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SECTORAL ANALYSIS


NON-FINANCIAL CORPORATIONS

Summary

Private non-financial corporations raised a net $15.3b (excluding derivatives and accounts payable) during the December quarter 2007. They borrowed $15.2b in loans and made a net issue of $0.5b in debt securities. Net redemption of shares during the quarter were -$0.4b. These transactions resulted in total borrowings outstanding of $736.4b and total equity on issue of $1,317.0b.

PRIVATE NON-FINANCIAL CORPORATIONS, NET ISSUE OF EQUITY AND BORROWINGS

Private non-financial corporations debt to equity ratio

From the end of December 2005 to the end of December 2007, the value of equity on issue increased by $459.8b. The value of debt outstanding rose $265.4b during the same period. During the quarter, private non-financial corporation debt increased by $36.1b, while equities on issue decreased by $12.7b. Over the December quarter 2007, the original debt to equity ratio increased from 0.66 to 0.69 and the adjusted revised ratio increased from 1.55 to 1.61. The adjusted ratio reflects the removal of price change from the original series.

DEBT TO EQUITY RATIO - JUNE 1995 BASE

Banks

Transactions of financial assets of banks were $50.3b during the quarter. Banks lent a net $62.1b, of which loans to households were $41.5b and private non-financial corporations were $23.1b. Other major transactions in bank assets holdings were: bills of exchange, $5.5b, of which $4.1b were issued by private non-financial corporations and derivatives of -$16.1b, of which derivatives with rest of world were -$10.7b.

During the quarter, transactions of banks’ currency and deposits liabilities were $30.7b, one name paper of $20.8b, loans of $19.3b, bonds of $13.3b, equities of $5.3b and other accounts payable of $2.1b . These were offset by redemptions to bills accepted of $4.3b and net settlement of derivatives of $33.7b.

Other depository corporations

Transactions of other depository corporations liabilities were -$23.8b during the December quarter 2007, driven mainly by derivatives of -$11.3b and currency and deposits of -$8.7b. This was partially offset by the net issuance of one name paper of $0.7b. Transactions of assets during the quarter were -$30.4b, the main contributors being derivatives of -$11.2b, bonds of -$8.3b and currency and deposits of -$6.6b.

Life insurance corporations

At the end of December quarter 2007, the financial assets of life insurance corporations stood at $250.2b, a decrease of $6.6b from the previous quarter. Net transactions were -$3.4b and valuation decreases were $3.2b. During the quarter, there were decreases in holdings of equities, $4.6b, bonds, $2.3b and currency and deposits, $0.6b. Pension fund claims against the reserves of life offices decreased by $2.4b following net transactions of $0.4b and valuation decreases of $2.8b. Households' claims against the reserves of life offices decreased by $3.7b following net transactions of -$2.7b and valuation decreases of $1.0b.

Pension funds

Net equity in reserves of pension funds was $1,142.6b at the end of the December quarter 2007, a decrease of $0.3b. This follows net transactions of $14.7b and valuation decreases of $15.0b during the quarter. Asset holdings decreased by $1.2b to $1,103.8 b following net transactions of $15.2b and valuation decreases of $16.4b.

Other insurance corporations

Net transactions in financial assets of other insurance corporations were -$0.2b during the December quarter 2007. The main contributors were net redemptions of bonds of $0.9b and the withdrawal of currency and deposits of $0.8b. These were offset by purchases of one name paper of $1.5b. During the December quarter, net liability transactions of other insurance corporations were -$1.0b, driven mainly by other accounts payable of -$0.9b.

Central borrowing authorities

Total liabilities of central borrowing authorities was $138.1b at the end of the December quarter 2007. During the quarter, the authorities issued bonds, $2.4b and borrowed through loans, $2.4b. The net asset transactions of central borrowing authorities during the quarter were $0.3b, the main contributors being purchases of one name paper, $3.1b and issuance of loans, $2.3b. These were offset by the net settlement of derivatives of $4.0b.

Financial intermediaries n.e.c.

At the end of the December quarter 2007, net liabilities of financial intermediaries n.e.c. were $597.7b, with shares of $248.3b on issue and borrowings in the form of loans and placements of $129.0b. Net liability transactions of financial intermediaries n.e.c. were -$12.2b during the quarter, driven by the net redemption of bonds of $11.6b and net repayment of loans of $7.1b. These were offset by issuance of equities of $6.2b and one name paper of $0.6b. During the quarter, transactions in financial assets were $1.0b, major contributors were net repayment of loans of $13.7b which was offset by net purchases of bonds of $9.7b and the acceptance of currency and deposits, $2.1b.

