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JUNE KEY FIGURES

		Credit market outstandings at end	Demand for credit during	Other changes during	Credit market outstandings at end
		Mar Qtr 2005	Jun Qtr 2005	Jun Qtr 2005	Jun Qtr 2005
		$b	$b	$b	$b
Non-financial corporations
	Private	1 292.3	-48.1	-4.5	1 239.8
	National public	46.0	-0.4	-0.3	45.3
	State and local public	40.0	2.9	0.0	42.9
General government
	National	59.1	0.1	0.4	59.6
	State and local	35.1	-0.2	0.0	34.9
Households		865.4	32.8	0.0	898.1
Total		2 337.9	-12.9	-4.4	2 320.6

Total demand for credit(a)

Credit market outstandings

JUNE KEY POINTS


SUMMARY

• Credit market aggregates during the June 2005 quarter were dominated by the impacts of some large transactions resulting from corporate restructuring. The total demand for credit, -$12.9b, would have been +$53.9b without the restructuring impacts, up significantly from the +$34.3b recorded for March quarter 2005. Credit market outstandings were $2,320.6b at the end of the quarter.

• Credit market liabilities of private non-financial corporations reduced by $52.5b. There would have been an increase of $14.3b without the corporate restructuring transactions, with +$18.7b transactions and -$4.4b valuation changes.
• National public non-financial corporations repaid a net $0.4b, and State and local public non-financial corporations raised $2.9b.

• National general government repaid a net $0.4b. State and local general government repaid a net $0.2b.

• Households raised a net $32.8b during the June quarter 2005, up sharply from the $20.5b raised during the March quarter 2005. Households borrowed $23.1b from banks (of which $12.5b was for owner-occupied housing and $5.4b for investment housing) up $13.8b from the previous quarter.

SIGNIFICANT EVENTS

A large corporate group restructured during the quarter by transferring its Australian subsidiaries to the Rest of the World. The transfers have been treated as transactions in these statistics, in accordance with treatments of similar restructurings in the past. The treatment is also consistent with the treatment in the balance of payments and international investment position statistics.

A large takeover transaction was completed during the quarter which has had the effect of removing a significant amount of listed equity from aggregates through consolidation of intra-sector holdings.

REVISIONS IN THIS ISSUE

There have been significant revisions to previously published aggregates through:

• application of 16 quarters' revisions in the International Investment Survey. The principal impacts are on equity series by application of improved approximations to market valuations. See also page 2 of Balance of Payments and International Investment Position (ABS cat. no. 5302.0) June quarter 2005;
• incorporation of results of the new APRA quarterly survey of superannuation funds. Evaluation of the results of the December quarter 2004 APRA survey, with the ABS survey conducted in parallel, and evaluation of the methods for estimating totals from survey and administrative data support the conclusion that there had been undercoverage of superannuation funds placed with fee-for-service fund managers in the previous ABS survey, which the APRA survey replaced, back to December 2001. Accordingly, these statistics include revised estimates back to December 2001;
• other revisions have resulted from standard quality assurance activities, and have been applied 16 quarters (back to June 2001);
• because of the number and size of the revisions outlined above, there has been significant impacts on residually derived series, principally in holdings of securities by households.

INQUIRIES

For further information about these and related statistics, contact the National Information and Referral Service on 1300 135 070 or Derick Cullen on Canberra (02) 6252 6244.

ANALYSIS AND COMMENTS SECTORAL SUMMARY


INTERSECTORAL FINANCIAL FLOWS

During June Quarter 2005

Significant flows during the June quarter 2005 were the net $8.0b borrowed by non-financial corporations from rest of world and a net $12.5b borrowed by non-financial corporations from financial corporations. Financial corporations borrowed a net $0.5b from rest of the world and received a net $3.2b from households.

Selected Financial Instruments
	Outstanding at end	Trans- actions during	Other changes during	Outstanding at end
	Mar Qtr 2005	Jun Qtr 2005	Jun Qtr 2005	Jun Qtr 2005
Selected Financial Instruments	$b	$b	$b	$b
Currency and deposits	817.6	33.2	0.2	851.0
Short term debt securities	363.7	-0.8	-0.6	362.2
Long term debt securities	682.1	24.1	4.1	710.3
Derivatives	147.3	-17.0	14.7	145.1
Loans and placements	1 812.5	62.4	1.3	1 876.2
Listed shares	963.6	-1.2	20.2	982.6
Unlisted shares	1 035.1	-132.7	-4.9	897.4
Reserves of life offices and pension funds	741.0	21.1	15.8	777.9
General insurance prepayments and reserves	60.0	1.2	0.0	61.2

Short term security liabilities decreased to $362.3b at the end of June 2005.

