5232.0 - Australian National Accounts: Finance and Wealth, Jun 2018 Quality Declaration 
Previous ISSUE Released at 11:30 AM (CANBERRA TIME) 27/09/2018   
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SECTORAL ANALYSIS

NON-FINANCIAL CORPORATIONS

During June quarter 2018, private non-financial corporations invested $45.8b in fixed assets, funded through gross saving of $44.5b and net borrowing of $1.6b. The net change in financial position was a result of incurring $16.8b of liabilities, primarily through equity issuance of $20.9b. Private non-financial corporations disposed of $6.3b financial assets, mainly through selling short-term debt securities.

The private non-financial corporations debt to equity ratio adjusted for price changes decreased to 0.70 in June quarter 2018. This ratio has been trending downwards since March 2016, indicating that private non-financial corporations have a declining ‘real’ level of debt to equity.


Graph 1. Private non-financial corporations, debt to equity ratio

Graph 1 shows Private non-financial corporations, Debt to equity ratio


The decrease in debt to equity ratio is further illustrated in Graph 2, which shows that non-financial corporations sourced more funds through equity markets rather than debt borrowing in June quarter 2018. On a non-adjusted basis, the debt to equity ratio fell more than the ratio adjusted for price change in June quarter 2018 due to valuation increases of shares and other equity.

Graph 2. Non-financial corporations transactions in equity and debt

Graph 2 shows Non-financial Corporations Transactions in Equities and Debt



FINANCIAL CORPORATIONS

FINANCIAL ASSETS AND LIABILITIES OF FINANCIAL CORPORATIONS

Outstanding at end
Transactions during
Other changes during
Outstanding at end
Mar Qtr 2018
Jun Qtr 2018
Jun Qtr 2018
Jun Qtr 2018
$b
$b
$b
$b

Assets of financial corporations
Central bank
189.4
3.1
0.1
192.6
Banks
3 639.9
10.8
31.5
3 682.2
Other depository corporations
241.5
-0.3
-0.1
241.1
Pension funds
2 167.0
31.6
52.3
2 250.9
Life insurance corporations
282.5
0.8
8.1
291.3
Non-life insurance corporations
214.4
3.7
2.9
221.0
Money market investment funds
37.6
0.2
-
37.8
Non-money market investment funds
899.5
-4.6
22.9
917.8
Central borrowing authorities
357.3
2.7
0.4
360.4
Securitisers
454.7
3.3
-
458.0
Other financial corporations
140.7
-0.4
4.5
144.8
Liabilities of financial corporations
Central bank
189.8
4.6
0.9
195.3
Banks
3 806.7
-13.2
61.8
3 855.3
Other depository corporations
232.9
0.5
0.1
233.5
Pension funds
2 323.4
35.1
51.1
2 409.6
Life insurance corporations
286.2
0.7
4.2
291.1
Non-life insurance corporations
234.4
0.6
5.2
240.1
Money market investment funds
37.6
0.1
0.1
37.8
Non-money market investment funds
992.7
18.5
9.2
1 020.4
Central borrowing authorities
393.4
5.4
-0.1
398.8
Securitisers
453.8
6.2
-1.8
458.2
Other financial corporations
106.5
3.3
4.0
113.8

- nil or rounded to zero (including null cells)


Total financial corporations increased their asset holdings by $173.7b, driven by acquisition of loan assets and revaluation increases of shares and other equity.

Total financial corporations incurred $196.5b of liabilities, driven by insurance technical reserves and issuance of shares and other equity.

Banks’ funding through deposits decreased to 58.9%, falling to its lowest since December quarter 2016. Financing of their financial assets through short term debt securities has remained relatively unchanged since it dropped to 10.0% in September quarter 2010. Equity funding has remained at a low level in recent years.

Graph 3. Banks liabilities as a proportion of their financial assets

Graph 3 shows Banks liabilities as a proportion of their financial assets


Long term debt securities as a source of funding increased this quarter to 14.5%, with banks issuing $12.6b of bonds, as illustrated in Graph 4.

Graph 4. Banks long-term debt securities issuance

Graph 4 shows Banks long-term debt securities issuance



Pension funds, life insurance corporations and non-money market financial investment funds

Graph 5 illustrates the long-term trend in the financial asset composition of pension funds. Pension funds’ investment into financial assets was stable over June quarter 2018. Shares and other equity remain the major component of pension funds' investments.

Graph 5. Financial assets of pension funds

Graph 5 shows Financial assets of pension funds


Pension funds holding of shares and other equity was $1,594.2b at the end of June quarter 2018 (70.8% of total financial assets). A significant proportion (38.8%) of pension funds holding of equity was issued by non-money market financial investment funds (NMMFIF). NMMFIF have higher investment proportion in debt securities than pension funds (Graph 6), as such pension funds have indirect exposure to debt securities through NMMFIF.

