Tài chính kế toán - Chapter 3: Non - Bank financial institutions (nbfis)

Chapter 3Non-bank FinancialInstitutions (NBFIs)Website:www.apra.gov.auwww.efic.gov.auLearning objectivesUnderstand the different types of NBFIs and their roles in the financial systemInvestment and merchant banks, managed funds, cash management and public trusts, superannuation funds, life and general insurance offices, hedge funds, finance companies and general financiers, building societies and credit unions, and export finance corporationsOutline the financial products and services provided by NBFIsDescribe NBFIs’ principal sources and uses of fundsChapter organisation3.1 Investment and merchant banks3.2 Managed funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.1 Investment and merchant banksEvolved under regulationAre not authorised banks and are officially classified as ‘money market corporations’ in AustraliaShare of total financial institution assets declined from 7.2% in 1990 to 1.4% in 2010Today, there is very little difference between a ‘merchant’ bank and an ‘investment’ bank(cont.)3.1 Investment and merchant banks (cont.)Sources of fundsMainly securities issued into international money markets and capital marketsUses of fundsLimited lending to clients, usually on short-term basisThese loans tend to be sold into the secondary marketPrimarily focused on off-balance-sheet advisory services(cont.)3.1 Investment and merchant banks (cont.)Off-balance-sheet businessInnovative products and services in provision of advice, management and funding services, generating their main income from fees, e.g.:FOREX dealers, advice on raising funds, underwriting equity/debt issues, shares placements, balance-sheet restructuring, venture capitalmergers and acquisitions—takeover company seeks to gain control over a target companyhorizontal, vertical, conglomerate and hostile takeoverssynergies, economic/legal/accounting/tax considerationsanalysis, valuation, negotiation, due diligenceChapter organisation3.1 Investment and merchant banks3.2 Managed Funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.2 Managed fundsThere has been tremendous growth in the amount of funds under managementDespite the financial crisis, funds continue to flow into Australia’s superannuation funds, which are by far the largest component of the managed funds sectorIndeed, between 2008 and 2010, funds under management in superannuation funds increased by more than $100 billionThis increase more than offset the falls (of about $10 billion) experienced in other parts of the sector, particularly cash management trusts and unit trusts(cont.)3.2 Managed funds (cont.)Investment vehicle for investing the pooled savings of individuals in various asset classes in domestic and international money and capital markets by fund managersMutual fund (USA)Managed funds established under a corporate structure; investors purchase shares in the fundTrust fund (Australia and UK)Managed funds established under a trust deed, managed by a trustee or responsible entityInvestors in the fund obtain a right to the assets of the fund and a share of the income and capital gains (losses) derived(cont.)3.2 Managed funds (cont.)Main categories of managed funds Cash management trusts (section 3.3)Public unit trusts (section 3.4)Superannuation funds (section 3.5)Statutory funds of life offices (section 3.6)Hedge funds(section 3.8)Common fundsOperated by trustee companies, they pool funds of beneficiaries and invest in specified asset classesDiffer from unit trusts in that units are not issuedE.g. solicitors offering mortgage trusts(cont.)3.2 Managed funds (cont.)Main categories of managed funds (cont.)Friendly societiesMutual organisations that provide members with investment and other services (insurance, sickness, unemployment benefits) Investment products include the issue of bonds that invest in asset classes like cash, fixed-interest, equities and property(cont.)3.2 Managed funds (cont.)Growth in sector driven by deregulation, affluent and ageing population, and more educated investorsSources of fundsFunding derived from specific contractual commitments of investorsPeriodic payments to the fund, e.g. superannuationSingle payment or premium, e.g. insurance policyTotal assets $1,600 billion as at December 2010More than $1,000 billion managed by superannuation fundsFunds under management about 35% of all financial institution assets(cont.)3.2 Managed funds (cont.)Uses of fundsLarge funds typically allocate a portion of the total asset portfolio to several professional fund managers for risk- and performance-management purposesProfessional managers invest in asset types authorised under the trust deed of a particular fund(cont.)3.2 Managed funds (cont.)Categorisation of managed funds by investment