NON-FINANCIAL CORPORATIONS


During December quarter 2014, private non-financial corporations invested $54.5b in gross fixed capital formation, funded through gross saving of $48.0b and net borrowing of $11.2b (change in net financial position). Their net borrowing was a result of incurring $31.0b in financial liabilities, mainly in the form of equity issuance and bank loans, and acquiring $19.8b of financial assets, mainly through accounts receivable, equity and bank deposits. Public non-financial corporations invested $4.7b in gross fixed capital formation during the quarter, funded through gross saving of $1.1b and net borrowing of $8.2b. Their net borrowing was a result of incurring $8.4b in loan liabilities over December quarter 2014.

Graph 1 Private non-financial corporations, Debt to equity ratio


The debt to equity ratio provides an assessment of a corporation's financial leverage calculated as [(total liabilities less equity) / equity]. It indicates in what proportion the corporation is using equity and debt to finance its activities. During periods of buoyant income and stable interest rates, a leveraged corporation stands to make substantial return on equity compared with an unleveraged corporation. However, during more uncertain times a leveraged corporation is at risk from fluctuations in earnings and / or rising interest rates, such that debt servicing costs may not be met. The ratios presented here are averages for all private non-financial corporations.

The private non-financial corporations debt to equity ratio was 0.77 in December quarter 2014 remaining unchanged from the previous quarter. The ratio has been stable around this level for the last three years, following the global financial crisis were the debt to equity ratio peaked at 1.01.

As at December 2014 the adjusted ratio was 1.28, a decrease of 0.03 over the quarter. The adjusted ratio reflects the removal of price change from the original series and therefore provides an indicator for leverage without the market price changes. The decrease in the adjusted ratio indicates that private non-financial corporations relied more on their own funds to finance their activities rather then debt in December quarter 2014.


FINANCIAL CORPORATIONS

		Outstanding at end	Transactions during	Other changes during	Outstanding at end
		Sep Qtr 2014	Dec Qtr 2014	Dec Qtr 2014	Dec Qtr 2014
		$b	$b	$b	$b
Financial assets of financial corporations
	Central bank	142.0	4.9	5.3	152.2
	Banks	3 004.6	44.6	79.7	3 128.9
	Other depository corporations	296.1	0.0	-1.3	294.7
	Pension funds	1 668.6	16.2	36.6	1 721.3
	Life insurance corporations	280.0	0.7	5.2	286.0
	Non-life insurance corporations	170.2	-2.3	5.0	172.9
	Money market financial investment funds	25.0	0.4	0.4	25.8
	Non-money market financial investment funds	335.4	-1.2	8.6	342.8
	Central borrowing authorities	343.2	13.0	1.1	357.4
	Securitisers	400.7	29.6	0.1	430.4
	Other financial corporations	110.6	-0.8	3.9	113.8
Liabilities of financial corporations
	Central bank	143.1	8.5	1.9	153.5
	Banks	3 173.3	43.4	100.1	3 316.7
	Other depository corporations	217.1	1.5	-1.7	216.9
	Pension funds	1 777.6	17.8	36.6	1 832.0
	Life insurance corporations	286.3	-0.9	4.5	289.9
	Non-life insurance corporations	214.8	0.6	1.8	217.2
	Money market financial investment funds	25.0	0.9	0.0	25.8
	Non-money market financial investment funds	421.3	-0.5	9.1	429.9
	Central borrowing authorities	358.8	6.3	7.8	372.9
	Securitisers	401.6	22.8	6.9	431.2
	Other financial corporations	71.6	1.3	0.8	73.6
- nil or rounded to zero (including null cells)

During December quarter 2014, financial corporations acquired $65.4b in financial assets, mainly through loans ($62.8b). These loan assets were mostly obtained through lending to the household sector ($34.2b), non-financial corporations ($15.6b) and the rest of the world ($10.1b). Financial corporations received funding through incurring $62.1b of liabilities. More than half of this increase was as a result of an increase in deposits ($36.7b) with $23.5b being deposited by the household sector. Other increases in liabilities were driven by the offshore issuance of one name paper to the rest of the world ($17.4b) and insurance technical reserves $19.7b, most of which were superannuation reserves.

Graph 2. Banks liabilities as a proportion of their assets


Banks funding of their total financial assets through deposits declined 1.2 percentage points from September quarter 2014 to 56.5% for the latest quarter. As at December quarter 2014, funding through equity was at 16.9%, higher than both long and short term securities, which were 14.3% and 9.8% respectively.

