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SEPTEMBER KEY FIGURES

		Credit market outstandings at end	Demand for credit during	Other changes during	Credit market outstandings at end
		Jun Qtr 2006	Sep Qtr 2006	Sep Qtr 2006	Sep Qtr 2006
Non-financial domestic sectors		$b	$b	$b	$b
Non-financial corporations
	Private	1 534.2	28.7	10.3	1 573.1
	National public	37.4	0.8	0.3	38.5
	State and local public	47.1	0.9	0.0	48.0
General government
	National	63.6	1.4	0.2	65.2
	State and local	33.0	0.9	0.0	33.9
Households		1 012.7	25.5	2.7	1 040.9
Total		2 728.0	58.2	13.4	2 799.6

Total demand for credit

Credit market outstandings

SEPTEMBER KEY POINTS


SUMMARY

• Total demand for credit by the non-financial domestic sectors for the September quarter 2006 was $58.2b, a decrease of $20.4b on the revised previous quarter estimate. Decreased borrowing by households (down $13.2b) and decrease raisings by private non-financial corporations (down $11.2b) were the main contributors to the fall.

• Private non-financial corporations raised a net $28.7b, with share raisings of $12.2b (down $1.9b) and loans of $8.2b (down $4.0b).
• National public non-financial corporations raised a net $0.8b and state and local public non-financial corporations raised a net $0.9b during the quarter.

• National general government raised a net $1.4b during the quarter by issuing bonds. State and local general government raised a net $0.9b by loan issuance.

• Households raised a net $25.5b during the September quarter 2006, down from the revised June quarter estimate of $38.7b. Households borrowed $19.5b from banks (of which $12.6b was for owner-occupied housing and $3.9b for investment housing) and $4.1b from Financial intermediaries n.e.c., (down $9.2b).

SIGNIFICANT EVENTS

There were no privatisation or other significant structural changes impacting the aggregates.

REVISIONS IN THIS ISSUE

There have been significant revisions to previously published aggregates through:

• quality assurance work undertaken with providers of the ABS Survey of Financial Information and APRA administration data sets, these resulted in revisions back to September 2004.
• change in actuarial assumptions for commonwealth general government reporting due to the implementation of the International Financial Reporting Standard (IFRS) in June 2006. This has resulted in an upward revision in the June 2006 stock levels of unfunded superannuation claims against national general government, the revision has been treated as a revaluation.
• reclassification of assets due to reporting changes by registered financial corporations has resulted in breaks in series to loan assets of other depository corporations.

ANALYSIS AND COMMENTS SECTORAL SUMMARY


INTERSECTORAL FINANCIAL FLOWS

During September Quarter 2006

Significant flows during the September quarter 2006 were the borrowings from the rest of the world by financial corporations, net $14.0b and non-financial corporations, net $6.6b. Households borrowed a net $7.0b from financial corporations, had increased claims of $6.0b on general government and redeemed a net $3.6b from non-financial corporations.

Selected Financial Instruments
	Outstanding at end	Trans- actions during	Other changes during	Outstanding at end
	Jun Qtr 2006	Sep Qtr 2006	Sep Qtr 2006	Sep Qtr 2006
Selected Financial Instruments	$b	$b	$b	$b
Currency and deposits	979.1	33.7	-1.4	1 011.4
Short term debt securities	429.9	4.9	1.2	435.9
Long term debt securities	833.9	28.8	0.9	863.6
Derivatives	155.8	-21.3	17.5	152.0
Loans and placements	2 167.6	51.7	6.2	2 225.5
Listed shares	1 216.0	14.5	11.4	1 242.0
Unlisted shares	1 096.2	41.5	-6.7	1 131.0
Reserves of life offices and pension funds	934.6	2.8	15.3	952.7
General insurance prepayments and reserves	63.3	2.5	0.0	65.8

Short term debt security liabilities increased to $435.9b at the end of September 2006. There were net issues of $4.9b, comprised of $5.1b in issues of bills of exchange and redemptions of $0.2b in one name paper. Total long term debt security liabilities increased to $863.6b at the end of September 2006, following issues of $28.8b during the quarter. Banks issued $15.2b, of which $2.3b was issued domestically and $12.9b was issued offshore. Private non-financial corporations issued $5.7b, of which $3.4b was issued domestically and $2.2b was issued offshore. During the quarter rest of the world increased their holdings of long term debt securities by $20.1b.

The value of derivative contracts on issue at the end of September 2006 decreased by $3.8b to $152.0b. Components of the decrease were net settlements of $21.3b and valuation increases of $17.5b.

Loan liabilities rose to $2,225.5b at the end of September 2006, following transactions of $51.7b during the quarter. Borrowing by households was $24.6b and private non-financial corporations borrowed $7.5b. Central borrowing authorities repaid $3.0b.

