Refinement of Household Balance Sheet in South Africa

1. Refinement of the structure of Household Balance Sheetin South Africa Karen Kuhn OECD - WPFS 3 November 2009 Paris

2. Background • Household balance sheet data are currently estimated quarterly. • However, the balance sheet data are not published. • 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). • Nonetheless, there is an increasing need for expanded household balance sheet aggregates for policy formulation. • Some research has already been conducted. • Implementation of the methodology and procedures from research. • Refine and extend the scope of household balance sheet.

3. Ratio of household debt to disposable income

4. Household tangible assets • Residential buildings and land • Non-residential buildings and land • Construction works • Machinery and equipment • Transport equipment • Agriculture land • Orchards • Inventories

5. 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

6. 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

7. 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

8. 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.

9. 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.

10. 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

11. Methodology for estimating household debt • Bulk of debt is borrowing from bank sector. • Bank data obtained through survey of total banks balance sheet of Money and Banking division (BA 900 form). • Open accounts estimated from retail trade data and motor trade instalment sales data. • Other personal loans agriculture sourced from the Department of Agriculture. • 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. • Data sour.

12. 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.

13. 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.

14. Refinement of household debt • Reporting from banks changed due to the implementation of the Basel II requirements as from January 2008. • The level of the following aggregates needed to be adjusted to link old and new levels: • Instalment credit; • Personal loans to individuals; • Mortgage advances.

15. Refinement of household debt • Expand debt at non-financial institutions. • New information collected from Buy Aid organisations was included. • Households debt at local authorities level was sourced from the National Treasury.

16. Concluding remarks • Refinement s are in process. • The aim is to publish household wealth and other selected information on the household balance sheet in the quarterly bulletin. • 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.

17. Thank You Karen Kuhn Economist Research Department South African Reserve Bank Karen.Kuhn2@ resbank.co.za +27 12 313 4318 www.reservebank.co.za