Total bond liabilities increased to $710.3b at the end of June 2005, following issues of $24.1b during the quarter. Banks issued $14.7b, of which $3.3b was issued offshore and $11.4b was issued domestically. Financial intermediaries n.e.c. (mainly securitisation vehicles) issued $5.4b, of which $4.5b was issued domestically and $0.9b was issued offshore. Net issues in the Australian market by non-residents was $2.1b (up $1.8b).

The value of derivative contracts on issue at the end of June 2005 decreased by $2.2b to $145.1b. Components of the decrease were net settlements of $17.0b and valuation increases of $14.8b.

Loan liabilities rose to $1,876.2b at the end of June 2005 following transactions of $62.4b during the quarter. Borrowing by households was $31.9b, while private non-financial corporation borrowed $12.9b and pension funds borrowed $12.2b.

The listed share market increased by $19.0b to $982.6b at the end of June 2005, with reductions of $1.2b and valuation increases of $20.2b. Financial intermediaries n.e.c had issues of $1.9b and Private non-financial corporations had reductions of $3.9b, following completion of takeover activities.

The value of the unlisted share market decreased by $137.7b to $897.3b at the end of June 2005, due to restructuring of a large corporate group. Without the impact of the restructuring, net transactions would have been $0.9b.

At the end of June 2005, the reserves of life offices and pension funds were $777.9b following transactions during the quarter of $21.1b and valuation increases of $15.8b. General insurance prepayments and reserves were $61.2b.

SECTORAL ANALYSIS


NON-FINANCIAL CORPORATIONS

Summary

Private non-financial corporations reduced liabilities a net $46.4b (excluding derivatives and accounts payable) during the June quarter 2005. They borrowed $13.4b in loans and made a net issue of $5.6b in debt securities. Share issues fell a net $67.1b during the quarter following a large corporate restructure. These transactions resulted in total borrowings outstanding of $486.6b and total equity on issue of $753.1b.

PRIVATE NON-FINANCIAL CORPORATIONS, NET ISSUE OF EQUITY AND BORROWINGS

Private non-financial corporations debt to equity ratio

From the end of June 2003 to the end of June 2005 the value of equity on issue increased by $187.1b. The value of debt outstanding rose $74.1b during the period. During the quarter, private non-financial corporation debt increased by $22.0b, while equities on issue decreased by $73.1b. Over the June quarter 2005, the original debt to equity ratio rose from 0.69 to 79.0 and the adjusted ratio rose from 1.10 to 1.31. The adjusted ratio reflects the removal of price change from the original series. The movement in the ratio includes some one-off effects of corporate restructuring.

DEBT TO EQUITY RATIO - JUNE 1995 BASE

Banks

During the quarter, transactions of banks’ currency and deposits liabilities were $16.4b. They had issuance in loans and placements of $0.5b and bonds, $14.0b. These were offset by redemptions of one name paper of $0.3b, net settlements of derivatives in a liabilities position of $6.2, and other accounts payable of $0.5b.

Transactions of financial assets of banks were $28.6b during the quarter. Banks loaned a net $32.4b, of which loans to households were $23.1b and private non-financial corporations were $7.5b. These loans were offset by repayments of $0.7b by financial intermedieries nec. Transactions in bank holdings were: bills of exchange, $3.1b; and bonds $2.6b. These were offset by redemptions of one name paper of $0.8b, net settlements of derivatives in an asset position of $7.7m, equities of $0.8b and net reductions of currency and deposits of $0.5b.

Other depository corporations

Funding of other depository corporations increased by $1.4b during the June quarter 2005, driven mainly by an increase in currency and deposits of $6.7b partially offset by net settlements of derivatives in a net liability position of $3.1b. Net transactions in financial assets were $5.9b, with the main contributor being loans and placements with an increase of $6.6b. This increase was offset by net settlements of derivatives in a net liability position of $3.0b.

Life insurance corporations

At the end of June quarter 2005, the financial assets of life insurance corporations stood at $211.8b, an increase of $4.6b from the previous quarter with net transactions of $2.0b and valuation increases of $2.6b. During the quarter there were increases to currency and deposits of $1.8b, net purchases of bonds of $0.5b, equities sales of $0.4b and accounts receivable by $0.1b. There were decreases to loans and placements of $0.1b while one name paper and bills remained the same. Pension fund claims against the reserves of life offices increased by $5.6b following net transactions of $1.8b and valuation increases of $3.8b. Households claims against the reserves of life offices increased by $2.2b following net transactions of $0.9b and valuation increases of $1.3b.

Pension funds

Net equity in reserves of pension funds was $730.8b at the end of the June quarter 2005, an increase of $34.8b, following net transactions of $20.2b and $14.6b valuation increases during the quarter. All asset classes experienced increases during the quarter, with pension funds transactions in other accounts receivable of $6.5b, long term debt securities of $4.0b, currency and deposits of $3.6b, transactions in equities of $2.8b, net equities in life office reserves of $1.8b, loans and placements of $1.0b and holdings of short term debt securities of $0.6b.

