5232.0 - Australian National Accounts: Finance and Wealth, Jun 2019 Quality Declaration 
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 26/09/2019   
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SECTORAL ANALYSIS

PRIVATE NON-FINANCIAL CORPORATIONS

Debt to equity ratio decreased

Private non-financial corporations’ investment in fixed assets was funded entirely through gross savings ($53.4b), as the sector became net lenders ($22.5b) for the first time in 3 years. The net lending position was a result of net acquisition of financial assets ($33.9b) outweighing net incurrence of liabilities ($11.4b). The increase in financial assets was driven by deposits with banks ($11.8b), acquisition of equity ($10.5b) and accounts receivable ($10.7b) from households and rest of the world.

The debt to equity ratio adjusted for price changes fell slightly from 0.67 to 0.66. The ratio had been declining since March quarter 2016 but has been steady over 2018-19 indicating the 'real' level of debt to equity for private non-financial corporations has stabilised. On a non-adjusted basis, the debt to equity ratio decreased from 0.52 to 0.51 due to valuation increases in equity, reflecting the rise in Australian share market over the quarter. The non-adjusted ratio tends to be more volatile due to the impact of valuation changes in shares and other equity.


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


Private non-financial corporations' funding through debt and equity have been at similar amounts in the past few quarters, however this quarter private non-financial corporations paid down debts while raising $15.6 worth of equity. The largest debt repayments were on loans (-$8.7b) and short term debt securities (-$4.6b).


Graph 2. Private non-financial corporations transactions in equity and debt
Graph 2 shows Private non-financial corporations transactions in equity and debt


FINANCIAL CORPORATIONS

Financial assets and liabilities of financial corporations


Outstanding at end
Transactions during
Other changes during
Outstanding at end
Mar Qtr 2019
Jun Qtr 201
9
Jun Qtr 2019
Jun Qtr 2019
$b
$b
$b
$b

Assets of financial corporations
Central bank
180.8
2.1
4.0
186.9
Banks
3 764.1
-10.6
93.6
3 847.1
Other depository corporations
253.8
3.6
1.1
258.5
Pension funds
2 318.3
34.5
71.9
2 424.7
Life insurance corporations
284.8
n.p.
6.2
n.p.
Non-life insurance corporations
222.7
-5.2
6.2
223.7
Money market investment funds
39.4
0.3
0.1
39.8
Non-money market investment funds
944.9
-23.9
41.5
962.4
Central borrowing authorities
382.2
5.5
2.1
389.8
Securitisers
467.1
13.9
0.0
481.0
Other financial corporations
147.8
2.6
5.9
156.3
Liabilities of financial corporations
Central bank
182.7
8.5
1.3
192.4
Banks
3 927.7
-17.2
126.6
4 037.1
Other depository corporations
242.6
3.4
0.7
246.7
Pension funds
2 467.6
36.9
70.9
2 575.4
Life insurance corporations
277.9
n.p.
5.4
n.p.
Non-life insurance corporations
245.0
3.4
2.6
251.1
Money market investment funds
39.4
-0.5
1.0
39.8
Non-money market investment funds
1 038.0
-11.3
28.1
1 054.9
Central borrowing authorities
419.8
2.2
5.1
427.0
Securitisers
467.2
10.8
3.9
481.9
Other financial corporations
109.2
3.7
7.0
119.9

- nil or rounded to zero (including null cells)
n.p.: not available for publication but included in totals where applicable, unless otherwise indicated.

Positive revaluations in derivatives drove the increase in both financial assets and liabilities of financial corporations this quarter. Total financial assets increased by $230.0b, driven by bonds and derivatives, while total liabilities increased $264.9b, driven by listed equity and derivatives.


Bank equity funding increases

Banks funding through equity picked up to 14.3% this quarter, after falling to a seven year low in December quarter 2018 (13.3%) and remaining low in March quarter 2019 (13.6%). Banks' largest funding source, deposits, decreased to 58.0%, partly reflecting record low interest rates. Financing through short-term debt securities fell slightly to 8.1%, while funding through long-term debt securities remained at 14.1%.


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


Loans to households continue to slow through the year

Growth in long term loans to household continue to slow in 2018-19, reflecting tighter lending conditions and a weak housing market. Long term loans from banks and securitisers to households increased to $23.3b this quarter, following weak growth of $10.5b last quarter. The increase was driven by strength in lending to households from securitisers, which increased $14.5b, driven by both internal and on-market securitisation. Through the year growth in long term loan balances has fallen to a historic low of 3.5%.

Both banks and securitisers need to be considered when assessing movements in loans assets of banks. 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 banks 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 banks and securitisers to households
Graph 4 shows Long term loans and placements from banks and securitisers to households


Superannuation assets continue to rise

Pension fund (superannuation) assets rose $106.4b driven by valuation increases in shares and other equity ($71.9b) which remain the largest financial asset held by pension funds (72.4%).


Graph 5. Financial assets of pension funds
Graph 5 shows Financial assets of pension funds

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 39.5% of their total investment in equities. This quarter NMMF held $626.8b in shares and other equity (65.1% of total financial assets) and $242.6b in debt securities (25.2% of total financial assets).

Households claims on net equity in reserves of superannuation (pension funds) was $2,532.9b at the end of the quarter.


GENERAL GOVERNMENT

Continued slow growth of national general government debt issuance

Despite a $8.9b net issuance this quarter, net issuances of national general government bonds in 2018-19 was its lowest annual value since 2007-08. The reduced demand for credit coincides with the national general government's improving saving position over the last 3 years. The majority of bond issuances this quarter were purchased by pension funds ($3.8b) and banks ($3.8b).

Total liabilities increased $67.7b as falling bond yields resulted in large valuation increases in bonds and unfunded superannuation claims. The valuation increases in unfunded superannuation claims represent changes in actuarial assumptions due to falls in the discount rate, which reflect decreasing bond yields during the quarter.


Graph 6. Annualised national general government net bond issuance and gross saving
Graph 6 shows 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 this quarter, with long term loan borrowings in 2018-19 the highest since 2012-13, partly reflecting increased financing requirements with strong capital investment on infrastructure through the year. Balances of loans and placements with central borrowing authorities grew 11% through the year, with this quarter increasing 4.4% ($6.6b). The rise this quarter follows loan borrowings from central borrowing authorities of $4.5b in March quarter 2019 and $4.7b in December quarter 2018, and is consistent with large bond issuances by central borrowing authorities over 2018-19.


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

Rest of world were borrowers from Australia for the first time since 1980

Rest of world net financial position at the end of the quarter was $1,001.6b. This $9.2b increase from the previous quarter was due to valuation increases of $13.2b, partly offset by net transactions (net change in financial position) of -$3.9b, resulting in Australia's first net lending position since March quarter 1980.

Rest of word investment in Australia recorded transactions of -$2.2b and valuation increases of $134.6b resulting in an increase in their holdings of Australian assets to $3,826.0b during June quarter 2019. The negative transactions were driven by net maturity of one name paper and derivative contracts with domestic banks. The valuation increases to rest of world assets were driven by derivatives contracts and holdings of equity and bonds.

Rest of world increased their liabilities to Australia, with transactions of $1.8b, and valuation increases of $121.4b, resulting in a total of $2,824.4b in liabilities to Australian residents. Positive transactions were driven by shares and other equity and accounts payable, partly offset by settlement derivatives contracts. The valuation increases were driven by unlisted equities and the derivatives market.


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