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Financial corporations' assets increased $39.3b to $6,450.4b this quarter. The rise was driven by increases in loans and placements ($33.2b), and shares and equity ($65.4b), offset by decreases in bonds (-$23.7b) and derivatives (-$41.0b). Liabilities rose $9.0b, driven by increases in net equity in reserves ($55.2b) and one name paper issued offshore ($27.4b), offset by decreases in derivatives (-$41.4b) and bonds issued offshore (-$24.5b).
Authorised deposit taking institutions (ADIs) deposit funding increases
ADIs largest funding source, deposits, increased to 58.3% this quarter, while equity and long term debt securities fell. The fall in equity funding reflects large negative price changes and the fall in long term debt securities was due to a large number of bond maturities, bringing the bond funding source to its lowest level in 14 years. Financing through short term debt securities rose to 8.0%.
Graph 3. ADIs liabilities as a proportion of their financial assets
Household loan balances increased over the quarter
Long term loans to households from ADIs and securitisers grew 0.8% ($17.6b) this quarter. The growth was driven entirely by lending from ADIs ($18.1b), as household loans with securitisers decreased slightly (-$0.5b). The growth in lending from ADIs is the strongest since September quarter 2018, and reflects a gradually recovering housing market and increasing loan commitments over the second half of 2019. However, part of the increase is being moderated by households maintaining their mortgage repayment amounts despite the multiple rate cuts over the year reducing the minimum required repayment. Despite the strength this quarter, the weakness in through the year growth in loan balances (-2.8%) reflects the tight lending conditions and weak housing market through the majority of 2019.
Both ADIs and securitisers need to be considered when assessing movements in loans assets of ADIs. Securitisers are trusts or corporations that pool various types of assets, such as property loans or credit card debt, and package them as collateral backing for bonds or short-term debt securities. Graph 4 includes both 'on market' and internal securitisation. 'On market' securitisation is used by ADIs as a way to move loan assets off their balance sheets to fund their lending business, while the purpose of internal securitisation is to use the securities as collateral with the RBA in its repurchase agreement program.
Graph 4. Long term loans and placements from ADIs and securitisers to households
Rise of self-managed superannuation funds (SMSF)
Graph 5 shows that SMSF financial assets as a proportion of the pension funds sector have grown since the inception of these funds in December quarter 1999 (14%) to a peak in September 2012. As at 31 December 2019 they are 24% of total financial assets of pension funds, with a value of $610.0b.
Graph 5. Financial assets of SMSF as proportion of total financial assets of pension funds
Total pension fund (superannuation) assets rose $41.6b (1.7%) driven by valuation increases in shares and other equity ($24.8b). Valuations were subdued due to weak performance of the ASX. Equity remains the largest financial asset held by pension funds (77.4%).
Pensions funds are also indirectly exposed to equities and debt securities through non-money market financial investment funds (NMMF). Pension funds holdings in NMMF equity represent 42.3% of their total investment in equities. This quarter NMMF assets increased 0.1%, subdued growth was due to negative revaluations in holdings of bonds (-$3.7b) detracting from positive transactions ($4.1b).
Households claims on net equity in reserves of superannuation (pension funds) was $2,664.0b at the end of the quarter.
National general government experiences largest decrease in long term debt liability
Maturities of national general government bonds were greater than issuances, resulting in a net maturity of $2.2b. This is the second quarter of net maturity since the global financial crisis (GFC) when net bond issuance by government began trending upwards. In annualised terms, issuance over recent quarters has gradually fallen, and growth in government bond balances now remains at a low rate. This is in line with national general government gross saving strengthening to levels seen prior to the GFC. The majority of bond maturities this quarter was driven by ADIs reducing their holdings, while bond issuances were predominantly purchased by rest of world.
Total bond liabilities decreased $17.0b, driven by negative revaluations as the Commonwealth Government 10 year bond yield increased for the first time since March quarter 2018. This, combined with the net maturities resulted in the largest quarterly decrease of national general government bond liabilities within the time series.
Graph 6. Annualised national general government net bond issuance and gross saving
State and local general government continue to borrow for capital investment
State and local general government continued to borrow, with an increase of $5.5b in total liabilities this quarter. The rise in liabilities was driven by long term loan borrowing from central borrowing authorities which increased $5.4b. This is consistent with the $5.8b raised through net bond issuance by central borrowing authorities, providing funds for expenditure by respective state governments. Balances of loans and placements with central borrowing authorities grew 17.8% through the year, maintaining its highest growth since March quarter 2013, as state governments borrowed funds to finance strong capital investment.
Graph 7. 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 world at the end of December 2019 was $891.5b. This $83.4b decrease from the previous quarter was due to valuation decreases of $81.8b and net transactions (net change in financial position) of -$1.7b, resulting in the third consecutive quarter of net lending by Australia.
Rest of word investment in Australia fell 1.3% due to negative valuations ($45.4b) and transactions (-$7.9b) resulting in a decrease in rest of world holdings of assets to $3,903.8b. Negative valuations in holdings of bonds($28b) were driven by increased yield in government issued bonds combined with appreciation of the Australian dollar against almost all major trading currencies. Other contributors to valuation decreases were equities ($6.2b), deposits ($4.7b) and loans and placements ($3.1b). Negative transactions were driven mainly by settlements of derivatives issued by ADIs ($41.4b) and repayments of loans and placements ($7.2b), partly offset by increased holdings of one name paper ($32.2b) and equities ($13.4b).
Rest of world increased their liabilities to Australia $3,012.3b, recording valuations of $36.4b and transactions of -$6.3b. Positive valuations were wholly driven by equities ($48.6b) as overseas equity markets out performed the domestic share market. Negative transactions were driven by derivatives settlements ($39.7b), partially offset by issuance of equities ($21.2b) and loans and placements ($9.5b).
Graph 8. Rest of world's net change in financial position with Australia
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