Other insurance corporations

During the June quarter 2005, net liability transactions of other insurance corporations were $0.9b, of which the main contributors were prepayments of premiums and reserves of $1.2b, partially offset by a decrease in other accounts payable of $0.9b. Net transactions in financial assets of other insurance corporations were $0.8b during the June quarter, contributed mainly by increases in one name paper of $0.6b and other accounts receivable of $0.6b..

Central borrowing authorities

Total liabilities of central borrowing authorities was $111.6b at the end of the June quarter 2005. During the quarter, the authorities had a net redemption in one name paper of $0.3b, a net redemption in bonds of $0.2b and a decrease in loans and placements liabilities of $0.3b.

Financial intermediaries n.e.c.

Net liability transactions of financial intermediaries n.e.c. were $11.0b during the quarter, mainly through a a net issue of listed shares and equity of $2.9b, net issue of bonds of $2.5b and a net issue of one name paper of $2.0b. During the quarter financial assets increased by $10.2b, mainly through loans and placement to households of $6.2b.

Net flow of currency and deposits to banks

Transaction in currency and deposit liabilities of banks during the June quarter 2005 were $16.4b. The transactions in currency and deposit assets of pension funds were $3.5b, households, $6.5b, other depository corporations, $1.3b, financial intermediaries nec, $1.0 and private non-financial corporations $7.4b. These were offset by a reduction in bank deposits by the rest of the world $4.7b.

CURRENCY AND DEPOSITS LIABILITIES, BANKS

At the end of June quarter 2005 pension funds held $364.1b in shares and other equity (51% of their financial assets), of which $264.3b was in resident companies and $99.8b was in non-resident companies. They held $147.6b of net equity in life office reserves (21% of their financial assets); and $73.4b in bonds (10% of their financial assets), of which $36.2b were Australian bonds and $37.2b were non-resident bonds.

Transactions in state and local general government financial assets were $1.5b in the June quarter 2005, while transactions in total liabilities were $0.1b, 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 $97.5b and total financial assets of $139.2b.

Change in financial position

Households purchased a net $1.4b in equities during the June quarter 2005, the major contributors being the purchase of $1.7b of bank shares, $1.5b of financial intermediaries n.e.c shares and $0.5b of life insurance corporation shares. These were offset by the $1.1b sale of private non-financial corporation shares and the $0.5b sale of national public non-financial corporation shares.

At the close of the quarter, households' stock of financial assets was $1,703.1b. This was up $53.7b from the revised previous quarter number, following net transactions of $30.7b and valuation increases of $23.0b. Major asset holdings were net equity in reserves of life insurance corporations and pension funds of $777.9b, currency and deposits of $377.4b, equities of $313.4b, and unfunded superannuation claims of $147.7b.

Household net borrowing and debt to liquid asset ratio

Of the net $31.9b borrowed by households, bank loans accounted for $23.1b. Of the bank loans, $12.5b was borrowed for owner occupied housing up $8.9b from the revised March quarter figure, and $5.4b for investment housing up $3.2b from the revised March quarter figure. There was an increase of $6.2b in borrowing from financial intermediaries nec.

The graph below illustrates that the debt to liquid assets ratio at the end of June 2005 was at 125.7%, an increase of 1.7 percentage points from the revised March quarter ratio. The ratio was influenced by an overall increase from the previous quarter of 3.8 percentage points in total outstanding household borrowings while total liquid assets only rose 2.4 percentage points (of which the major contributors were deposits and equities)..

REST OF THE WORLD

Summary

Non-residents invested a net $11.6b in Australian financial assets during the June quarter 2005.

The value of Australian financial assets held by non-residents at the end of the quarter was down $50.3b from the March quarter, including $1.7b valuation increases. There were reduced holdings of equity by $62.7b, reductions in placements of currency and deposits of $3.2b, loans of $0.4b, accounts receivable of $1.2b, and net settlements of derivatives in an asset position of $4.0b. These were offset partially by the increases in holding of bills of exchange of 1.2b, purchases of one name paper of $3.3b and purchases of bonds of $15.3b (of which $12.4b was issued by banks).

Australian residents sold foreign financial assets worth net $63.5b during the June quarter 2005. The total value of foreign assets held by Australian residents fell to $621.7b at the end of the quarter, after taking into account a valuation increase of $11.1b. Residents had a settlement of derivatives in a net asset position of $5.0b, a decrease in accounts receivable of $0.7b, and a reduction in purchases of equity of $73.3b. These were partially offset by residents' purchases of debt securities of $1.0b from non-residents, and placements of currency and deposits of $11.0b and loans and placements of $3.4b with non-residents.

Net purchases of equities

The accompanying graph shows that during the June quarter 2005 non-residents sold a net $62.7b in equities, a reduction of $70.9b compared with the March quarter 2005. Net purchases would have been $4.1b if the impact of restructuring of a large corporate group is set aside.