SECTORAL ANALYSIS
NON-FINANCIAL CORPORATIONS
Summary
Private non-financial corporations raised a net $42.6b (excluding derivatives and accounts payable) during the June quarter 2007. They borrowed $20.3b in loans and made net settlements of $3.8b in debt securities. Net issuance of shares during the quarter were $26.1b. These transactions resulted in total borrowings outstanding of $676.6b and total equity on issue of $1,264.0b.
PRIVATE NON-FINANCIAL CORPORATIONS, NET ISSUE OF EQUITY AND BORROWINGS
During the June quarter 2007, total liabilities of national public non-financial corporations increased by $0.1b following transaction increases of $0.1b. Liabilities of state and local public non-financial corporations increased by $3.5b to $145.4b.
Private non-financial corporations debt to equity ratio
From the end of June 2005 to the end of June 2007, the value of equity on issue increased by $522.8b. The value of debt outstanding rose $216.5b during the same period. During the quarter, private non-financial corporation debt increased by $16.8b, while equities on issue increased by $91.1b. Over the June quarter 2007, the original debt to equity ratio decreased from 0.68 to 0.65 and the adjusted ratio decreased from 1.51 to 1.47. The adjusted ratio reflects the removal of price change from the original series.
DEBT TO EQUITY RATIO - JUNE 1995 BASE
FINANCIAL CORPORATIONS
Summary
During the June quarter 2007, financial corporations had $134.2b liability transactions on a consolidated basis. The liability transactions were: banks, $67.7b; pension funds, $49.6b; financial intermediaries n.e.c., $45.1b; other depository corporations, $14.8b; the central bank, $11.2b; life insurance corporations, $4.2b; central borrowing authorities, $3.4b; and other insurance corporations, $2.7b.
Banks
Transactions of financial assets of banks were $56.8b during the quarter. Banks loaned a net $46.1b, of which loans to households were $21.4b and private non-financial corporations were $15.8b. Other transactions in bank assets holdings were: bills of exchange, $6.4b; bonds, $3.9b; equities, $0.7b; and one name paper, $0.5b. These were offset by redemptions of currency and deposits of $0.6b and net settlements of derivative contracts of $1.9b.
During the quarter, transactions of banks’ currency and deposits liabilities were $43.5b, one name paper of $14.1b, loans of $6.8b, bonds of $3.3b, and bills of exchange of $1.0b. These were offset by net repayments in other accounts payable of $1.7b and net settlements of derivatives contracts of $1.3b.
Other depository corporations
Transactions of other depository corporations liabilities were $14.8 during the June quarter 2007, driven mainly by currency and deposits of $10.9b and loans and placements of $5.9b. This was partially offset by the redemption of bonds of $2.2b. Transactions of assets during the quarter were $23.8b, the main contributor being loans and placements of $13.2b and currency and deposits of $4.4b.
Life insurance corporations
At the end of June quarter 2007, the financial assets of life insurance corporations stood at $254.3b, an increase of $8.6b from the previous quarter. Net transactions were $4.3b and valuation increases were $4.3b. During the quarter, there were increases in holdings of bonds, $0.3b, one name paper, $1.5b and currency and deposits, $1.2b. Pension fund claims against the reserves of life offices increased by $7.3b following net transactions of $4.0b and valuation increases of $3.3b. Households' claims against the reserves of life offices increased by $0.1b following net transactions of -$1.0b and valuation increases of $1.1b.
Pension funds
Net equity in reserves of pension funds was $1,108.3b at the end of the June quarter 2007, an increase of $77.1b. This follows net transactions of $48.7b and valuation increases of $28.4b during the quarter. Asset holdings increased due to transactions in currency and deposits of $20.0b, equities of $10.8b, bonds of $5.4b and loans of $2.2b.
Other insurance corporations
Net transactions in financial assets of other insurance corporations were $5.0b during the June quarter 2007. The main contributors were accounts receivable of $3.3b, purchases of one name paper, $1.2b and bonds, $0.7b. These were offset by the net settlements of loans by $0.8b. During the June quarter, net liability transactions of other insurance corporations were $2.7b.
