SECTORAL ANALYSIS

NON-FINANCIAL CORPORATIONS

During June quarter 2018, private non-financial corporations invested $45.8b in fixed assets, funded through gross saving of $44.5b and net borrowing of $1.6b. The net change in financial position was a result of incurring $16.8b of liabilities, primarily through equity issuance of $20.9b. Private non-financial corporations disposed of $6.3b financial assets, mainly through selling short-term debt securities.

The private non-financial corporations debt to equity ratio adjusted for price changes decreased to 0.70 in June quarter 2018. This ratio has been trending downwards since March 2016, indicating that private non-financial corporations have a declining ‘real’ level of debt to equity.

The decrease in debt to equity ratio is further illustrated in Graph 2, which shows that non-financial corporations sourced more funds through equity markets rather than debt borrowing in June quarter 2018. On a non-adjusted basis, the debt to equity ratio fell more than the ratio adjusted for price change in June quarter 2018 due to valuation increases of shares and other equity.


FINANCIAL CORPORATIONS

		Outstanding at end		Transactions during		Other changes during		Outstanding at end
		Mar Qtr 2018		Jun Qtr 2018		Jun Qtr 2018		Jun Qtr 2018
		$b		$b		$b		$b
Assets of financial corporations
	Central bank	189.4		3.1		0.1		192.6
	Banks	3 639.9		10.8		31.5		3 682.2
	Other depository corporations	241.5		-0.3		-0.1		241.1
	Pension funds	2 167.0		31.6		52.3		2 250.9
	Life insurance corporations	282.5		0.8		8.1		291.3
	Non-life insurance corporations	214.4		3.7		2.9		221.0
	Money market investment funds	37.6		0.2		-		37.8
	Non-money market investment funds	899.5		-4.6		22.9		917.8
	Central borrowing authorities	357.3		2.7		0.4		360.4
	Securitisers	454.7		3.3		-		458.0
	Other financial corporations	140.7		-0.4		4.5		144.8
Liabilities of financial corporations
	Central bank	189.8		4.6		0.9		195.3
	Banks	3 806.7		-13.2		61.8		3 855.3
	Other depository corporations	232.9		0.5		0.1		233.5
	Pension funds	2 323.4		35.1		51.1		2 409.6
	Life insurance corporations	286.2		0.7		4.2		291.1
	Non-life insurance corporations	234.4		0.6		5.2		240.1
	Money market investment funds	37.6		0.1		0.1		37.8
	Non-money market investment funds	992.7		18.5		9.2		1 020.4
	Central borrowing authorities	393.4		5.4		-0.1		398.8
	Securitisers	453.8		6.2		-1.8		458.2
	Other financial corporations	106.5		3.3		4.0		113.8
- nil or rounded to zero (including null cells)

Total financial corporations increased their asset holdings by $173.7b, driven by acquisition of loan assets and revaluation increases of shares and other equity.

Total financial corporations incurred $196.5b of liabilities, driven by insurance technical reserves and issuance of shares and other equity.

Banks’ funding through deposits decreased to 58.9%, falling to its lowest since December quarter 2016. Financing of their financial assets through short term debt securities has remained relatively unchanged since it dropped to 10.0% in September quarter 2010. Equity funding has remained at a low level in recent years.

Long term debt securities as a source of funding increased this quarter to 14.5%, with banks issuing $12.6b of bonds, as illustrated in Graph 4.


Pension funds, life insurance corporations and non-money market financial investment funds

Graph 5 illustrates the long-term trend in the financial asset composition of pension funds. Pension funds’ investment into financial assets was stable over June quarter 2018. Shares and other equity remain the major component of pension funds' investments.



Pension funds holding of shares and other equity was $1,594.2b at the end of June quarter 2018 (70.8% of total financial assets). A significant proportion (38.8%) of pension funds holding of equity was issued by non-money market financial investment funds (NMMFIF). NMMFIF have higher investment proportion in debt securities than pension funds (Graph 6), as such pension funds have indirect exposure to debt securities through NMMFIF.

