5232.0 - Australian National Accounts: Finance and Wealth, Jun 2015 Quality Declaration 
ARCHIVED ISSUE Released at 11:30 AM (CANBERRA TIME) 24/09/2015   
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NON-FINANCIAL CORPORATIONS


During June quarter 2015, private non-financial corporations invested $50.7b in gross fixed capital formation, funded through gross saving (Net saving plus consumption of fixed capital) of $42.8b and net borrowing of $16.8b (change in net financial position). Their net borrowing was a result of incurring $23.4b in liabilities, mainly in the form of bond issuance of $18.4b and the acquisition of $6.7b of financial assets, driven by shares and other equity increasing $8.4b during the quarter.

Graph 1 Private non-financial corporations, Debt to equity ratio
Graph Image for Graph 1. Private non-financial corporations, Debt to equity ratio, June 1995 base.


The debt to equity ratio provides an assessment of a corporation's financial leverage calculated as [(total liabilities less equity) / equity]. The ratio 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 a 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 0.74 in June quarter 2015. The ratio has been stable around this level for the last three years, following the global financial crisis where the debt to equity ratio peaked at 1.01.

As at June 2015 the adjusted ratio was 1.26, 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 less on debt in June quarter 2015 and more on their own funds to finance their activities.

FINANCIAL CORPORATIONS
FINANCIAL ASSETS AND LIABILITIES OF FINANCIAL CORPORATIONS

Outstanding at end
Transactions during
Other changes during
Outstanding at end
Mar Qtr 2015
Jun Qtr 2015
Jun Qtr 2015
Jun Qtr 2015
$b
$b
$b
$b

Financial assets of financial corporations
Central bank
159.4
2.3
-2.0
159.7
Banks
3 261.0
25.4
-35.0
3 251.5
Other depository corporations
294.5
-7.2
-3.4
283.9
Pension funds
1 853.3
23.5
-51.0
1 825.8
Life insurance corporations
301.7
5.3
-11.7
295.3
Non-life insurance corporations
174.0
-0.3
-4.7
169.0
Money market financial investment funds
34.6
1.3
0.0
35.8
Non-money market financial investment funds
376.7
4.0
-17.4
363.2
Central borrowing authorities
374.4
-11.6
-0.1
362.7
Securitisers
452.6
-3.0
0.1
449.8
Other financial corporations
121.3
-0.3
-6.3
114.7
Liabilities of financial corporations
Central bank
159.6
-1.0
1.3
160.0
Banks
3 521.1
-3.5
-73.4
3 444.3
Other depository corporations
222.4
-0.9
-2.4
219.1
Pension funds
1 959.3
25.2
-51.0
1 933.5
Life insurance corporations
308.0
5.2
-13.0
300.2
Non-life insurance corporations
216.4
3.3
-0.6
219.2
Money market financial investment funds
34.6
1.4
-0.2
35.8
Non-money market financial investment funds
461.7
5.4
-14.1
453.0
Central borrowing authorities
385.9
0.8
-7.3
379.4
Securitisers
454.5
-2.2
-0.9
451.3
Other financial corporations
84.9
3.3
-1.1
87.1

- nil or rounded to zero (including null cells)

During June quarter 2015 financial corporations acquired $27.7b in financial assets. Loans to the household sector ($39.9b), the rest of the world ($27.0b) and other private non-financial corporations ($6.9b) drove the increase in assets but it was partially offset by a reduction in the acquisition short term debt securities (-$13.8b). To fund their asset acquisition financial corporations incurred $25.4b of liabilities, with $27.7b from insurance technical reserves (most of which were superannuation reserves) and $10.6b from deposits.

Graph 2. Banks liabilities as a proportion of their assets
Graph Image for Graph 2. Banks liabilities as a proportion of their assets


Banks funding of their total assets through deposits rose by 4 percentage points to 55.9% during June quarter 2015. While the proportion of banks funding through short term and long term debt securities also increased slightly. Despite the net increase in issuance of bank equity ($6.8b) their funding through equity declined, due to a decline in valuation of the equity by 15 percentage points to 17.0%, the largest percentage decrease since September quarter 2011.


