Refinement of the structure of Household Balance Sheet in South Africa

Karen Kuhn

OECD - WPFS 3 November 2009 Paris



Background

Household balance sheet data are currently estimated quarterly.



However, the balance sheet data are not published.

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Only the household debt-to-disposable-income ratio is currently published, while household wealth estimates are used on an ad hoc basis in economic reports of the South African Reserve Bank (SARB).

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Nonetheless, there is an increasing need for expanded household balance sheet aggregates for policy formulation.



Some research has already been conducted.

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Implementation of the methodology and procedures from research.



Refine and extend the scope of household balance sheet.

2

Ratio of household debt to disposable income

90 80 70 60 50 40 30 20 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009

Source: SARB 3

Household tangible assets

       

Residential buildings and land Non-residential buildings and land Construction works Machinery and equipment Transport equipment Agriculture land Orchards Inventories

4

Household financial assets

        

Notes and coins Deposits with various financial institutions:

– – – –

Banks and mutual banks Public Investment Commissioner Land and Agricultural Bank, and Post bank Deposits with other non-monetary financial institutions Deposits in participation mortgage bond schemes Government bonds and public enterprise securities Corporate bonds and equities Other loan stock and preference shares Pension funds and pension funds with long-term insurers Foreign portfolio assets

5

Household debt



Consumer credit

–

Open accounts: retail trade and motor trade

– –

Personal loans extended by banks Credit cards

•

Individuals

• •

Non-profit institutions Buy aids

–

Other personal loans

•

Agriculture

• • •

Insurers Micro lenders Loans granted by non-bank institutions

–

Hire purchase and leases

•

By banks

• •

Leasing finance Instalment sale credit extended by banks and commerce

6

Household debt

(cont.)

– – –

Securitisation:

• •

Retail and motor trade Other loans Mortgage advances to households:

• • • •

Housing Farms Residential mortgage securitisation Loans granted by participating mortgage bond schemes, and

•

Loans granted by pension and provident funds Households debt at local authorities



Bank credit of non –incorporated businesses

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Methodology for estimating household assets: Tangible assets



The value of tangible or fixed assets of households is derived from the existing capital stock at constant values using the Perpetual Inventory Method (PIM).



The capital stock is then inflated by appropriate price indices.

8

Methodology for estimating household financial assets: Liquid assets

  

Quarterly data published by Money and Banking division of SARB by type of depositor.

Deposits with other institutions are derived by cumulating relevant published flow of funds data.

Notes and coins:

–

Total notes and coin issued by the bank

less

total notes and coin held by banks.

9

Methodology for estimating household financial assets: Other



Published data by Capital Markets division obtained from returns on:

–

Deposits in participation mortgage bond schemes

–

Unit trust holdings:

•

adjusted by subtracting pension fund and long term insurers unit trust (to avoid double counting)

–

Pension funds and long-term insurers

10

Methodology for estimating household debt



Bulk of debt is borrowing from bank sector.

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Bank data obtained through survey of total banks balance sheet of Money and Banking division (BA 900 form).

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Open accounts estimated from retail trade data and motor trade instalment sales data.



Other personal loans agriculture sourced from the Department of Agriculture.

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Other personal loans insurers, participation bonds, securitisation and loans issued by non-bank financial companies sourced from the Capital Market division’s surveys and data.

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Refinement of assets

   

Research was done and working paper with procedures to improve household balance sheet information published.

A program in micro TSP software was created.

Flow of funds data was accumulated, using appropriate benchmarks in the base year:

–

Short- and long-term government bonds,

–

Securities of local authorities,

–

Securities of public enterprises,

–

Deposits at other financial institutions.

Refinement of the compilation and methodology of price indices.

12

Refinement of assets

(cont.)

   

A TSP procedure was applied to estimate listed shares at market value:

–

Relevant flow of funds data were cumulated.

–

JSE all share index to convert to market value.

Unlisted shares estimated as proxy of listed shares.

Some historic asset data were at book values:

–

This data were adjusted to reflect market values.

Foreign assets were included:

–

Unpublished data sourced from Balance of Payment survey.

13

Refinement of household debt



Reporting from banks changed due to the implementation of the Basel II requirements as from January 2008.

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The level of the following aggregates needed to be adjusted to link old and new levels:

–

Instalment credit;

–

Personal loans to individuals;

–

Mortgage advances.

14

Refinement of household debt



Expand debt at non-financial institutions.

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New information collected from Buy Aid organisations was included.

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Households debt at local authorities level was sourced from the National Treasury.

15

Concluding remarks

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Refinement s are in process.

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The aim is to publish household wealth and other selected information on the household balance sheet in the quarterly bulletin.

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Revised estimates of the household balance sheet information will be completed by mid-2010.



After the completion of the current refinements, continued improvements/refinements will be undertaken.

16

Thank You

Karen Kuhn Economist Research Department South African Reserve Bank Karen.Kuhn2@ resbank.co.za

+27 12 313 4318 www.reservebank.co.za