NON-FINANCIAL CORPORATIONS


During March quarter 2015, private non-financial corporations invested $45.5b in gross fixed capital formation, funded through gross saving (Net saving plus consumption of fixed capital) of $26.9b and net borrowing of $22.0b (change in net financial position). Their net borrowing was a result of incurring $43.2b in liabilities, mainly in the form of loans and placements and equity issuance, and the acquisition of $21.2b of financial assets, mainly through accounts receivable and deposits.


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]. 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 0.77 in March 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 March 2015 the adjusted ratio was 1.31, an increase of 0.1 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 increase in the adjusted ratio indicates that private non-financial corporations relied more on debt in March quarter 2015 than on their own funds to finance their activities.

FINANCIAL CORPORATIONS

		Outstanding at end	Transactions during	Other changes during	Outstanding at end
		Dec Qtr 2014	Mar Qtr 2015	Mar Qtr 2015	Mar Qtr 2015
		$b	$b	$b	$b
Financial assets of financial corporations
	Central bank	152.2	3.7	3.5	159.4
	Banks	3 128.2	53.0	89.9	3 271.1
	Other depository corporations	297.2	0.8	1.0	298.9
	Pension funds	1 734.0	13.0	91.5	1 838.5
	Life insurance corporations	287.4	1.7	12.6	301.7
	Non-life insurance corporations	171.6	-3.1	2.6	171.1
	Money market financial investment funds	25.9	1.0	0.0	26.9
	Non-money market financial investment funds	343.3	2.8	24.5	370.5
	Central borrowing authorities	357.7	14.1	1.5	373.4
	Securitisers	436.4	16.2	0.1	452.7
	Other financial corporations	113.3	0.6	7.1	121.1
Liabilities of financial corporations
	Central bank	153.5	5.3	1.1	159.9
	Banks	3 317.7	33.2	134.2	3 485.0
	Other depository corporations	220.7	3.5	0.5	224.8
	Pension funds	1 846.2	14.4	91.5	1 952.1
	Life insurance corporations	291.1	1.7	15.2	308.0
	Non-life insurance corporations	218.3	-1.5	1.7	218.5
	Money market financial investment funds	25.9	1.1	-0.1	26.9
	Non-money market financial investment funds	430.5	6.7	17.3	454.4
	Central borrowing authorities	372.9	9.1	3.5	385.6
	Securitisers	437.2	17.7	0.0	454.9
	Other financial corporations	75.0	1.3	2.7	78.9
- nil or rounded to zero (including null cells)

During March quarter 2015, financial corporations acquired $68.0b in financial assets overall, mainly through loans ($70.5b). These loan assets were mostly obtained through lending to the household sector ($27.5b), the rest of the world ($25.1b) and non-financial corporations ($15.4b). Financial corporations received funding through incurring $56.7b of liabilities, with $28.4b in the form of deposits, $17.9b from issuing debt securities and $14b from insurance technical reserves, 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 December quarter 2014 to 55.3% its lowest percentage since June quarter 2011. As at March quarter 2015, funding through equity was at 18.0%, higher than both long and short term securities, which were 14.0% and 9.7% 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 March quarter 2015 of pension funds, life insurance corporations and non-money market investment funds. Overall, these three institutions invest predominately in equity assets.

During March quarter 2015, pension funds increased shares and other equity holdings by $75.6b or 7.5%, driven mainly by revaluations ($69.8b) affected by exchange rate changes this quarter. At the end of March quarter 2015, pension funds held $1,082.0b in shares and other equity (58.9% of their financial assets) of which $740.5b were issued domestically and $341.5b were issued by the rest of world.

At the end of March quarter 2015, life insurance corporations held $250.2b in shares and other equity (82.9% of their financial assets) an increase of $12.3b or 5.3%. Life insurance corporations predominately held shares and other equities in non–money market financial investment funds ($204.1b) and other private non-financial corporations ($21.6b).


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 March quarter 2015 the household sector claims on the net equity in reserves of pension funds and of life insurance corporations were $1,914.1b and $63.1b respectively, while shareholders of life insurance corporations had claims of $22.0b. Of the total $1,954.0b assets of pension funds, 45.4% was directly invested in financial markets, 43.7% was invested through investment managers and 10.8% was invested directly in life insurance corporations.



GENERAL GOVERNMENT

During March quarter 2015 general government invested in $11.4b in gross fixed capital formation, funded through net borrowing of $8.0b (change in net financial position) driven by bond issuance ($16.1b) in March quarter 2015.

Graph 4. Change in net financial position, General government


During March quarter 2015, the net change in financial position (net borrowing) for national general government was -$5.4b. During the quarter, transactions in total financial assets were $8.3b, an increase of $9.6b from the previous quarter. The main contributor was an increase in deposits accepted by the central bank ($6.3b) and banks ($1.0b). The increase in total asset transactions for the March quarter was offset by the continuing decrease in national general government holding of equities (-$2.3b). At the end of March quarter 2015, national general government had total financial assets of $490.7b and total liabilities of $755.2b.

During March quarter 2015, the net change in financial position (net borrowing) of state and local general government was -$2.6b. During the quarter, transactions in total financial assets were $2.0b and total liabilities were $4.5b. Similar to national general government, the main contributor to the increase in total assets for state and local general government was deposits ($1.8b) in March quarter 2015. The main contributors to the transactions in total liabilities were $2.9b of transactions in long term loans and placements and $0.9b of transactions in unfunded superannuation claims. At the end of March quarter 2015, state and local general government had total financial assets of $450.3b and total liabilities of $319.6b.


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 $16.1b of bonds in March quarter 2015 resulting in the highest level of bonds on issue ($425.7b) since the beginning of the timeseries. Foreign investors are the main investors in Commonwealth debt securities with a net of $11.7b being acquired during March quarter 2015.

Central borrowing authorities issued $5.4b of bonds as well as $1.2b in one name paper issuance in March quarter 2015. At the end of March quarter 2015, central borrowing authorities debt securities on issue was $295.8b.

REST OF WORLD

Australia’s net international investment position at the end of March quarter 2015 was a net foreign liability of $878.4b (net financial asset position of the Rest of World), an increase of $11.7b from the previous quarter with net transactions of $10.9b.

Non-residents had net transactions of $37.5b in Australian financial assets during March quarter 2015 with a valuation increase of $130.0b which resulted in $2,991.1b worth of Australian financial assets held by non-residents. The main contributors to these transactions were in bonds ($23.9b), equities ($9.8b) and loans and placements ($8.6b).

Australian residents had net transactions of $26.5b in the Rest of World liabilities during March quarter 2015. The main contributors to the transactions were other accounts payable ($18.1b) and one name paper ($17.4b) and long term loans and placements ($15.3b). These were partially offset by a negative deposit transactions of -$8.9b. The total value of the rest of world assets held by Australian residents increased by $155.8b to $2,112.7b at the end of the quarter. This movement was driven by $129.3b worth of valuation increases, with valuation results largely impacted by exchange range effects this quarter.