Bulletin – December 1992 Technical Note: Series Breaks in Bank, NBFI and Financial Aggregates Tables
Changes in Classification of Financial Institutions
Changes in the status and the statistical classification of financial institutions comprise a major source of breaks to data published in sections B, C and D of the Bulletin.
- The change can be due to a change in legal status (e.g. a building society becoming a bank) or merely reflect a re-assessment of the appropriate classification of a particular institution. Changes in classification among Financial Corporations Act (FCA) groups are numerous; they are normally listed in the Bulletin (see “For the Record” in this issue).
- Different reporting forms for different groups can make it difficult to properly adjust series to allow for breaks. Reporting differences can affect both coverage and timing. For example, most banking data are collected weekly (and monthly data are usually averages of weekly figures), whereas FCA returns are on an end-month basis: classifications of assets and liabilities also differ slightly. The financial aggregates shown in section D of the Bulletin combine monthly average figures for banks, with interpolated data for NBFIs calculated by averaging two end-month observations. Thus conversion of an NBFI to a bank can produce temporary distortions in the financial aggregates because of timing effects and consequent ‘double counting’.
- The impact of many conversions of NBFIs to banks is even less clear cut when the assets of the NBFI are transferred to the new bank over a period. In such cases it is very difficult to distinguish transfers from changes in balance sheets caused by other factors.
- Generally, changes in classification have the smallest net effects on the broader financial aggregates (broad money, borrowing and lending by all financial intermediaries, credit). However conversion of larger NBFIs to banks can cause marginal reductions in the measured level of currency holdings and broad money for definitional reasons. Most changes of classification between FCA groups have no net effect on broader aggregates.
- Confidentiality of individual respondent's data constrains detailed description of the impact of some changes.
Analysis of changes in particular groups is also complicated by institutions in one group (especially banks) having subsidiaries (or other related companies) in another. In such cases growth of separate classifications of financial intermediaries can be determined by management decisions within the parent financier as to which subsidiary will hold the respective assets and liabilities. Much of the expansion of assets in finance companies and money market corporations up to the mid 1980s reflected growth in subsidiaries of major Australian banks (the four largest finance companies were subsidiaries of the four largest Australian banks). The recent decline in shares of both money market corporations and finance companies partly reflects the absorption of banks' finance and money market company subsidiaries into the parent bank.
(a) New Banks and Conversions of NBFIs to Banks
There are two ways of looking at the impact of conversions of NBFIs to banks;
- looking at the size of the institutions involved at the time of the change; and
- looking at the behaviour of the various aggregates over time.
A list of the new banks established in the last decade is shown at the end of this note. It shows the name of the new bank, the time it was established, average total assets in the first month it reported as a bank, the main institutions from which it was formed and their classification(s). As noted above, this method has shortcomings in the case of banks which acquired assets of their predecessors over an extended period. Looking at aggregates over time can get around some of the problems of new banks acquiring assets from their predecessors over an extended period but introduce other measurement difficulties. Transfers of assets from NBFIs to new banks are difficult to distinguish from changes in the underlying growth of the respective groups of institutions, or from management decisions of financial conglomerates as to which subsidiary (and consequently which classification of financial intermediary) will hold the respective assets and liabilities.
This listing of new banks can be used to locate breaks in the banking aggregates (B tables), NBFI aggregates (C tables) and financial aggregates (D tables), but as noted earlier, the timing of impacts can vary because of different reporting periods for banks (weekly) and NBFI (end month). When there is a discrete change from an NBFI to a bank at the beginning of the month, the financial aggregates can be distorted in the new bank's first month (and growth rates distorted in both that month and in the following month when the distortion is unwound). For larger NBFIs converting to banks at the beginning of a month, distortions are avoided by making a special adjustment to ensure that institution's contribution to the financial aggregates as an NBFI are zero.
(b) Other Changes in Bank Reporting
As well as the conversion of NBFIs to banks, changes in reporting arrangements have been another major source of breaks in series for banks, NBFIs and the financial aggregates. Some reflect changes in institutional arrangements such as the removal of the distinction between savings and trading banks from January 1990. Other such changes relate to the inclusion of foreign currency assets and liabilities, and the separation of residents and non-residents. Alterations to the focus of supervisory practices has also involved changes to statistical collections (e.g. for the administration of PAR arrangements, cessation of LGS and SRD arrangements etc.). The growth in usage of certain instruments (e.g. commercial bills) has also caused changes in reporting arrangements in order to collect data on these items separately. Other breaks in series have been due to some government banks being included in banking statistics, sometimes voluntarily before there was any formal requirement. Separate listings of major changes in reporting arrangements for Banks and NBFIs are shown at the end of this note. Because of the large number of categories affected (often by substantially different amounts) and, on occasions, confidentiality of individual respondent's data, it is not feasible to provide a complete listing of all breaks in all series. However, approximate indications can often be obtained by looking at levels of the series in the months immediately surrounding the breaks.