The listed share market increased by $26.0b to $1,242.0b at the end of September 2006, with issues of $14.5b and valuation increases of $11.5b. Private non-financial corporations had issues of $9.1b and financial intermediaries n.e.c. issued $4.4b. The value of the unlisted share market increased to $1,131.0b at the end of September 2006, with issues of $41.5b and valuation decreases of $6.7b. Rest of the world had issues of $34.2b and financial intermediaries n.e.c. issued $3.4b.

At the end of September 2006, the reserves of life offices and pension funds were $952.7b following transactions during the quarter of $2.8b and valuation increases of $15.3b. General insurance prepayments and reserves were $65.8b.

SECTORAL ANALYSIS


NON-FINANCIAL CORPORATIONS

Summary

Private non-financial corporations raised a net $28.7b (excluding derivatives and accounts payable) during the September quarter 2006. They borrowed $8.2b in loans and made a net issue of $8.3b in debt securities and $12.2b in shares during the quarter. These transactions resulted in total borrowings outstanding of $591.1b and total equity on issue of $982.1b.

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

Private non-financial corporations debt to equity ratio

From the end of September 2004 to the end of September 2006, the value of equity on issue increased by $235.2b. The value of debt outstanding rose $153.5b during the period. During the quarter, private non-financial corporation debt increased by $12.9b, while equities on issue increased by $18.8b. Over the September quarter 2006, the original debt to equity ratio decreased from 0.73 to 0.72 and the adjusted ratio remained unchanged at 1.46b. The adjusted ratio reflects the removal of price change from the original series.

Debt to Equity ratio - June 1995 Base

Banks

Transactions in financial assets of banks were $34.8b during the quarter. Banks loaned a net $32.6b, of which loans to households were $19.5b, private non-financial corporations were $10.6b and rest of the world were $1.7b. Transactions in bank assets holdings were: bills of exchange, $5.0b; one name paper, $1.6b and equities, $0.1b. These were offset by the net settlement of derivatives $7.5b, withdrawal of currency and deposits $3.5b and the redemption of bonds $0.1b.

During the quarter, transactions of banks’ currency and deposits liabilities were $24.6b. They had issuance of bonds of $15.7b, bills of exchange of $6.9b, loans of $4.4b and one name paper of $1.2b. These were offset by the net settlement of derivatives of $9.2b and other accounts payable of $9.0b.

Other depository corporations

Transactions in other depository corporations liabilities was -$4.8b during the September quarter 2006, driven mainly by the redemption of debt securities of $5.2b and the net settlement of derivatives of $3.8b. These were offset by increased holdings of currency and deposits of $3.7b. Transactions of assets during the quarter were $1.7b, the main contributors being borrowings of loans and placements of $2.1b and holdings of short term debt securities of $1.8b and bonds of $1.6b. These transactions were partially offset by a net settlement of derivatives of $1.8b and the withdrawal of currency and deposits of $1.7b.

Life insurance corporations

At the end of September quarter 2006, the financial assets of life insurance corporations stood at $230.8b, an increase of $1.5b from the previous quarter. Net transactions were -$1.6b and valuation increases were $3.1b. During the quarter there were increases in holdings of equities of $0.3b, offset by a withdrawal in currency and deposits of $1.2b and the sale of one name paper of $0.3b. Pension fund claims against the reserves of life offices increased by $3.3b following net transactions of -$0.3b and valuation increases of $3.6b. Households claims against the reserves of life offices decreased by $1.7b following net transaction of -$3.1b and valuation increases of $1.4b.

Pension funds

Net equity in reserves of pension funds was $895.5b at the end of the September quarter 2006, an increase of $20.0b. This follows net transactions of $5.9b and valuation increases of $14.1b during the quarter. Asset holdings increased due to transactions in equities of $8.3b, one name paper of $4.6b, and currency and deposits of $1.7b. These were partially offset by the sale of bonds of $3.8b and repayments in other accounts receivable of $2.3b.

Other insurance corporations

Net transactions in financial assets of other insurance corporations were $0.2b during the September quarter 2006. The main contributors were increases in the holdings of currency and deposits by $1.0b and equities by $0.9b. These were offset by the sale of bonds of $1.5b and one name paper of $0.3b. During the September quarter, net liability transactions of other insurance corporations were $2.6b.

Central borrowing authorities

Total liabilities of central borrowing authorities was $121.2b at the end of the September quarter 2006. During the quarter, the authorities increased issues of one name paper by $2.7b and bonds by $1.4b. These were offset by the repayment of loans and placements, $3.0b and a net settlement of derivatives, $0.9b. During the September quarter, net asset transactions of central borrowing authorities were $1.6b, main contributors being holdings of currency and deposits, $1.1b and issuance of loans and placements by $1.0b. These were offset by the net settlement of derivatives, $1.1b and the redemption of one name paper, $0.5b.