Non-money market financial investment funds held $588.6b in shares and other equity (64.1% of total financial assets) and $239.5b in debt securities (26.1% of total financial assets).

Life insurance corporations held $235.0b in shares and other equity (81.2% of total financial assets), which were mostly issued by other private non-financial corporations and non-money market financial investment funds.

Graph 6. Financial assets of pension funds, life insurance corporations and non-money market investment funds

Graph 6. Shows Financial assets of Pension funds, Life insurance corporations and Non-money market investment funds


The financial claims of households on net equity in reserves of pension funds and of life insurance corporations were $2,367.0b and $117.9b respectively at the end of June quarter 2018. The financial claims of shareholders of life insurance corporations were $32.8b. Of the total $2,409.6b assets of pension funds, 47.2% was invested through financial managers, 47.1% was directly invested in financial markets, and 5.7% was invested in life insurance corporations.

Diagram shows Financial claims between households, pension funds, life insurance corporations, rest of world and investment managers at end of quarter



GENERAL GOVERNMENT

General government acquired $17.8b of financial assets during June quarter 2018, almost entirely due to the national general government. The national and state and local government funded their gross fixed capital formation mainly through gross savings. Gross savings for national general government was $13.1b, and $10.6b for the state and local general government.

Graph 7. Change in net financial position, general government

Graph 7 shows Change in net financial position, General government


National general government

Net change in financial position for national general government was $1.6b during June quarter 2018. National general government acquired $16.9b of financial assets, driven by deposits, loans, purchase of one name paper and purchase of shares and other equities. National general government incurred $15.3b of liabilities, mainly driven by issuance of long term debt securities in Australia.

At the end of the quarter, national general government had total financial assets of $494.6b and total liabilities of $918.4b.


State and local general government

Net change in financial position for state and local general government was -$1.2b during June quarter 2018. State and local general government acquired $0.9b of financial assets, driven by loans, but mostly offset by selling of shares and other equities. State and local government incurred $2.1b of liabilities, driven by unfunded superannuation claims and other accounts payable, partly offset by repayment of loans.

At the end of the quarter, state and local general government had total financial assets of $563.5b and total liabilities of $341.5b.

Graph 8. Net issue of debt securities, national general government and central borrowing authorities

Graph 8 shows Net issue of debt securities, National general government and Central Borrowing Authorities


Graph 8 illustrates the quarterly net issuance of debt securities by the national and state and local general governments. During June quarter 2018, the Commonwealth government issued $10.7b of long-term debt securities and repaid $1.0b of short-term debt securities. For the state and local general government, central borrowing authorities are responsible for the issuance of debt securities. The central borrowing authority issued $1.3b of long-term debt securities and repaid $1.3b of short-term debt securities during the quarter.


Central borrowing authorities

Central borrowing authorities acquired $2.7b of financial assets, driven by deposits and loans, partly offset by decrease in shares and other equities. Central borrowing authorities incurred $5.4b of liabilities, driven by loans and long-term debt securities, and partly offset by repayment of short-term debt securities.

At the end of the quarter, central borrowing authorities had total financial assets of $360.4b and total liabilities of $399.0b.


REST OF WORLD

Australia’s net international investment position at the end of June quarter 2018 was a net foreign liability of $953.4b (net financial asset position of the rest of world). This is an increase of $19.5b from the previous quarter with net transactions of $12.7b (net change in financial position) and valuation increases of $6.8b.

Non-residents' investment in Australia recorded transactions of $26.3b and valuation increases of $92.9b, which resulted in an increase of their holdings of Australian assets to $3,554.6b during June quarter 2018. The positive transactions were driven by shares and other equities, bonds and one name paper, offset by settlement of derivatives. The valuation increases were predominantly driven by shares and other equity and derivative contracts.

Graph 9. Long term debt securities, issued by national general government held by rest of world

Graph 9 shows long term debt securities, issued by national general government held by rest of world


Graph 9 illustrates that the non-resident ownership of national general government bonds as a share of total issuance has increased this quarter from 54.5% to 55.1%.

Non-residents increased their liabilities to Australia, with net transactions of $13.6b and valuation increases of $86.1b during the June quarter 2018. Rest of the world now have $2,601.2b of liabilities with Australian residents. The positive transactions were driven by rest of world issuance of one name paper and unlisted shares and other equity. These were partly offset by settlement of derivatives contracts. The valuation increases were driven by unlisted shares and other equity and the derivatives market.