risk profileCapital guaranteed fundsValue of contributions guaranteed, but not future earningsInvestments are low risk, low return, e.g. government and semi-government securities, bank bills, debentures and cash depositsCapital stable fundsContributions are mostly protected by investments in low risk securitiesInvestments as per capital-guaranteed fund plus property(cont.)3.2 Managed funds (cont.)Categorisation of managed funds by investment risk profile (cont.)Balanced growth fundsInvestments in longer term income streams supported by limited capital growthInvestments include domestic and foreign equitiesManaged growth (or capital growth) fundsInvest for greater return through capital growth and less through income streamsInvestments include a greater proportion of domestic and foreign equitiesChapter organisation3.1 Investment and merchant banks3.2 Managed funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.3 Cash management trustsA mutual investment fund, often managed by a financial intermediary, established under a trust deed, specifying the trust’s investmentsGenerally invest in short-term money-market instrumentsProvide high liquidity for the investorShare of total financial institutions assets grew from 0.6% in 1990 to 1.1% in 2008. This declined to 0.8% following the GFCProvide retail investors with access to the wholesale marketCash and deposits 70%, bills of exchange 7%, other assets 23%Chapter organisation3.1 Investment and merchant banks3.2 Managed funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.4 Public unit trustsInvestment fund established under trust deedInvestors purchase a share in the trust called a ‘unit’The trustee invests the pooled funds received from investorsUnit holders receive a return in the form of income and/ or capital gainTypes of unit trusts and share of public unit trusts assets:Property trusts (44%)Equity trusts (47%)Mortgage trusts (2%)Other (including fixed-interest trusts) (5%)(cont.)3.4 Public unit trusts (cont.)Share of total financial institutions assets grown from 3.7% in 1990 to 5.6% in 2010Listed trustsUnits quoted and sold on the ASX (more liquid)—mainly property trustsUnlisted trustsUnits sold back to trustee after giving the required notice (less liquid)—mainly equity trustsChapter organisation3.1 Investment and merchant banks3.2 Managed funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.5 Superannuation fundsThe largest part of the managed funds industry is the superannuation sectorIndeed, superannuation funds account for almost one-fifth of the assets held by financial institutions in AustraliaMost surprisingly, self managed superannuation funds hold the largest amount of assets within the superannuation sectorThere are more than 400,000 SMSFs holding a total of more than $400 billion in assets. This exceeds the asset holdings of retail funds by almost $60 billion(cont.)3.5 Superannuation funds (cont.)Savings accumulated to fund an individual’s retirementSuperannuation assets exceeded $1,300 billion as at December 2010. More than $400 billion of this is held in SMSFs.APRA classifies superannuation funds as:corporate fundsindustry fundspublic sector fundsretail fundssmall APRA fundsself-managed funds(cont.)3.5 Superannuation funds (cont.)Sources of fundsCorporate, industry and public-sector superannuation fundsCorporate funds provide benefits to employees of a specific companyIndustry funds provide benefits to employees working within a particular industryPublic sector funds provide benefits to government employees and can be underfundedCan be contributory (employer and employee contribute) or non-contributory (only employer contributes)About 40% of total superannuation assets(cont.)3.5 Superannuation funds (cont.)Sources of funds (cont.)Compulsory superannuation fundsLegislation requiring employers to contribute a defined amount to employees’ superannuation accountsAustralian employers not paying the mandatory 9% into employees’ superannuation funds must pay the superannuation guarantee fund (SGC)Rollover superannuation fundsHold eligible termination payments (ETP) within the regulated superannuation environmentETPs are superannuation funds due on termination of employment plus related redundancy payments(cont.)3.5 Superannuation funds (cont.)Sources of funds (cont.)Private (or personal) superannuation fundsRetail funds—offer superannuation products to the public on a commercial basis; have more than four membersSmall APRA funds—have fewer than five members and are regulated by APRASelf-managed funds—regulated by the ATO and have fewer than five members, all of whom are trusteesRetail, small APRA and self-managed superannuation funds represent 57% of total superannuation assetsSavings plan—regular contributions by an individualSingle-premium