Financial asset portfolio of pension funds, life insurance corporations and non-money market investment funds at end of quarter

Graph 3. Assets of Pension funds, Life insurance corporations and Non-money market investment funds


The graph above illustrates the financial asset mix at the end of December quarter 2014 of pension funds, life insurance corporations and non-money market investment funds. Overall, these three institutions invest predominately in equity assets. At the end of December quarter 2014, pension funds held $1,000.5b in shares and other equity (58.1% of their financial assets), of which $681.8b were issued domestically and $318.7b were issued by the rest of world. At the end of December quarter 2014, life insurance corporations held $236.4b in shares and other equity (82.7% of their financial assets), of which $193.0b was invested in non–money market financial investment funds. These non–money market financial investment funds held $218.2b in shares and other equity and $89.0b in debt securities, 63.7% and 26.0% respectively of their financial assets.

Financial claims between the household sector, pension funds, life insurance corporations, rest of world and investment managers at end of quarter

At the end of December quarter 2014 the household sector claims on the net equity in reserves of pension funds and of life insurance corporations were $1,797.8b and $59.1b respectively, while shareholders of life insurance corporations had claims of $21.7b. Of the total $1,832.0b assets of pension funds, 45.2% was directly invested in financial markets, 43.9% was invested through investment managers and 11.0% was invested directly in life insurance corporations.



GENERAL GOVERNMENT

During December quarter 2014 general government invested in $13.2b in gross fixed capital formation, funded through net borrowing of $11.2b (change in net financial position). National general government gross fixed capital formation was $4.4b and state and local general government gross fixed capital formation was $8.8b during December quarter 2014, driven by Queensland, New South Wales and Victoria.

Graph 4. Change in net financial position, General government


During December quarter 2014, the net change in financial position (net borrowing) for national general government was -$8.2b. During the quarter, transactions in total liabilities for national general government were $5.5b. The main contributors to these transactions were treasury bonds issuance($8.9b) offset by other accounts payable ($4.7b). During the quarter, transactions in total financial assets were -$2.7b. The main contributor was a decrease in equity holdings of non-life insurance corporations of $6.0b. At the end of December quarter 2014, national general government had total financial assets outstanding of $471.4b and total liabilities outstanding of $729.5b.

During December quarter 2014, the net change in financial position (net borrowing) of state and local general government was -$3.0b. During the quarter, transactions in total financial assets were $0.7b and total liabilities were $3.6b. The main contributors to these transactions in total liabilities were $2.4b of transactions in long term loans and placements and $0.6b of transactions in unfunded superannuation claims. At the end of December quarter 2014, state and local general government had total financial assets outstanding of $446.7b and total liabilities outstanding of $320.1b.

Graph 5. Net issue of debt securities, National general government and Central Borrowing Authorities


The graph above illustrates the quarterly net issuance of debt securities for the operations of the national and state and local general governments. For state and local general government, the central borrowing authorities are responsible for the issuance of their debt.

For the central borrowing authorities, from September quarter 1988 until March 2008, quarterly net issuance was generally under $5.0b. In that period there were also many quarters of net maturities of debt. From June quarter 2008 onwards the central borrowing authorities have had increased net issuance of debt, with the highest net issuance for the period being recorded in June quarter 2009, during the global financial crisis (GFC). Since the GFC, there have not been any quarters where central borrowing authorities have recorded net maturities.


REST OF WORLD

Australia’s net international investment position at the end of December quarter 2014 was a net foreign liability of $866.1b (net financial position of the Rest of World), a decrease of $7.8b from the previous quarter with net transactions of $11.7b.

Non-residents had net transactions of $25.8b in Australian financial assets during December quarter 2014 with a valuation increase of $95.4b which resulted in $2,822.9b worth of Australian financial assets held by non-residents. The main contributors to these transactions were in one name paper ($18.3b), bonds ($14.6b) and equities ($9.0b). These were partially offset by loans and placements transactions of $15.9b.

Australian residents had net transactions of $14.1b in the Rest of World liabilities during December quarter 2014. The main contributors to these transactions were short term loans and placements ($24.1b), other accounts payable ($14.0b) and unlisted shares and other equity ($10.5b). These were offset by transactions in deposits of $15.1b and long term loans and placements of $13.3b. The total value of the rest of world assets held by Australian residents increased by $128.9b to $1,956.8b at the end of the quarter. This movement was driven by a $14.1b increase in transactions and $114.8b worth of valuation increases.