(c) Changes in Non-Bank Reporting
The form in which data are collected from corporations registered under the FCA is set down as part of that Act. Amendments to collection definitions and classifications were incorporated into changes in the Act that became effective in June 1984. Accordingly, data classifications were unchanged between the inception of the collection in 1977 and May 1984, and since June 1984. The combination of the need to preserve confidentiality of individual corporations data, and the frequency of changes in the number of reporting corporations, makes it difficult to provide indications of breaks other than those associated with the conversion of FCA corporations to banks.
Other Changes in Classification and Revisions
In recent years, revisions to past data have been incorporated into all series as details of revisions are reported by individual banks and corporations. Accordingly, breaks in series due to revisions to past observations are generally unimportant. However, occasionally there can be delays in reporting revisions relating to write-offs in sufficient detail to amend all tables on a consistent basis. Breaks due to reclassifications of certain types of banks' assets and liabilities (which can also affect the financial aggregates, but generally only their composition) also occur from time to time. Only the larger of these (in excess of $1 billion) are shown in the following list. Some smaller breaks have been footnoted in some tables in the Bulletin.
Changes in statistical collections can also be associated with changes in the methodology for calculating aggregates. For example from November 1992, the series “Bank lending to the private sector” (now Table D.2) has been revised to report such lending net of bank loans to NBFIs. “Credit to the private sector” (now Table D.3) has also been revised and is calculated as the sum of banks' loans and advances (netted in the same way as bank lending to the private sector), NBFIs' loans and advances and bank bills outstanding. Interpretation of credit aggregates was not materially effected by the changes.
Write-Offs and Specific Provisions
Banks report the value of their loans net of bad debt write-offs and specific provisions for bad and doubtful debts. Such net write-offs and specific provisions have increased since 1989. While this has contributed to the fall in published credit figures in recent years, it has not altered the pattern of credit growth.
|Date||New Bank||Former Name(s)||Previous Classification**||Amount $ million|
|Sep 83||Bank of Queensland Savings Bank||..||..||33|
|Mar 85||Macquarie Bank Limited||Hill Samuel Australia Limited||MMC||378|
|Jun 85||Advance Bank Limited||N.S.W. Building Society||PBS||2,094|
|Oct 85||CHASE AMP Bank Ltd||CHASE AMP Acceptances Ltd||MMC||301|
|Lloyds Bank NZA Limited||Lloyds International Limited||MMC||629|
|Dec 85||Barclays Bank Australia Limited||Barclays Australia Limited||MMC||205|
|Bank of China||..||..||22|
|Bank of Tokyo Australia Limited||BOT Australia Ltd||MMC||81|
|Citibank Savings Limited
|IBJ Australia Bank Limited||..||..||96|
|Jan 86||Mitsubishi Bank of Australia Limited||..||..||40|
|Feb 86||Bankers Trust Australia Limited||BT Australia Limited||MMC||88|
|Deutsche Bank Australia Limited
||European Asian of Australia Limited||MMC
|HongkongBank of Australia Limited||Wardley Australia Limited||MMC||297|
|NatWest Australia Bank Limited||NatWest Finance Limited||FC||197|
|National Mutual Royal Bank Limited
||Capel Court Corporation Group/Mercantile Credits Group/National Mutual RBC||MMC
|National Mutual Royal Savings Bank Limited||National Mutual Permanent Building Society||PBS
|Apr 86||Standard Chartered Bank Australia Limited||Standard Chartered Finance Ltd||FC
|May 86||Bank of America Australia Limited
||BA Australia Limited/
BA Australia Leasing Limited
|Jun 86||Bank of Singapore (Australia) Limited||..||..||51|
|Civic Advance Bank Limited
||Civic Co-operative Permanent Building Society Ltd||PBS
|Mar 87||National Mutual Royal Savings Bank (NSW) Limited||United Permanent Building Society Ltd||PBS
|Apr 87||Challenge Bank Limited
||Perth Building Society/Hotham Permanent Building Society||PBS
|Sep 87||Tasmania Bank
||The Tasmanian Permanent Building Society/Launceston Bank for Savings||PBS/SB
|Jul 88||Metway Bank Limited
||Metropolitan Permanent Building Society||PBS
|Jul 89||Bank of Melbourne Limited
||RESI-Statewide Building Society||PBS
|Aug 90||Canberra Advance Bank Limited
||Civic Advance Bank Limited/
Canberra Permanent Co-operative Building Society Limited
|Oct 91||Town & Country Bank Limited
||Town & Country W.A. Building Society||PBS
|Jul 92||St. George Bank Limited||St. George Building Society Ltd||PBS||9,489|
|* Date refers to the first month in which the institution reported as a
Bank; amount is weekly average of total assets for that bank for that month.
