5232.0 - Australian National Accounts: Finance and Wealth, Sep 2019 Quality Declaration 
Latest ISSUE Released at 11:30 AM (CANBERRA TIME) 19/12/2019   
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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 predominantly through gross savings ($31.4b), and the sector returned to become a net borrower ($2.4b). The net borrowing position was a result of net incurrence of liabilities ($26.7b) outweighing acquisition of financial assets ($24.3b). The increase in financial assets was driven by accounts receivable ($12.1b) and deposits with authorised deposit taking institutions ($8.7b).

The debt to equity ratio adjusted for price changes rose slightly from 0.71 to 0.72. The ratio had been declining since March quarter 2016 but steadied 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 remained stable at 0.51. 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 shifted this quarter, with the sector seeking the majority of funding through the debt market ($21.9b) rather than the equity market ($4.8b). The largest debt borrowing were loans and placements borrowed from authorised deposit taking institutions (ADIs) ($7.9b).


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
Jun Qtr 2019
Sep Qtr 201
9
Sep Qtr 2019
Sep Qtr 2019
$b
$b
$b
$b

Assets of financial corporations
Central bank
187.4
-4.8
3.0
185.5
Authorised deposit taking institutions
3 970.6
9.4
105.0
4 085.0
Other broad money institutions
183.1
4.3
0.4
187.9
Pension funds
2 411.9
11.3
51.6
2 474.9
Life insurance corporations
-
-
5.0
-
Non-life insurance corporations
233.9
-1.0
4.4
237.3
Money market investment funds
42.5
-0.3
0.0
42.2
Non-money market investment funds
997.0
-7.5
25.5
1 015.1
Central borrowing authorities
396.7
10.1
2.1
409.0
Securitisers
487.3
13.5
0.1
500.9
Other financial corporations
84.3
-1.7
1.3
84.0
Liabilities of financial corporations
Central bank
190.6
-6.7
2.0
185.9
Authorised deposit taking institutions
4 118.8
21.6
98.8
4 239.3
Other broad money institutions
146.4
5.5
4.4
156.2
Pension funds
2 600.4
12.7
55.2
2 668.4
Life insurance corporations
-
-
9.5
-
Non-life insurance corporations
252.5
3.6
0.3
256.4
Money market investment funds
42.5
-1.1
0.8
42.2
Non-money market investment funds
1 143.9
5.4
29.3
1 178.6
Central borrowing authorities
393.3
4.3
1.9
399.5
Securitisers
501.6
10.3
3.3
515.3
Other financial corporations
178.6
0.5
4.0
183.2

- nil or rounded to zero (including null cells)


The $169.6b increase in financial corporations' assets was driven by increases in shares and other equity ($60.0b), derivatives ($49.2b) and loans and placements ($48.4b), while the $203.1b increase in liabilities was driven by revaluations in derivatives ($76.9b) and acceptance of deposits ($31.2b).


Authorised deposit taking institutions deposit funding decreases

ADIs largest funding source, deposits, decreased to 57.7% this quarter, the lowest it has been since June quarter 2016, partly reflecting record low interest rates. Funding through equity remained steady at 14.2%, financing through short-term debt securities continued to decline, falling this quarter to 7.4%, and funding through long-term debt securities fell slightly to 13.2%.


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


Household loan balances continued to slow

Growth in long term loans to households continues to slow, reflecting tighter lending conditions and a recovering but still weak housing market. Long term loans from ADIs and securitisers to households increased $3.3b this quarter. The increase was driven by strength in lending to households from securitisers, which increased $11.4b, mostly driven by internal securitisation. Balances of ADIs' long term loans to households decreased (-$8.1b) for the first time since December quarter 2014, as households paid off debt this quarter. Through the year growth in long term loan balances has fallen to a new historic low of 2.9%.

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


Superannuation assets continue to rise

Pension fund (superannuation) assets rose $62.9b driven by valuation increases in shares and other equity ($42.8b) which remain the largest financial asset held by pension funds (77.1%).


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 42.7% of their total investment in equities. This quarter NMMF held $672.2b in shares and other equity (66.2% of total financial assets) and $238.2b in debt securities (23.5% of total financial assets).

Households claims on net equity in reserves of superannuation (pension funds) was $2,622.8b at the end of the quarter.


GENERAL GOVERNMENT

National general government debt issuance increases for the second consecutive quarter

Net issuance increased $12.3b this quarter. Despite this, annual growth to September quarter remains at historically low levels post the global financial crisis and is driven by national general government gross saving remaining high. The majority of bond issuances this quarter was purchased by the rest of the world ($13.0b) and ADIs ($6.3b), offset by repurchase agreement activity by the central bank (-$5.3b) and maturities of bonds held by non-money market investment funds ($3.7b).

Total liabilities increased $32.9b, as falling bonds yields resulted in large valuation increases for a third consecutive 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 2019 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 18% through the year, with September quarter 2019 increasing 6.0% ($9.3b). The rise this quarter follows loan borrowings from central borrowing authorities of $6.6b in June quarter 2019 and $4.5b in March quarter.


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 continues to borrower from Australia

The net financial position of rest of world at the end of September 2019 was $976.0b. This $22.0b decrease from the previous quarter was due to valuation decreases of $14.2b and net transactions (net change in financial position) of -$7.7b, resulting in the second consecutive quarter of net lending by Australia.

Rest of word investment in Australia was low, recording just $74m in transactions with valuations making up most of the movement ($114.8b), resulting in an increase in rest of world holdings of Australian assets to $3,954.0b. The weakness in transactions was driven by settlements of derivative contracts with domestic ADIs. The valuation increases to rest of world assets were driven by long term debt securities.

Rest of world increased their liabilities to Australia, recording transactions of $7.8b and valuations of $129.1b, resulting in a total of $2,978.1b in liabilities to Australian residents. Positive transactions were driven by loans, equity and accounts payable, partly offset by settlements of derivative contracts and maturity of one name paper issued offshore. The valuation increase was driven by long term debt securities, derivatives and unlisted equity.


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