SECTORAL ANALYSIS

NON-FINANCIAL CORPORATIONS

During September quarter 2018, private non-financial corporations invested $44.6b in gross fixed capital formation, funded through gross saving of $19.4b and net borrowing of $27.9b. The net change in financial position was a result of incurring $75.2b of liabilities, primarily through equity issuance of $44.7b and loan borrowing of $31.0b. Total demand for credit was the highest on record at $69.0b, driven by privatisations and numerous mergers and acquisitions this quarter. Private non-financial corporations acquired $17.6b of financial assets, mainly through acquisition of equity and loan assets.

The private non-financial corporations debt to equity ratio adjusted for price changes was flat at 0.69 in September 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.

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 September quarter 2018. On a non-adjusted basis, the debt to equity ratio fell more than the ratio adjusted for price change in September quarter 2018 due to valuation increases of shares and other equity.


FINANCIAL CORPORATIONS

		Outstanding at end		Transactions during		Other changes during		Outstanding at end
		Jun Qtr 2018		Sep Qtr 2018		Sep Qtr 2018		Sep Qtr 2018
		$b		$b		$b		$b
Assets of financial corporations
	Central bank	192.6		-8.3		1.8		186.1
	Banks	3 692.7		-28.3		26.2		3 690.5
	Other depository corporations	243.6		4.4		0.4		248.4
	Pension funds	2 249.3		11.1		28.9		2 289.3
	Life insurance corporations	291.5		-5.9		4.7		290.3
	Non-life insurance corporations	217.9		4.5		1.7		224.1
	Money market investment funds	37.3		1.0		-		38.3
	Non-money market investment funds	912.3		10.0		7.9		930.3
	Central borrowing authorities	360.4		2.1		1.3		363.8
	Securitisers	458.0		-7.2		0.0		450.8
	Other financial corporations	145.2		-0.2		1.8		146.7
Liabilities of financial corporations
	Central bank	195.3		-8.9		1.1		187.4
	Banks	3 858.5		-20.1		30.9		3 869.3
	Other depository corporations	235.6		3.1		0.1		238.7
	Pension funds	2 409.3		14.7		26.6		2 450.6
	Life insurance corporations	291.2		-5.9		3.4		288.8
	Non-life insurance corporations	239.6		3.0		-0.6		242.0
	Money market investment funds	37.3		2.7		-1.7		38.3
	Non-money market investment funds	1 024.1		2.2		6.5		1 032.8
	Central borrowing authorities	398.9		5.6		-0.2		404.3
	Securitisers	458.1		-10.3		2.5		450.4
	Other financial corporations	113.0		-2.9		1.7		111.8
- nil or rounded to zero (including null cells)

Total financial corporations increased their asset holdings by $57.8b, driven by acquisition of loan assets and revaluation increases of shares and other equity.

Total financial corporations incurred $53.5b of liabilities, driven by insurance technical reserves and derivative liability contracts.

Banks’ funding through deposits increased in September quarter 2018 to 59.5% from 58.7% in June quarter 2018. Financing of their financial assets through short term debt securities decreased to 8.4%, falling to its lowest level in the time series. Long term debt securities have been a more favourable source of funding for banks this year, increasing the proportion of long term debt securities to bank total assets to 14.6% in September quarter 2018. Equity funding has remained at consistent level in recent years.


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

Graph 4 illustrates the long-term trend in the financial asset composition of pension funds. Pension funds’ investment into financial assets was stable over September quarter 2018. Shares and other equity remain the major component of pension funds' investments.



Pension funds holding of shares and other equity was $1,628.0b at the end of September quarter 2018 (71.1% of total financial assets). A significant proportion (38.6%) 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 5), as such pension funds have indirect exposure to debt securities through NMMFIF.

Non-money market financial investment funds held $599.2b in shares and other equity (64.4% of total financial assets) and $234.1b in debt securities (25.2% of total financial assets).

Life insurance corporations held $233.8b in shares and other equity (80.5% of total financial assets), which were mostly issued by other private non-financial corporations and non-money market financial investment funds.


The financial claims of households on net equity in reserves of pension funds and of life insurance corporations were $2,407.4b and $118.2b respectively at the end of September quarter 2018. The financial claims of shareholders of life insurance corporations were $32.6b. Of the total $2,450.6b assets of pension funds, 47.8% was invested through financial managers, 46.7% was directly invested in financial markets, and 5.5% was invested in life insurance corporations.




GENERAL GOVERNMENT

During September quarter 2018, general government invested $14.9b in gross fixed capital formation, with state and local general government accounting for the majority of this investment. State and local government and national general government recorded gross saving of $8.2b and -$1.6b respectively during the quarter. State and local general government funded their gross fixed capital formation by disposal of its financial assets driven by privatisations, while national general government funded their gross fixed capital formation by borrowing via the bond market.

National general government

Net change in financial position for national general government was -$7.9b during September quarter 2018. This was made up of national general government disposing of $3.7b of financial assets driven by the withdrawal of deposits with the central bank and incurring $4.2b of liabilities, mainly driven by issuance of long term debt securities.

At the end of the September quarter 2018, national general government had total financial assets of $484.7b and total liabilities of $949.5b.


State and local general government

Net change in financial position for state and local general government was -$4.3b during September quarter 2018. State and local general government disposed $1.9b of financial assets, driven by the disposal of shares and other equity due to privatisations, this was offset by an increase in deposits. State and local government incurred $2.4b of liabilities, driven by loans and placements.

At the end of the quarter, state and local general government had total financial assets of $590.5b and total liabilities of $340.0b.


Graph 7 illustrates the quarterly net issuance of debt securities by the national and state and local general governments. During September quarter 2018, the national general government issued $3.0b of long-term debt securities and $0.5b 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 authorities issued $4.3b of long-term debt securities and repaid $0.6b of short-term debt securities during the quarter.


Central borrowing authorities

Central borrowing authorities acquired $2.1b of financial assets, driven by deposits and debt securities. Central borrowing authorities incurred $5.6b of liabilities, driven by short-term loan placements and long-term debt securities, and partly offset by repayment of short-term debt securities and long term loans.

At the end of the quarter, central borrowing authorities had total financial assets of $363.8b and total liabilities of $404.3b.


REST OF WORLD

Australia’s net international investment position at the end of September quarter 2018 was a net foreign liability of $940.2b (net financial asset position of the rest of world). This is a decrease of $17.3b from the previous quarter with net transactions of $11.2b (net change in financial position) and valuation decreases of $28.5b.

Non-residents’ investment in Australia recorded transactions of -$31.6b and valuation increases of $29.6b, which resulted in a decrease of their holdings of Australian assets to $3,562.9b during September quarter 2018. The negative transactions were driven by settlement of derivatives, withdrawal of deposits and disposal of short term debt securities, offset by acquisition of shares and bonds. The valuation increases were predominantly driven by derivatives and long-term debt securities.

Graph 8 illustrates that the non-resident ownership of national general government bonds as a share of total issuance has decreased this quarter from 55.1% to 54.4%.

Non-residents decreased their liabilities to Australia, with net transactions of -$42.8b and valuation increases of $58.1b during the September quarter 2018. Rest of the world now have $2,622.7b of liabilities with Australian residents. The negative transactions were driven by settlement of derivative contracts and repayment of short-term debt securities. There were partly offset by issuance of unlisted shares and other equity. The valuation increases were driven by unlisted shares and other equity and the derivatives market.