In cases where the new bank includes assets of another bank, the “break”
will be less than the amount shown.
** Abbreviations refer to Money Market Corporations, Permanent Building Societies, Finance Companies, Savings Banks and Banks respectively.
|Date||Nature of Change||Details|
|Jan 84||Change in report forms (introduction of supplement to forms I and J for savings banks).||New form provided detail on savings banks fixed deposits, statement accounts etc.|
|Jan 85||Change in report forms (introduction of supplement to form D for trading banks).||New form provided more detail on lending.|
|Oct 85||Change in collection coverage.||Foreign currency assets and liabilities included.|
|Jun 86||Change in collection coverage.||Minor break in financial aggregates as identified foreign currency deposits with institutions then classified as savings banks are excluded.|
|Jul 87||Change in collection coverage.
||Primary Industry Bank of Australia included. This added $795 million to total assets of banks and smaller amounts to the financial aggregates.|
|Jan 89||Major change in report forms and coverage (new form D for trading banks and form I for savings banks).||Change in classification of assets and liabilities. Savings banks commence reporting weekly. Non-residents $A assets/liabilities included. New classification provides separate data on bank bills (previously included in “all other”), borrowing from and lending to governments, and from (to) other financial institutions (previously only Reserve Bank, authorised money market dealers and banks), loans for owner occupied housing (previously only available for savings banks).|
|Change in collection coverage.||Australian Resources Development Bank included. This added $382 million to total assets of banks and smaller amounts to the financial aggregates. Commonwealth Development Bank included. This added $2,034 million to total assets of banks and smaller amounts to the financial aggregates.|
|Jan to May 89||Change in collection coverage.||Defence Services Home Loan portfolio acquired by a bank.|
|May to Jul 89||Change in collection coverage.||Transfer of loans from Tricontinental Holdings Ltd to State Bank of Victoria.|
|Jan 90||Major change in report forms and coverage.||Change in basis from “in Australia” to “On Australian books”.|
|Distinction between savings and trading banks abolished.|
|Non-resident foreign currency assets included.|
|Jan 91||State Bank of Victoria no longer included separately.||Included in Commonwealth Bank of Australia|
|Reclassification of items by a bank (or banks).||Reclassification of some “current deposits” to “all other $A liabilities” and “other borrowings”.|
||Reporting change by a bank reduced “other borrowings” and “total liabilities”.|
|Jul 91||Reporting change.
||Reporting change by a bank reduced “foreign currency” and “total” assets/liabilities.|
|Dec 91||National Mutual Royal Bank Limited no longer included separately.||Included in Australia and New Zealand Banking Group Limited.|
|Jul 92||Reclassification of items by a bank (or banks).||Reclassification of some “other deposits” to “current deposits”.|
|Reclassification of approximately $2.5 billion of loans from private sector to government sector associated with the transfer of non-performing loans to government.|
|Date||Nature of Change||Details|
||Change in collection coverage.
||Cash management trusts included in financial aggregates. This added $1,493 million to loans and advances by all financial intermediaries and credit in February 1983.|
||Change in collection coverage.
||Identifiable transactions between other corporations in the same category excluded.|
The impact of many of these changes in classification is small and accordingly it has not normally been the practice to show “breaks in series” for such changes in tables in Section C of the Bulletin. 
If an institution converts to a bank on the first day of the month, the financial aggregates for that month can be overstated by about half the size of that institution, i.e. its contribution to the aggregates as a bank will be correctly measured but its contribution as an NBFI will be measured as (and effectively overstated by) about half its previous end month level. 
For example, currency is defined as notes and coins held by the non-bank public. Thus holdings of currency by an NBFI are included in the definition of currency, but excluded when that institution becomes a bank. 
Savings banks also reported on an end month basis up to December 1988. Consequently there were no timing distortions when NBFIs converted to savings banks. 
As explained in footnotes 2 and 3, financial aggregates could be overstated by half the size of the institutions totals for each category except holdings of notes and coin. 
This change made M2 obsolete. M1 can now be defined as currency and bank current deposits held by the non-bank public. 
Prior to the abolition of exchange control, Australian banks could not offer foreign currency deposits and loans to residents or lend to non-residents (note that changes in relation to banks' foreign currency assets and liabilities do not affect financial aggregates). 
Such reclassifications generally reflect the discovery of, and efforts to correct, inconsistency of reporting between different banks. In the majority of cases, total assets of banks and the major credit aggregates are unaffected, as the reclassification is only between components of the same total. 
Further details are given in “For the Record” in the November 1992 Bulletin. 
See “Recent Trends in Money and Credit”, Reserve Bank of Australia, Bulletin, December 1991.