scheme—single up-front contribution(cont.)3.5 Superannuation funds (cont.)Defined benefit funds and accumulation fundsDefined benefit fundsAmount paid to employee on retirement is based on a defined formulaRisk lies with employer, who must make good any shortfallAccumulation fundsAmount of funds available at retirement consists of contributions plus earnings less taxes and expenses(cont.)3.5 Superannuation funds (cont.)RegulationLegislation directly impacting on the operation of superannuation funds is:Superannuation Industry (Supervision) Act 1993 (Cwlth) (SIS)Income tax Assessment Act 1936Concessional 15% tax treatment of fund contributions and earningsLimitations on maximum annual contributionsMembers can withdraw funds as pension or in lump sum tax free at age 60Chapter organisation3.1 Investment and merchant banks3.2 Managed funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.6 Life insurance officesSell life insurance and superannuation policiesSources of fundsPremiums paid and policy holders or beneficiaries receive payment upon death/disablement or at a nominated maturity date, subject to policy terms Superannuation/Retirement contributionsInflow of funds is regular, predictable and long termLife insurance office policiesWhole-of-life, term-life, total and permanent disablement, trauma, income protection, business overheads(cont.)3.6 Life insurance offices (cont.)Uses of fundsOutflow of funds quite predictable and stable and therefore invest mainly in long-term securitiesStatutory funds invested in:equities and unit trustslong-term securitiescash and short-term securitiesoverseasRegulationSupervised by APRA, which applies the same capital and liquidity management requirements as for banksLife Insurance Act 1995 (Cwlth)—licensing and controlChapter organisation3.1 Investment and merchant banks3.2 Managed funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.7 General insurance officesInsurer pays the insured a predetermined amount if some prespecified event occursSources of fundsContractual premiums paid in advance for:house and contentsco-insurance, public liability insurancemotor vehicle insurancecomprehensive; third party, fire and theft; third party; compulsory third partyother risk insurance policies to individuals in retail market and businesses in the commercial marketInflow of funds not as stable as life offices(cont.)3.7 General insurance offices (cont.)Uses of fundsGenerally shorter term, highly marketable securities, owing to the less predictable nature of the risks underwrittenExamplesMoney market securities, such as bills of exchange, commercial paper and certificates of depositShare of total assets declined from 4.4% in 1990 to 3% in 2010Chapter organisation3.1 Investment and merchant banks3.2 Managed funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.8 Hedge fundsHedge funds operate in a relatively unregulated environmentOften, hedge funds are open to ‘high net worth’ individuals who will be required to invest a relatively large sumBecause the strategies and operations of hedge funds are neither transparent nor straightforward, hedge funds are often the target of criticism when markets experience significant levels of volatilityThis was certainly the case during the GFC where the short selling activities of the hedge funds attracted much scrutiny(cont.)3.8 Hedge funds (cont.)Use sophisticated investment strategies and products mainly for high-net-worth individuals and institutions to achieve higher returnsTend to specialise in different financial instruments such as equity, FOREX, bonds, commodities and derivativesHedge fund sector generally divided into single-manager hedge funds and fund of fundsSources of funds mainly from superannuation and life offices, and high-net-worth individualsMay leverage investments through debt financing and/or use of derivative productsChapter organisation3.1 Investment and merchant banks3.2 Managed funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.9 Finance companies and general financiersBorrow in domestic and international financial markets and make loans to small business and individualsEmerged largely owing to previously highly regulated banking sector to circumvent restrictions on interest rates and lendingSector can be classified into: diversified finance companiesmanufacturer-affiliated companies, e.g. Ford Creditniche specialists, e.g. motor vehicle and lease financingSector share of total assets has declined from 7.5% in 1990 to less than 3% in 2010 as commercial banks are more competitive in deregulated environment(cont.)3.9 Finance companies and general financiers (cont.)Sources of fundsIssue of debentures and unsecured notesBorrowings from related corporations and banksBorrowing direct from domestic and international