household loan balances since September quarter 2012. The slowdown, reflects households with outstanding loans taking advantage of low interest rates by paying down their debt, along with poor economic conditions and a negative economic outlook.

Graph 4. Long term loans and placements from ADIs and securitisers to households
Graph 4 shows Long term loans and placements from ADIs and securitisers to households


Volatility in the stock market drives pension fund assets down

Total financial assets of pension funds (superannuation) fell $253.7b (-10.1%) driven by valuation decreases in shares and other equity (-$263.0b). There were valuation losses in both listed and unlisted equity due to poor performance as a result of weakened economic conditions caused by COVID-19. Pension funds sold off their equity (-$14.0b) and bond assets (-$9.7b) while increasing deposits ($38.2b) both to accommodate members switching to defensive investment options and increase liquidity. This quarters 16.4% growth in deposits is the largest since June quarter 2007. The rise in deposits of pension funds was also in preparation for member's requests for early access to superannuation funds with implementation in the next two quarters.

Graph 5. Pension funds transactions in selected financial assets
Graph 5 shows Pension funds transactions in selected financial assets

Pension funds are indirectly exposed to equities and debt securities through non-money market financial investment funds (NMMF). NMMF assets fell 12.1% due to poor economic conditions as well as liquidation of assets. Liquidation was required to accommodate increased redemptions by investors reflected in -$7.6b transactions of unlisted equity liabilities. A large majority of these redemptions are attributable to pension funds withdrawing equity to increase their own liquidity.

Households claims on net equity in reserves of superannuation (pension funds) was $2,385.9b at the end of the quarter.

National general government experiences largest increase in long term debt liability on record

Net issuance of national general government bonds was $14.4b, the strongest result since 2017. This follows eight quarters of weak issuance and net maturities as gross saving of national general government, in annualised terms, began to strengthen to pre-GFC levels. The value of national general government bonds increased by $21.3b as interest rates fell to historic lows, which caused Commonwealth government bond yields to fall, with the 3 year bond yield halved to 0.38% by the end of the quarter. The combination of net issuance and increased value of national general government bonds resulted in a $35.7b increase in total bond liabilities, the strongest increase in the time series.

Monetary policy measures announced in response to COVID-19, resulted in a significant increase in demand for national general government bonds by the RBA. The RBA purchased $42.2b worth of national general government bonds, a majority of which were acquired through outright purchases in the secondary market, as required under the yield target measure. The RBA also made temporary acquisitions of national general government bonds through repurchase agreements with ADIs in exchange for deposits in the form of exchange settlement accounts. This prompted significant repurchasing activity between the rest of the world and ADIs, where ROW sold $30.2b worth of national general government bonds. By the end of the quarter, ADIs' total holdings increased by $15.0b and are eligible to be sold to the RBA under repurchase agreements in upcoming quarters. The RBA's holdings as a proportion of total national general government bonds more than doubled to 12.1%, while ROW holdings decreased to 51.5%, the lowest proportion since 2004.

Graph 6. National general government bond holders
Graph 6 shows National general government bond holders


State and local general government increased borrowing in response to bushfire relief and COVID-19

State and local general government borrowed a record $18.4b in loans from central borrowing authorities, driving the $22.3b increase in total liabilities this quarter. Significant funding was required by state governments due to increased expenditure on bushfire disaster relief efforts and in reaction to the immediate impacts of the COVID-19 pandemic on state and local economies. Loan borrowing by state and local government is consistent with the $18.7b raised through net issuance of bonds and one name paper by central borrowing authorities, providing funds for expenditure by respective state governments as required. The RBA also purchased $12.7b worth of bonds issued by central borrowing authorities through outright purchases in the secondary market and repurchase agreements with ADIs to facilitate smooth functioning of the Australian bond market. Deposit assets of state and local general government increased $5.6b, reflecting excess funds held for expenditure on economic support packages in future quarters,

Graph 7. State and local general government loan borrowings with central borrowing authorities
Graph 7 shows State and local general government loan borrowings with central borrowing authorities


Rest of world continues to borrow from Australia

The net financial position of rest of the world at the end of March quarter 2020 was $808.1b. This is a $101.4b decrease from the previous quarter and was due to net valuation decreases of $90.0b and net transactions (net change in financial position) of -$11.4b, resulting in the strongest net lending position by Australia in recent years.

Australia's net lending position was driven by rest of the world selling off $30.2b in Commonwealth government bonds, and ADIs purchasing debt securities issued by non-residents.

There were significant valuation changes across assets and liabilities of rest of world with Australia. Liabilities of rest of world increased in value by $211.1b due to the depreciation of the Australian dollar against most major foreign currencies having significant impacts on the value of derivative contracts, loans and deposits. This was partly offset by valuation falls in equity issued by rest of world, due to deteriorating global financial market conditions. Assets of rest of the world experienced valuation increases of $121.1b, driven by derivatives and bonds issued offshore, which are also subject to changes in foreign exchange rates.

Graph 8. Rest of world's net change in financial position with Australia
Graph 8 shows Rest of world's net change in financial position with Australia