Net flow of currency and deposits to banks

Transactions in currency and deposit liabilities of banks during the December quarter 2007 were $30.7b. There were transactions in currency and deposit assets of households, $15.8b; private non-financial corporations, $13.3b and rest of world, $10.1b. These were offset by withdrawal of bank deposits by other depository corporations, $6.6b; pension funds, $2.2b and other insurance corporations, $1.8b.

CURRENCY AND DEPOSITS LIABILITIES, BANKS

At the end of the December quarter 2007, pension funds held $636.5b in shares and other equity (58% of their financial assets), of which $462.9b was in resident companies and $173.6b was in non-resident companies. They held $176.0b of the net equity in life office reserves (16% of their financial assets); and $92.3b in bonds (8% of their financial assets), of which $42.2b were bonds issued by domestic institutions and $50.1b were bonds issued by non-residents.

The net change in financial position for national general government was $5.3b. The liability transactions of national general government during the quarter were $0.6b, the main contributors being unfunded superannuation claims of $1.0b and loans and placements of $0.3b. During the December quarter 2007, asset transactions for national general government were $5.9b. At the end of the quarter, national general government had total liabilities of $192.4b and total financial assets of $164.2b.

Transactions in state and local general government financial assets were $2.3b in the December quarter 2007, while transactions in total liabilities were $ 0.0b, resulting in a change in financial position of $2.3b. At the end of the quarter, state and local general government had total liabilities of $119.6b and total financial assets of $136.8b.

Change in financial position

Households sold a net $1.3b in equities during the December quarter 2007, the major contributors being the sale of $4.1b of private non-financial corporations shares. These were offset by the purchase of bank shares and financial intermediaries n.e.c. shares, $1.6b and $1.3b respectively.

At the close of the quarter, households' stock of financial assets was $2,417.2b. This was an increase of $2.7b from the revised previous quarter number, following net transactions of $26.7b and valuation decreases of $24.0b. Major asset holdings were net equity in reserves of life insurance corporations and pension funds of $1,201.2b, currency and deposits of $484.5b, equities of $437.0b and unfunded superannuation claims of $180.2b.

Household net borrowing and debt to liquid asset ratio

Of the net $31.2b borrowed by households during the December quarter 2007, bank loans accounted for $41.5b. Households repaid $13.2b of loans from financial intermediaries n.e.c. Of the bank loans, $26.4b was borrowed for owner occupied housing and $9.9b for investment housing.

The graph below illustrates that the debt to liquid assets ratio at the end of December 2007 was at 125.8%, an increase of 2.5 percentage points from the September quarter 2007 ratio. The ratio was influenced by an increase from the previous quarter of 2.8% in total outstanding household borrowings and an increase in total liquid assets of 0.8%. Major contributors to liquid assets were holdings of bills of exchange (up 4.2%) and currency and deposits (up 3.6%), offset by reduced holdings of equities (down 2.1%) and bonds (down 8.5%).

REST OF THE WORLD

Summary

Non-residents withdrew a net $11.1b in Australian financial assets during the December quarter 2007, resulting in $1,658.6b of Australian financial assets being held by non-residents,down $6.1b from the September quarter 2007 (valuation increases were $5.0b). The main contributors were the sale of short term securities of $23.2b and the net settlement of derivatives of $22.3b. These were largely offset by the acceptance of currency and deposits of $10.1b, purchases of bonds, $7.2b (of which $5.8b was issued by national general government ), equity, $6.7b (of which $7.7b was issued by private non-financial corporations), and the issuance of loans, $4.8b.

Australian residents reduced their net holdings of foreign financial assets by $30.0b during the December quarter 2007. The total value of foreign assets held by Australian residents decreased to $921.7b at the end of the quarter, down $59.4b from the September quarter 2007 (of which $29.4b were valuation decreases). Residents made net withdrawals of currency and deposits worth $18.6b, net settlement of derivatives of $10.6b, net repayment of loans of $4.4b and net redemptions of bonds of $3.2b. These were offset by purchases of unlisted shares and other equity of $9.1b.

Net purchases of equities

During the December quarter 2007 non-residents acquired a net $6.7b in equities, an increase of $2.8b compared with the September quarter 2007 estimate.