Financial intermediaries n.e.c.

At the end of the September quarter 2006, net liabilities of financial intermediaries n.e.c. were $558.8b, with unlisted shares of $182.3b on issue and borrowings in the form of loans and placements of $121.1b. Net liability transactions of financial intermediaries n.e.c. were $17.1b during the quarter, with one name paper issues of $4.5b, loans and placements of $4.1b, shares of $6.5b, and bonds issues of $1.7b. During the September quarter 2006, transactions in financial assets were $12.2b, major contributors were equities of $4.7b and loans and placements of $4.0b.

Net flow of currency and deposits to banks

Transactions in currency and deposit liabilities of banks during the September quarter 2006 were $24.6b. There were transactions in currency and deposit assets of households, $13.2b, private non-financial corporations, $7.9b, financial intermediaries n.e.c, $2.8b and pension funds, $0.9b. These were partially offset by withdrawal in bank deposits by other depository corporations, $1.6b and life insurance corporations, $0.9b.

CURRENCY AND DEPOSITS LIABILITIES, BANKS

At the end of the September quarter 2006, pension funds held $491.4b in shares and other equity (57% of their financial assets), of which $350.6b was in resident companies and $140.8b was in non-resident companies. They held $157.1b of the net equity in life office reserves (18% of their financial assets); and $75.9b in bonds (9% of their financial assets), of which $47.2b were Australian bonds and $28.7b were non-resident bonds.

The net change in financial position for national general government was $4.4b. The liability transactions of national general government during the September quarter were -$0.4b. The main contributor was other accounts payable $5.9b, this was offset by unfunded superannuation claims of $4.5b and the issuance of bonds of $1.4b.

During the September quarter, asset transactions for national general government were $4.1b. The main contributor was accounts receivable, $5.5b, partly offset by repayments of loans and placements, $0.9b and net settlement of derivatives, $0.6b. At the end of September 2006, national general government had total liabilities of $197.7b and total financial assets of $133.1b.

Transactions in state and local general government financial assets were -$1.2b in the September quarter 2006, while transactions in total liabilities were $1.7b, resulting in a change in financial position of -$2.9b. At the end of the quarter, state and local general government had total liabilities of $101.5b and total financial assets of $144.9b.

Change in financial position

Household sold a net $3.1b in equities during the September quarter 2006, the major contributors being sales of $3.0b of private non-financial corporation shares and $0.6b of public non-financial corporation shares. These were offset by the $1.2b purchases of financial intermediaries n.e.c. and $0.3b of life insurance corporation shares.

At the close of the quarter, households' stock of financial assets was $2,020.2b. This was up $37.7b from the revised previous quarter number, following net transactions of $17.5b and valuation increases of $20.2b. Major asset holdings were net equity in reserves of life insurance corporations and pension funds of $952.8b, currency and deposits of $422.0b, equities of $376.5b, and unfunded superannuation claims of $163.6b.

Household net borrowing and debt to liquid asset ratio

Of the net $24.6b borrowed by households during the September quarter 2006, bank loans were $19.5b and borrowing from financial intermediaries n.e.c. was $4.1b. Of the bank loans, $12.6b was borrowed for owner occupied housing and $3.9b for investment housing.

The graph below illustrates that the debt to liquid assets ratio at the end of September 2006 was at 125.5%, an increase of 1.1 percentage points from the revised June quarter ratio. The ratio was influenced by an increase from the previous quarter of 2.8 % in total outstanding household borrowings and an increase in total liquid assets of 1.9%. Major contributors to liquid assets were deposits (up 3.7%) and holdings of equities (up 0.1%).

REST OF THE WORLD

Summary

Non-residents invested a net $50.1b in Australian financial assets during the September quarter 2006, resulting in $1,393.6b of Australian financial assets held by non-residents, up $52.4b from the June quarter (of which $2.3b were valuation increases). There were net purchases of bonds, $30.1b (of which, $20.1b was issued by banks), equity, $23.3b (of which $20.0b was issued by private non-financial corporations), bills of exchange, $3.2b, and issuance of loan assets, $4.2b. These were partially offset by a net settlement of derivatives in an asset position of $6.2b.

Australian residents purchased foreign financial assets worth $36.2b during the September quarter 2006. The total value of foreign assets held by Australian residents increased to $819.2b at the end of the quarter, up $26.5b from the June quarter (of which $9.7b were valuation decreases). Residents made net purchases of equity, $34.2b and debt securities, $1.2b and provided loans and placements, $2.5b. These were partially offset by a net settlement of derivatives in a net asset position of -$5.5b.

Net purchases of equities

During the September quarter 2006 non-residents acquired a net $23.3b in equities, an increase of $16.1b compared with the June quarter 2006.