Household net lending stops falling
National accounts and business cycles
finsek, Financial accounts, financial investments, households and non-profit organisations, general government, abroad, balance sheets, FINSEFinancial accounts , National accounts and business cycles

Financial accountsQ2 2007



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Household net lending stops falling

The financial accounts for households and non-profit institutions serving households show that the net lending continued to be low and negative in the second quarter of 2007. However the decline has come to a halt and the development is levelling out.

Household net lending and change in net financial assets over the last four quarters. NOK billion. Net assets as ratio of disposable income.

Household net lending in the last four quarter period to the end of the second quarter of 2007 was NOK -79 billion. The main picture shows that the falling trend has come to a halt for the time being and the developments in net lending has levelled out during the last three quarters.

The picture is still dominated by tax-motivated transactions. Until the end of 2005 the picture was characterised by extraordinarily high dividends and high reinvested dividends in the form of investments in shares and loans to unlisted enterprises. Dividend tax for shareholders was introduced in 2006. From 2006 and onwards, share capital and share premium accounts have been redeemed and paid out to owners instead of share dividends. We have assumed that shareholders have taken out a substantial part of the share capital which was previously ploughed back into the business.

Other changes in assets, which mainly comprise holding gains, have increased the value of household financial assets by NOK 138 billion. All together, household net financial assets increased by NOK 59 billion over the last four quarter and household net financial assets totalled NOK 505 billion at the end of the second quarter of 2007.

Increased borrowing in local government

The financial accounts for local government show a fall in net lending from NOK 2.3 billion in the previous four quarter period to NOK -1.7 billion in the four quarters to the second quarter of 2007. Net lending has shown a growing trend from the second quarter of 2003, but this development has reversed from the second quarter of 2006.

The main explanation behind this development is local government’s increased borrowing in mortgage companies. Net borrowings in mortgage companies amounted NOK 16.3 billion in the last four quarter period compared to NOK 14.9 billon in the previous four quarter period. Local government debt totalled to NOK 317 billion at the end of the second quarter of 2007.

Net lending abroad declined in second quarter of 2007

Norway's net foreign assets were calculated to NOK 1 458 billion at the end of the second quarter of 2007, which is an increase of NOK 11 billion from the previous quarter. The increase is attributable to net lending in the rest of the world of almost NOK 71 billion and net holding losses of NOK 60 billion. This is due to increasing share prices on domestic shares owned by foreigners at Oslo stock exchange and currency losses on foreign financial asset owned by domestic sectors. Net lending in the rest of world fell by more than NOK 13 billion during the second quarter of 2007.

Financial accounts for households and non-profit institutions serving households.
NOK billion
  2. quarter 2005 3. quarter 2005 4. quarter 2005 1. quarter 2006 2. quarter 2006 3. quarter 2006 4. quarter 2006 1. quarter 2007 2. quarter 2007
Financial assets 1 898 1 951 2 019 2 090 2 108 2 132 2 226 2 284 2 358
Liabilities 1 484 1 520 1 574 1 606 1 662 1 701 1 761 1 787 1 853
Net financial assets/net financial wealth  414  432  445  485  446  431  465  497  505
  Sum over the last four quarters
Change in net financial assets/net financial wealth 46 65 81 84 32 0 20 13 59
Other changes 23 44 45 70 63 56  101 91  138
Net lending 22 20 37 14 -31 -56 -81 -79 -79

Concepts in capital and financial accounts

The link between non-financial and financial accounts is established by the balancing item “net lending/net borrowing”. In theory, net lending derived from capital account should be identical to net lending derived from financial accounts. However, experience shows that significant discrepancies occur between the two parts of the accounting system.

A . Capital account / National accounts , institutional sectors

Saving + net capital transfers = net acquisition of non - financial assets + net lending

Disposable income may be used either for finale consumption or savings. Savings can be invested in financial or non-financial assets.

B . Financial accounts

Net lending = net acquisition of financial assets - net incurrence of liabilities

If savings exceed non-financial investments, a sector has a surplus of funds and becomes a net lender to other sectors. In the financial transactions account, this means that the sector acquires more financial assets than liabilities. On the other hand, if savings are less than non-financial investments, investments have to be financed either by selling financial assets or incurring debts. Household investments in non-financial assets mainly reflect the purchase of new housing and fixed investments by unincorporated enterprises. They typically finance substantial parts of these investments by incurring debt in the form of loans.

Net financial assets ( net financial wealth ) = total financial assets - total liabilities

The financial balance sheet shows the financial position of a sector at the end of the reference period and is broken down into categories of financial assets and liabilities. Insurance technical reserves, currency and deposits are the predominant assets held by households, while loans provided by financial corporations (banks etc) constitute the main proportion of liabilities.

Changes in net financial asset = net lending + other change in assets , net

The change in the financial balance sheet during the reference period is a result of accumulated financial transactions and other changes in assets. The latter category mainly reflects revaluations due to changes in market prices of financial instruments.