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
Graph Image for 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 June quarter 2015 of pension funds, life insurance corporations and non-money market investment funds. Overall, these three institutions invest predominately in equity assets.

During June quarter 2015, pension funds decreased shares and other equity holdings by $33.3b or 3.1%, driven mainly by revaluations (-$39.3b). At the end of June quarter 2015, pension funds held $1,076.8b in shares and other equity (59.0% of their assets) of which $737.0b were issued domestically and $339.8b were issued by the rest of world.

At the end of June quarter 2015, life insurance corporations held $244.0b in shares and other equity (82.6% of their assets) a decrease of $5.5b or 2.2%. Life insurance corporations predominately held shares and other equities in non–money market financial investment funds $201.1b and other private non-financial corporations $19.5b.


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 June quarter 2015 the household sector claims on the net equity in reserves of pension funds and of life insurance corporations were $1,908.3b and $60.2b respectively, while shareholders of life insurance corporations had claims of $22.1b. Of the total $1,933.5b assets of pension funds, 45.8% was directly invested in financial markets, 43.4% was invested through investment managers and 10.8% was invested directly in life insurance corporations.

Diagram: Financial claims between households, pension funds, life insurance corporations, rest of world and investment managers at end of quarter



GENERAL GOVERNMENT

During the June quarter 2015, general government invested in $16.5b in gross fixed capital formation with state and local general government accounting for majority of this investment at $10.6b.

Graph 4. Change in net financial position, General government
Graph Image for Graph 4. Change in net financial position, General government


During June quarter 2015, the net change in financial position (net borrowing) for national general government was ($4.5b). During the quarter, national general government acquired a net $0.1b in financial assets while incurring $4.6b in liabilities. Net issuance of Commonwealth government bonds ($6.7b) drove the increase in liabilities while maturities of Treasury notes (-$1.0b) slightly offset this increase. At the end of the June quarter 2015, national general government had total financial assets of $498.0b and total liabilities of $760.5b.

During June quarter 2015, the net change in financial position (net lending) of state and local general government was $3.1b. During the quarter transactions in total financial assets were $2.4b and total liabilities were -$0.7b.Net acquisition of financial assets was driven by loans and placements borrowed by central borrowing authorities of $6.6b offset by withdrawal of deposits with banks ($4.4b). At the end of June quarter 2015, state and local general government had total financial assets of $451.4b and total liabilities of $323.5b.

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

The national general government issued $6.7b of bonds in June quarter 2015 resulting a level of bonds on issue of $408.6b. Net issuance of Commonwealth government bonds were taken up by banks ($3.7b), Central bank ($2.5b) and rest of world ($1.2b). Rest of world acquired Commonwealth government bonds for the 12th consecutive quarter following record high net acquisitions in September quarter 2011 ($23.1b).

Central borrowing authorities recorded net maturities of bonds (-$2.1b) and one name paper (-$5.2b) during June quarter 2015. At the end of June quarter 2015, central borrowing authorities debt securities on issue was $281.6b.


REST OF WORLD

Australia’s net international investment position at the end of June quarter 2015 was a net foreign liability of $906.0b (net financial asset position of the Rest of World), a decrease of $4.8b from the previous quarter with net transactions of $15.7b and valuation decreases of -$20.5b.

Non-residents acquired $5.1b of Australian financial assets, incurred valuation decreases of -$63.7b, which resulted in a decrease in their holdings of Australian financial assets to $2,977.7b during June quarter 2015. The main contributors to the valuation decreases were equities ($34.9b) and bonds ($13.3b).

Australian residents had net transactions of -$10.6b in the Rest of World liabilities, incurred valuation decreases of -$43.2b, which resulted in $2,071.7b of rest of world assets held by Australian residents during June quarter 2015. The main contributors to the decrease in transactions were derivatives (-$39.2b) and one name paper (-$9.3b). These were partially offset by positive transactions for short term loans ($14.6b), unlisted shares and other equity ($13.0b) and long term loans ($12.1b). The valuation decreases were driven by unlisted shares and other equity ($28.5b), which recorded its largest valuation decrease since September quarter 2011.