Central borrowing authorities
Total liabilities of central borrowing authorities was $124.6b at the end of the June quarter 2007. During the quarter, the authorities issued bonds, $3.0.b; borrowed through loans, $0.9b and redeemed one name paper, $0.4b. The net asset transactions of central borrowing authorities during the quarter were $2.0b, the main contributors being the issuance of loans and placements, $1.7b and one name paper, $1.2b. These were offset by the withdrawal of currency and deposits, $1.5b.
Financial intermediaries n.e.c.
At the end of the June quarter 2007, net liabilities of financial intermediaries n.e.c. were $620.8b, with shares of $250.7b on issue and borrowings in the form of loans and placements of $139.7b. Net liability transactions of financial intermediaries n.e.c. were $45.1b during the quarter, through the issuance of bonds of $24.2b and loans and placements of $9.8b. During the quarter, transactions in financial assets were $48.0b, major contributors were loans and placements of $29.1b and equities of $11.2b.
Net flow of currency and deposits to banks
Transactions in currency and deposit liabilities of banks during the June quarter 2007 were $43.5b. There were transactions in currency and deposit assets of pension funds, $13.6b; rest of world, $5.3b; other depository corporations, $4.5b and households, $2.7b. These were offset by withdrawal of bank deposits by central borrowing authorities, $1.5b.
CURRENCY AND DEPOSITS LIABILITIES, BANKS
Financial asset portfolio of life insurance corporations and pension funds at end of quarter
At the end of the June quarter 2007, life insurance corporations held $159.3b in shares and other equity (63% of their financial assets), of which $130.1b was in resident companies and $29.2b was in non-resident companies; $49.9b in bonds (20% of their financial assets), of which $40.2b was in bonds issued by domestic institutions and $9.7b in bonds issued by non-residents; and $18.2b in short term securities (7% of their financial assets).
At the end of the June quarter 2007, pension funds held $600.1b in shares and other equity (56% of their financial assets), of which $428.7b was in resident companies and $171.4b was in non-resident companies. They held $176.4b of the net equity in life office reserves (16% of their financial assets); and $86.9b in bonds (8% of their financial assets), of which $44.8b were bonds issued by domestic institutions and $42.1b were bonds issued by non-residents.
Financial claims between households, life insurance companies, pension funds and investment managers at end of quarter
At the end of the June quarter 2007, households had claims against the reserves of life insurance corporations of $57.8b and pension funds of $1,108.3b. Pension funds had claims against the reserves of life insurance corporations of $176.4b. Life insurance corporations invested $150.0b of their financial assets through investment managers, and pension funds invested $529.1b through investment managers.
Financial asset portfolio of other insurance corporations at end of quarter
The graph below shows that at the end of the June quarter 2007, other insurance corporations held $48.3b in shares and other equity (37% of total financial assets), of which $36.6b was in resident corporations; $33.3b in bonds (26% of total financial assets), of which $28.5b was issued by resident corporations; and $11.2b of short-term securities (9% of total financial assets).
Central borrowing authorities net issue of debt securities
During the June quarter 2007, central borrowing authorities made net issues of bonds of $3.0b, and a net redemption of one name paper of $0.4b.
Financial intermediaries n.e.c. net issue of debt securities
During the June quarter 2007, financial intermediaries n.e.c. made a net issue of bonds of $24.2b and net issue of $4.9b of one name paper.
GENERAL GOVERNMENT
Summary
During the June quarter 2007, consolidated general government transactions resulted in a net change in financial position of $3.6b.
The net change in financial position for national general government was $2.1b. The liability transactions of national general government during the quarter were $7.0b, with the main contributors being accounts payable of $4.1b and unfunded superannuation claims of $2.3b. During the June quarter 2007, asset transactions for national general government were $9.1b. At the end of the quarter, national general government had total liabilities of $197.9b and total financial assets of $152.4b.
Transactions in state and local general government financial assets were $4.1b in the June quarter 2007, while transactions in total liabilities were $2.6b, resulting in a change in financial position of $1.5b. At the end of the quarter, state and local general government had total liabilities of $115.2b and total financial assets of $147.1b.