Non-money market financial investment funds held $588.6b in shares and other equity (64.1% of total financial assets) and $239.5b in debt securities (26.1% of total financial assets).

Life insurance corporations held $235.0b in shares and other equity (81.2% of total financial assets), which were mostly issued by other private non-financial corporations and non-money market financial investment funds.

The financial claims of households on net equity in reserves of pension funds and of life insurance corporations were $2,367.0b and $117.9b respectively at the end of June quarter 2018. The financial claims of shareholders of life insurance corporations were $32.8b. Of the total $2,409.6b assets of pension funds, 47.2% was invested through financial managers, 47.1% was directly invested in financial markets, and 5.7% was invested in life insurance corporations.




GENERAL GOVERNMENT

General government acquired $17.8b of financial assets during June quarter 2018, almost entirely due to the national general government. The national and state and local government funded their gross fixed capital formation mainly through gross savings. Gross savings for national general government was $13.1b, and $10.6b for the state and local general government.

National general government

Net change in financial position for national general government was $1.6b during June quarter 2018. National general government acquired $16.9b of financial assets, driven by deposits, loans, purchase of one name paper and purchase of shares and other equities. National general government incurred $15.3b of liabilities, mainly driven by issuance of long term debt securities in Australia.

At the end of the quarter, national general government had total financial assets of $494.6b and total liabilities of $918.4b.


State and local general government

Net change in financial position for state and local general government was -$1.2b during June quarter 2018. State and local general government acquired $0.9b of financial assets, driven by loans, but mostly offset by selling of shares and other equities. State and local government incurred $2.1b of liabilities, driven by unfunded superannuation claims and other accounts payable, partly offset by repayment of loans.

At the end of the quarter, state and local general government had total financial assets of $563.5b and total liabilities of $341.5b.

Graph 8 illustrates the quarterly net issuance of debt securities by the national and state and local general governments. During June quarter 2018, the Commonwealth government issued $10.7b of long-term debt securities and repaid $1.0b of short-term debt securities. For the state and local general government, central borrowing authorities are responsible for the issuance of debt securities. The central borrowing authority issued $1.3b of long-term debt securities and repaid $1.3b of short-term debt securities during the quarter.


Central borrowing authorities

Central borrowing authorities acquired $2.7b of financial assets, driven by deposits and loans, partly offset by decrease in shares and other equities. Central borrowing authorities incurred $5.4b of liabilities, driven by loans and long-term debt securities, and partly offset by repayment of short-term debt securities.

At the end of the quarter, central borrowing authorities had total financial assets of $360.4b and total liabilities of $399.0b.


REST OF WORLD

Australia’s net international investment position at the end of June quarter 2018 was a net foreign liability of $953.4b (net financial asset position of the rest of world). This is an increase of $19.5b from the previous quarter with net transactions of $12.7b (net change in financial position) and valuation increases of $6.8b.

Non-residents' investment in Australia recorded transactions of $26.3b and valuation increases of $92.9b, which resulted in an increase of their holdings of Australian assets to $3,554.6b during June quarter 2018. The positive transactions were driven by shares and other equities, bonds and one name paper, offset by settlement of derivatives. The valuation increases were predominantly driven by shares and other equity and derivative contracts.

Graph 9 illustrates that the non-resident ownership of national general government bonds as a share of total issuance has increased this quarter from 54.5% to 55.1%.

Non-residents increased their liabilities to Australia, with net transactions of $13.6b and valuation increases of $86.1b during the June quarter 2018. Rest of the world now have $2,601.2b of liabilities with Australian residents. The positive transactions were driven by rest of world issuance of one name paper and unlisted shares and other equity. These were partly offset by settlement of derivatives contracts. The valuation increases were driven by unlisted shares and other equity and the derivatives market.