22-11-2005 - Contas Nacionais Financeiras - Estatísticas sobre Patrimónios Financeiros de 1999 a 2004
National financial accounts for the Portuguese economy – statistics on financial assets and liabilities for 1999-2004In June 2005 the Banco de Portugal began publishing a new set of statistics covering financial transactions in the Portuguese economy. The set can be found in Chapter F, National financial accounts. It was announced at the time that regular annual information on financial stocks would later be made available, detailing end of period positions for financial assets and liabilities. This is now coming on stream and forms a separate section of Chapter F (Section F.2, National financial accounts–Financial Assets and Liabilities). This new set of tables follows the layout of the tables used for financial transactions in section F.1 and covers the 1999-2004 period.
As explained in Supplements 2/2005 (1) and 3/2005 (2) to the Statistical Bulletin, the system of National Financial Accounts includes two kinds of information, flows and stocks. The second of these are also known as positions and correspond to financial assets and/or liabilities held at the end of each accounting period. One of the main aims of financial accounts for stocks is to ascertain the net financial assets for each institutional sector, that is, the difference between financial assets and liabilities. The differences in financial assets and liabilities at two distinct moments in time stem from two sources: the financial transactions carried out during the period; and other changes in volume or value such as those that derive from exchange rate or stock market fluctuations.
Financial assets and liabilities should be recorded at market value. Assets relating to Shares and other equity, for instance, are recorded according to listing if quoted and following the own funds (3) concept otherwise. Assets relating to Shares and other equity, for instance, are recorded using stock market prices for listed shares and the own funds concept for shares not listed and for other holdings. Another case of mark-to-market valuation relates to the recording of financial assets which earn interest on an accrual basis.
A sector with positive/negative net financial assets means that it is a creditor/debtor when measured in terms of financial assets and liabilities. The net financial assets do not of course reflect all the stocks of a given sector, since it is likely to include real assets. In simple terms, the negative position, which is a normal business feature, can be seen as counterbalanced by real assets, obtained either through capital formation or the accumulation of non-produced real assets such as land. On the other hand, households–the sector with most company ownership–traditionally have positive net financial assets, although real assets such as real estate are also involved, along with financial assets and liabilities.
There follows a short presentation of the main statistical findings relating to financial assets and liabilities.
The findings for the 1999-2004 period confirm that Households and the Rest of the world are the sectors with positive net financial assets (as a consequence also of their being the main financing agents of the economy). Corporations, above all Non-financial corporations, along with General government (to a lesser extent) are those with negative net financial assets. Over the five-year period under review, the net financial assets of Households and the Rest of the world rose, while Non-financial corporations and General government fell.
Chart I - Net financial assets in institutional sectors, 1999-2004
As far as Non-financial corporations are concerned, there is notable fall in the net financial assets. This moved from €-123.7 billion in 1999 to €-167.1 billion in 2004. The significantly high level of the negative financial assets in this sector can be explained fundamentally by the high level of liabilities in Loans and in Shares and other equity. And as a result of the rise in these liabilities, there is a fall in the net financial assets over the period, with net assets in Loans moving from €-65.7 billion in 1999 to €-104.9 billion in 2004 and net assets in Shares and other equity moving from €-83.6 billion in 1999 to €-96.6 billion in 2004. In the latter, part of the change has been due to a rise in the market value of these liabilities. It should also be pointed out that there has been a rise in the figure for Currency and deposits, from €29.1 billion to €37.6 billion over the years under review.
General government has posted negative net financial assets which worsened from €-33.8 billion in 1999 to €-57.6 billion in 2004, fundamentally as a result of the increased recourse to public debt issues. This can be seen in the movement in Securities other than shares, which tracked in net terms from €-47.2 billion in 1999 to €-69.1 billion in 2004, above all due to the issue of Treasury bonds and more recently Treasury bills. In 2004 there was a substantial rise in the issue of short-term debt as a proportion of the total debt issue of this sector.
The net financial assets of Households rose from €135.4 billion in 1999 to €158.1 billion in 2004. Most of the financial assets of this sector are made up of Currency and deposits (€117.2 billion in 2004) and Shares and other equity (€89.7 billion in 2004). There is also an increasing rise in the proportion of Securities other than shares, which moved from €10.7 billion in 1999 to €28.9 billion in 2004. Shares and other equity also rose, from €70.4 billion to €89.7 billion. This move can be explained not only by the transactions in shares but also by price variations, mentioned above in the context of liabilities for Non-financial corporations. Loans are the main financial liabilities of Households, especially long-term (for house purchase). The figure here rose from €61.6 billion to €112.2 during the period under review.
The net financial assets of the Rest of the world over and against the domestic sectors of the economy rose from €41.5 billion in 1999 to €83.6 billion in 2004. This is a mirror of the economy’s need for a high level of external financing over the whole period. In terms of the financial instruments visible in this context, salient factors are firstly the increase in net assets in Currency and deposits (4), rising from €13.9 billion in 1999 to €39.7 billion in 2004, the rise in net assets in Loans from €8.4 billion in 1999 to €20.7 billion in 2004, and the rise in net assets in Shares and other equity, from €25.9 billion in 1999 to €39.5 billion in 2004. For Securities other than shares, however, the move was the other way, with net financial assets tracking from €-5.3 billion in 1999 to €-14.8 billion in 2004, as a result of a greater demand from resident sectors for this kind of assets.
Financial corporations are, by their nature, the sector most involved in intermediation where financial flows in the economy are concerned, and this is reflected in their low net financial assets. Net liabilities in Loans, especially long-term, are those that recorded the biggest increase, above all due to the greater recourse to credit among Households and Non-financial corporations. The increase in liabilities in Currency and deposits and in Loans during the period is fundamentally due to the financial sector’s recourse to the Rest of the world to cover the indebtedness of resident sectors.
Lisbon, 22 November 2005
(1) National financial accounts for the Portuguese Economy. Methodological notes and statistical results for 2000-2004,” Supplement 2/2005 to the Statistical Bulletin, June 2005.
(2) “National financial accounts for the Portuguese Economy. Statistics on Financial Assets and Liabilities for 1999-2004,” Supplement 3/2005 to the Statistical Bulletin, November 2005.
(3) Own funds are equity capital, reserves, supplementary capital injections, net income carried over and net income for the year. This criterion is an internationally accepted way of using figures recorded in company accounts to reach a figure tantamount to market value.
(4) Following Financial accounts methodology, short-term investment by non-residents in resident banks is classified as deposits.