money and capital marketsUses of fundsLoans to individuals, possibly higher riskLease financingLoans to small- and medium-sized businesses (e.g. bills finance, term loans, floor plan financing, factoring and accounts receivable financing)Chapter organisation3.1 Investment and merchant banks3.2 Managed funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.10 Building societiesAuthorised deposit-taking institutions mainly lending for residential propertyDuring period of regulation building societies gained market share at the expense of savings banksSince deregulation the sector share of total assets declined from 3.1% in 1990 to 0.5% in 2010. In response some building societies have:merged to rationalise costsbecome banks, e.g. Challenge Bank, Advance Bank and Heritage Bankimproved technology for service and cost reasonsdiversified activities and products offered to savers and borrowers(cont.)3.10 Building societies (cont.)Sources of fundsMainly deposits from customers Uses of fundsPersonal finance to individual borrowersMainly housing financeTerm loans and credit card financeRegulationAs they are ADIs (i.e. authorised by APRA to accept retail deposits), regulation is by APRA with the same prudential and reporting standards as banksChapter organisation3.1 Investment and merchant banks3.2 Managed funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.11 Credit unionsCommon bond of association often exists between members owing to employment, industry or community (e.g. Shell Employees’ Credit Union)Share of total financial institutions assets remained relatively stable, only declining from 1.2% in 1990 to 1.1% in 2010Sources of fundsMainly deposits from members (payroll deductions)Other credit unions and the issue of promissory notes and other securities(cont.)3.11 Credit unions (cont.)Uses of fundsPrimarily personal finance to membersResidential housing loansPersonal loans and credit card facilitiesLimited commercial lendingRegulationAs ADIs, they are regulated by APRA, which applies the same prudential and reporting standards as for banks and PBSsChapter organisation3.1 Investment and merchant banks3.2 Managed funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.12 Export finance corporationsExport finance companies support the export activities of domestic firmsIn Australia, the official export credit agency is the government authority: Export Finance and Insurance CorporationThe purpose of the EFIC is to: “Overcome financial barriers for exporters by providing financial solutions, risk management options and professional advice, when the private market lacks capacity or willingness, we create opportunities for Australian exporters and offshore investors to grow their international business.” (EFIC.gov.au)(cont.)3.12 Export finance corporations (cont.)Government authorities that provide financial support and services to exporting corporationsOfficial Australian export credit agency is Export Finance and Insurance Corporation (EFIC)(cont.)3.12 Export finance corporations (cont.)EFIC facilitates export trade by providing trade insurance and financial services and products, which may not be available from other financial institutionsInsures Australian exporters against non-paymentGuarantees trade finance for the purchase of Australian goods and servicesInsures Australian firms against political risk of overseas investmentsIndemnifies financial transactions of insurers that provide bonds/guarantees to overseas buyers and provide performance bonds in support of Australian export contractsChapter organisation3.1 Investment and merchant banks3.2 Managed funds3.3 Cash management trusts3.4 Public unit trusts3.5 Superannuation funds3.6 Life insurance offices3.7 General insurance offices3.8 Hedge funds3.9 Finance companies and general financiers3.10 Building societies3.11 Credit unions3.12 Export finance corporations3.13 Summary3.13 SummaryNBFIs can be classified according to their assets and liabilities and the type of services providedInvestment and merchant banks provide advisory services to corporations and governmentManaged funds provide access to wholesale investment markets for pooled savingsSuperannuation funds facilitate saving by individuals for their retirementLife insurance and general insurance offices are contractual savings institutions that generate funds mainly on the receipt of premiums for insurance policies(cont.)3.13 Summary (cont.)Hedge funds seek above-average returns using sophisticated investment strategies and productsFinance companies issue debentures and unsecured notes and lend to individuals and businessesBuilding societies and credit unions receive deposits from individuals and lend for residential housingEFIC provides insurance and financial services and products for exporters