Change in financial position
National government issue of debt securities
The graph below illustrates the national general government’s bond issuance. The net issuance of treasury bonds was $0.8b during the quarter.
HOUSEHOLDS
Summary
Households change in financial position was $3.2b during the June quarter 2007. During the quarter, households borrowed a total of $49.6b in the form of loans. Bank loans were $21.4b and borrowing from financial intermediaries n.e.c. was $25.3b. Of the bank loans, $4.0b was borrowed for owner occupied housing and $5.3b for investment housing. The significant increase in household loan liabilities in the June quarter has coincided with a significant increase in household contributions to life insurance and pension fund reserves of $47.7b, which possibly reflects an outcome of the legislative changes to superannuation (see Notes, pg. 2).
On the asset side, householders' transactions in currency and deposits were $6.0b, of which $3.9b were other depository corporations deposits. Households purchased a net $5.3b in equities during the June quarter 2007, the major contributors being purchases of $3.6b of private non-financial corporations, $2.7b of financial intermediaries n.e.c and, $0.7b of bank shares. These were offset by the sale of other insurance corporation and life insurance shares, $1.3b and $0.5b respectively.
At the close of the quarter, households' stock of financial assets was $2,357.5b. This was an increase of $111.8b from the revised previous quarter number, following net transactions of $59.2b and valuation increases of $52.6b. Major asset holdings were net equity in reserves of life insurance corporations and pension funds of $1166.0b, equities of $452.4b, currency and deposits of $448.9b and unfunded superannuation claims of $181.1b.
Household net borrowing and debt to liquid asset ratio
The graph below illustrates that the debt to liquid assets ratio at the end of June 2007 was at 122.5%, an increase of 1.3 percentage points from the revised March quarter 2007 ratio. The ratio was influenced by an increase from the previous quarter of 4.7% in total outstanding household borrowings and an increase in total liquid assets of 3.5%. Major contributors to liquid assets were holdings of equities (up 5.7%) and currency and deposits (up 1.3%).
Insurance and pension claims
During the June quarter 2007, households' net equity in reserves of pension funds increased $77.1b, made up of $48.7b transactions and $28.4b valuation increases, bringing household net equity in pension funds to $1,108.3b. Net equity in reserves of life insurance corporations increased $0.1b, made up of -$1.0b transactions and $1.1b valuation increases, bringing the household net equity in life insurance to $57.8b. Net transactions in households' unfunded superannuation claims were $3.0b and prepayments of premiums and claims against reserves in general insurance corporations was $1.0b during the quarter.
REST OF THE WORLD
Summary
Non-residents invested a net $51.1b in Australian financial assets during the June quarter 2007, resulting in $1,603.8b of Australian financial assets held by non-residents, up $64.1b from the March quarter 2007 (of which $13.0b were valuation increases). There were net investments in all asset classes except derivatives (of which there were net settlements of $1.1b). The major contributors were the purchases of bonds, $18.8b (of which $15.1b was issued by financial intermediaries n.e.c), equity, $14.3b (of which $12.6b was issued by private non-financial corporations), and the issuance of loans and placements, $9.7b.
Australian residents purchased foreign financial assets worth $37.5b during the June quarter 2007. The total value of foreign assets held by Australian residents increased to $961.3b at the end of the quarter, up $48.4b from the March quarter 2007 (of which $10.9b were valuation increases). Residents made net purchases of equity, $12.3b and bonds, $7.3b, and provided loans and placements, $13.4b, and currency and deposits, $7.3b. These were partially offset by net settlements of derivatives, $1.6b and accounts payable, $1.4b.
Net purchases of equities
During the June quarter 2007 non-residents acquired a net $14.3b in equities, a decrease of $2.7b compared with the revised March quarter 2007 estimate.
Net purchases of bonds
Non-residents purchased $18.8b of Australian bonds during the June quarter 2007, a decrease of $22.9b compared with the revised March quarter 2007 estimate.
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