SECTORAL ANALYSIS

PRIVATE NON-FINANCIAL CORPORATIONS

Debt to equity ratio decreased

Private non-financial corporations investment in fixed assets was funded through gross saving ($19.0b) and net borrowing ($10.8b). Net borrowing was a result of net incurrence of liabilities ($28.3b) outweighing net acquisition of financial assets ($17.5b). The incurrence of liabilities was predominantly composed of loan borrowings from banks, equity raising and bond issuance offshore.

The debt to equity ratio adjusted for price changes remained at 0.67. The ratio has been gradually declining since March quarter 2016, indicating the 'real' level of debt to equity for private non-financial corporations has been declining. On a non-adjusted basis, the debt to ratio decreased from 0.55 to 0.52 due to the value of equity increasing as the Australian share market rebounded. The non-adjusted ratio tends to be more volatile due to the impact of valuation changes of shares and other equity.

Graph 1. Private non-financial corporations, debt to equity ratio


The ratio is further illustrated in Graph 2, which shows private non-financial corporations funding through debt and equity have been relatively similar over the past few quarters. Listed shares were the largest contributor to growth in equity, while long term loan borrowing and bond issuance offshore were the largest contributors to debt.

Graph 2. Private non-financial corporations transactions in equity and debt



FINANCIAL CORPORATIONS

		Outstanding at end		Transactions during		Other changes during		Outstanding at end
		Dec Qtr 2018		Mar Qtr 201	9	Mar Qtr 2019		Mar Qtr 2019
		$b		$b		$b		$b
Assets of financial corporations
	Central bank	185.4		-6.7		2.2		180.8
	Banks	3 735.0		-24.8		54.4		3 764.6
	Other depository corporations	246.8		7.3		-0.2		254.0
	Pension funds	2 200.3		12.9		107		2 320.2
	Life insurance corporations	273.3		1.8		14		289.1
	Non-life insurance corporations	217.6		-1.5		5.8		221.9
	Money market investment funds	37.3		3		0.1		40.4
	Non-money market investment funds	880.6		3.9		56.2		940.8
	Central borrowing authorities	365.9		14.2		2.2		382.2
	Securitisers	465.1		5.1		-		470.3
	Other financial corporations	140.1		2.1		5.4		147.7
Liabilities of financial corporations
	Central bank	187.9		-5.2		-		182.8
	Banks	3 872.2		-7.4		56		3 920.8
	Other depository corporations	240.0		3.8		-2		241.8
	Pension funds	2 359.0		19.2		102.3		2 480.4
	Life insurance corporations	268.9		1.7		11.5		282.2
	Non-life insurance corporations	234.2		3.6		4.6		242.3
	Money market investment funds	37.3		2.2		0.9		40.4
	Non-money market investment funds	995.1		5.7		35.7		1 036.5
	Central borrowing authorities	404.7		9.4		5.6		419.6
	Securitisers	464.8		-4.2		9.2		469.8
	Other financial corporations	105.2		-0.4		6.3		111.0
- nil or rounded to zero (including null cells)

Positive equity revaluations drove the increase in both the financial assets and liabilities of financial corporations. Total financial assets increased by $162.5b, driven by shares and other equity, while total liabilities increased $156.5b, driven by superannuation reserves.


Bank equity funding remains low

Banks funding through equity remains low at 13.5%, after falling to a seven year low last quarter (13.3%). Financing through short-term debt securities remained flat at 9.0%. Banks' largest funding source, deposits, decreased slightly to 58.7%, and funding through long-term debt securities fell slightly to 14.1%.

Graph 3. Banks liabilities as a proportion of their financial assets



Loans to households continue to slow

Long term loans to households continue to be impacted by the tighter lending conditions over the past few years and a weak housing market. Long term loans from banks and securitisers to households was $11.3b this quarter, the lowest amount since December quarter 2012. Through the year growth of long term loan balances is at a historical low of 3.8%.

Both banks and securitisers need to be considered when assessing movements in loans assets of banks. Securitisers are trusts or corporations that pool various types of assets, such as property loans or credit card debt, and package them as collateral backing for bonds or short-term debt securities. Graph 4 includes both 'on market' and internal securitisation. 'On market' securitisation is used by banks as a way to move loan assets off their balance sheets to fund their lending business, while the purpose of internal securitisation is to use the securities as collateral with the RBA in its repurchase agreement program.

Graph 4. Long term loans and placements from banks and securitisers to households



Superannuation assets recover from last quarters fall

Pension funds (superannuation) assets rose $119.9b, driven by valuation increases in shares and other equity ($94.6b) as the share market rebounded. Shares and other equity remain the largest component of pension funds, representing 70.9% of total financial assets.

Graph 5. Financial assets of pension funds


A significant proportion (38.5%) of pension funds holding of equity was issued by non-money market financial investment funds (NMMF). NMMF have a higher proportion of their investment in debt securities than pension funds, and as such pension funds have indirect exposure to debt securities through NMMF. NMMF held $604.3b in shares and other equity (64.2% of total financial assets) and $241.7b in debt securities (25.7% of total financial assets).

Households claims on net equity in reserves of superannuation (pension funds) was $2,437.6b at the end of the quarter.


GENERAL GOVERNMENT

Continued slow growth of national general government debt issuance

For the first time since September quarter 2008, maturities of national general government bonds were greater than issuances. Bond issuances have been gradually falling over recent quarters as national general government saving has increased. In annualised terms (see Graph 6), bond issuances were $11.1b, the lowest value since December quarter 2008, while gross saving was $30.3b, the largest it has been since September quarter 2008.

Graph 6. Annualised national general government bond issuance and gross saving



State and local general government builds funds for future investment

Gross fixed capital formation by state and local general government was $12.5b. The investment was funded through net borrowing of $2.7b driven by the incurrence of $5.8b of liabilities, and partly offset by the acquisition of $3.2b of financial assets. Incurrence of liabilities was driven by loans from central borrowing authorities. The increase in financial asset was driven by bank deposits, acquisition and revaluation of equities and bank issued one name paper.

Graph 7. Change in net financial position, general government



REST OF WORLD

Net financial position falls as liabilities to Australia increase by $100.8b

Rest of world net financial position at the end of the quarter was $966.1b, reflecting a $31.8b decrease due to valuation increases on liabilities ($119.0b) outweighing financial assets ($86.2b). Net transactions contributed $1.0b.

Rest of world holding of Australian financial assets increased by $69.0b, driven by valuation increases on equity assets, and long term debt securities. Transactions on financial assets decreased $17.2b driven by falls in short and long term debt securities. Rest of world liabilities to Australia increased $100.8b, largely driven by valuation increases in shares and other equity.

Rest of world holdings of national general government bonds increased 3.1% this quarter, increasing their ownership of total issued national general government bonds to 55.9%. The increase in rest of world holding of national general government bonds was driven by positive revaluations ($11.2b) due to falls in government bond yields.

Graph 8. Bonds issued by national general government held by rest of world