SECTORAL ANALYSIS

PRIVATE NON-FINANCIAL CORPORATIONS

Debt to equity ratio increased

Private non-financial corporations investment in fixed assets was funded through gross saving ($52.1b) and net borrowing ($7.0b).

The net borrowing was a result of net incurrence of liabilities of $11.6b partly offset by the net acquisition of financial assets of $4.7b. Loan borrowings and equity issuance drove the increase in liabilities, while accounts receivable and deposits were the main contributors to the increase in financial assets.

The private non-financial corporations' debt to equity ratio, adjusted for price changes, rose from 0.67 to 0.68 in the December quarter 2018. Despite this increase, the ratio has been trending downwards since March 2016, indicating that private non-financial corporations have a declining ‘real’ level of debt to equity. On a non-adjusted basis, the debt to equity ratio moved more than the adjusted ratio due to valuation decreases of shares and other equity.

The ratio increase is further illustrated in Graph 2, showing private non-financial corporations sourced more funds through debt compared to equity. Long term loan borrowing was the largest contributor to debt, while listed shares detracted from growth in equity.




FINANCIAL CORPORATIONS

		Outstanding at end		Transactions during		Other changes during		Outstanding at end
		Sep Qtr 2018		Dec Qtr 2018		Dec Qtr 2018		Dec Qtr 2018
		$b		$b		$b		$b
Assets of financial corporations
	Central bank	186.2		-5.0		4.0		185.2
	Banks	3 691.7		13.1		25.8		3 730.6
	Other depository corporations	251.7		-4.5		-0.4		246.8
	Pension funds	2 292.9		12.3		-102.1		2 203.0
	Life insurance corporations	290.3		-5.8		-13.2		271.4
	Non-life insurance corporations	223.8		-1.1		-3.9		218.9
	Money market investment funds	38.8		-1.4		-		37.3
	Non-money market investment funds	936.7		-5.2		-48.8		882.7
	Central borrowing authorities	363.8		1.4		0.6		365.9
	Securitisers	450.9		14.6		-		465.5
	Other financial corporations	146.6		-1.2		-6.0		139.4
Liabilities of financial corporations
	Central bank	187.4		-1.3		1.5		187.6
	Banks	3 865.1		-10.0		11.3		3 866.4
	Other depository corporations	239.9		-0.1		0.3		240.2
	Pension funds	2 453.2		18.1		-105.9		2 365.3
	Life insurance corporations	288.8		-5.9		-16.0		266.9
	Non-life insurance corporations	241.7		0.3		-7.7		234.3
	Money market investment funds	38.8		-1.5		-		37.3
	Non-money market investment funds	1 033.9		-5.0		-33.2		995.6
	Central borrowing authorities	403.8		-0.1		0.9		404.7
	Securitisers	450.4		17.9		-3.0		465.2
	Other financial corporations	111.5		1.5		-5.0		107.9
- nil or rounded to zero (including null cells)

Large declines in equity revaluations drove the fall in both the financial assets and liabilities of financial corporations. Total financial assets decreased by $127.1b, driven by shares and other equity, while total liabilities decreased $142.6b, driven by insurance technical reserves, and shares and other equity.


Bank equity funding at lowest level in seven years

Banks funding through equity fell to 13.3%. This is the lowest level since September quarter 2011. Financing through short term debt securities rose to 9.0%, after falling to a historic low last quarter (8.5%). The largest funding source, deposits, decreased slightly to 59.0%, while funding through long term debt securities was unchanged.



Largest fall in superannuation assets since the global financial crisis

Pension funds (superannuation) assets fell $89.8b, driven by valuation decreases in shares and other equity caused by a fall in the share market this quarter. Despite this, shares and other equity remain the major component of pension funds investments at 70.2% of total financial assets.



A significant proportion (39.2%) of pension funds holding of equity was issued by non-money market financial investment funds (NMMF). NMMF have a higher investment proportion in debt securities than pension funds, and as such pension funds have indirect exposure to debt securities through NMMF. NMMF held $561.4b in shares and other equity (63.6% of total financial assets) and $228.4b in debt securities (25.9% of total financial assets).

Households claims on net equity in reserves of superannuation (pension funds) was $2,321.9b at the end of the quarter.


GENERAL GOVERNMENT

Continued slow growth of national general government debt issuance

National general government issued $2.2b in bonds, the lowest issuance since September quarter 2017. Driving the low issuance was national general government saving which rose $7.4b this quarter and $28.6b in annualised terms, the largest annualised gross saving since September 2008.




State and local general government fund investment by disposing of financial assets

Gross fixed capital formation by state and local general government was $13.7b. This is the highest investment since the June quarter 2017 and was funded through net borrowing (a net change in financial position of -$11.8b), driven by the disposal of $6.7b of financial assets and incurrence of $5.1b of liabilities.

The disposal in financial assets was driven by the withdrawal of deposits offset partly by shares and other equity investment. The incurrence in financial liabilities was driven by loans.




REST OF WORLD

Australia's net foreign liability increases $36.5b during the quarter

The net financial asset position of rest of world (Australia's net foreign liability) was $975.7b. The $36.5b increase was due to valuation increases of $26.5b and net transactions (net change in financial position) of $10.1b.

A record short term debt securities issuance of $29.8b contributed to the increase in rest of world holding of Australian assets. Revaluations in derivatives and long term debt securities also contributed to the increase.



Non-resident ownership of national general government bonds as a share of total issuance increased to 55.7% from 54.4% in the previous quarter.

Unlisted shares and other equity revaluations of -$62.5b drove the decrease in rest of world liabilities to Australia. Short term loan repayments and derivative contract settlements also contributed to the decrease, offset by long term loan borrowings.