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Appendix 2

Classification category definitions for the Statistical Classification of Financial Assets and Liabilities 2013 (SCFAL)

1 Monetary gold and Special Drawing Rights

Monetary gold and Special Drawing Rights issued by the International Monetary Fund (IMF) are reserve assets.

        11 Monetary gold
                111 Monetary gold

Monetary gold can be either allocated or unallocated.

Allocated gold accounts provide ownership of a specific piece of gold. The ownership remains with the entity placing it for safe custody. Allocated gold accounts have no counterpart liability. When held as reserve assets, allocated gold accounts are classified as monetary gold. When not held as reserve assets, non-monetary gold is classified as a non-financial asset (typically valuables or inventories).

In contrast, unallocated gold accounts represent a claim against the account operator to deliver gold. For these accounts, the account provider holds title to a reserve base of physical (allocated) gold and issues claims to account holders denominated in gold. Unallocated gold account liabilities are debt liabilities of the account operator.

        12 Special Drawing Rights 
                121 Special Drawing Rights

Special Drawing Rights (SDRs) are international reserve assets created by the IMF and allocated to members to supplement existing official reserves. An SDR is neither a currency, nor a claim on the IMF. The IMF may allocate SDRs to members in proportion to their IMF quotas. The value of SDR allocations is classified as other investment in the international investment position and rest of the world balance sheet.

2 Currency and deposits

Financial transactions in currency and deposits consist of additions to, or disposals of, currency, and establishing or incrementing a deposit or making a withdrawal from it. Deposits include all claims on the central bank, deposit-taking corporations, and finance companies. They are represented by evidence of deposit.

        21 Currency 
                211 Currency

Currency consists of notes and coins of fixed nominal values that are issued and authorised by central banks or governments; notes and coins are in circulation and commonly used to make payments.

        22 Transferable deposits

Transferable deposits consist of all deposits that are exchangeable on demand, at par without restriction or penalty, and directly usable for making payments by cheque, direct debit/credit, or other payment facility.

                221 Interbank positions

Interbank positions are all positions between related or unrelated banking institutions, other than securities and accounts receivable/payable, that facilitate financial intermediation within New Zealand and abroad. Interbank positions include nostro and vostro accounts and other short-term deposits with other banking institutions. These are usually very short-term.

New Zealand registered banks’ debt financing that is not for financial intermediation, i.e. long-term funding from overseas related entities, are not interbank positions and are classified as their legally incorporated instrument. This may be in the form of a debt security or loan.

Subordinated debt is used by lenders to meet capital adequacy requirements set out by the Reserve Bank of New Zealand. In New Zealand this funding is often sourced from related-party lenders offshore. The liquidity status of subordinated debt doesn’t match the definition of a transferable deposit. Subordinated debt is classified as a debt security or loan.

                222 Other transferable deposits

Other transferable deposits are all transferable deposits other than interbank positions. The deposit liability is owed to a household or other non-bank institution.

        23 Other deposits 
                231 Other deposits

Other deposits include all claims, other than transferable deposits, represented by evidence of deposit. Examples include: fixed-term deposits; sight deposits that permit immediate cash withdrawals but not direct third-party transfers; and shares that are legally (or practically) redeemable on demand or on short notice in finance companies, credit unions, building societies, etc. Other deposits also include at call cash collateral received from, or posted to, a derivative counterparty to protect against counterparty risk.

Debt securities under repurchase agreements are classified as loans. When a deposit account becomes overdrawn, it is also reclassified as a loan.

3 Debt securities

A debt security is a promise on the part of the issuer (the borrower) to make one or more payments to the holder (the lender) at a specified future date or dates. Such securities usually carry a specific rate of interest (the coupon) and/or are sold at a discount to the amount that will be repaid at maturity. Debt securities are negotiable, and have potential to be traded to third parties. They include non-participating preference shares.

New Zealand government kiwi bonds are debt securities denominated in New Zealand dollars available only to New Zealand residents. Any non-resident is ineligible. Contract maturities are either six months, one year, two years, or four years.

Kauri bonds are New Zealand dollar-denominated securities, registered in New Zealand and issued by a foreign issuer. Kauri bonds are classified as being short-term or long-term debt securities depending on their contract maturity.

        31 Short-term debt securities 
                311 Short-term debt securities

Short-term debt securities are securities that are payable on demand or have an original maturity of one year or less. Examples include: treasury bills and other short-term paper issued by general government; and negotiable short-term paper issued by financial and non-financial instruments, such as registered transferable deposits , commercial paper, commercial bills, Treasury bills, short-term negotiable bank certificates of deposit, short-term asset-backed securities (otherwise known as structured credit), and bills of exchange.

        32 Long-term debt securities 
                321 Long-term debt securities

Long-term debt securities are securities that have an original maturity of more than one year or have no stated contracted expiry date. Examples of long-term debt securities include: subordinated bonds (or debt); capital notes, step-up securities, local authority bonds, bonds with optional maturity dates, the latest of which is more than one year away; undated or perpetual bonds; index-linked securities; deep-discounted bonds and zero coupon bonds; eurobonds; global bonds; privately issued bonds; securities resulting from the conversion of loans; loans that have become negotiable de facto; debentures; and loan stock convertible into shares.

Shares or stocks that pay a fixed income but do not allow participation in the distribution of the residual value of the corporation on dissolution, including non-participating preference shares, are classified as debt securities instead of equity.

4 Loans

Loans are created by a creditor directly lending funds to a debtor, through an arrangement in which the lender either receives no security evidencing the transaction or receives a non-negotiable document or instrument.

Included are: loans to finance trade, other loans and advances (including mortgages), use of IMF credit, and loans from the IMF. In addition, acquisitions of goods backed by financial leases are classified as loans, as are debt securities under repurchase agreements. An overdraft arising from the overdraft facility of a transferable deposit account is classified as a loan. However, undrawn lines of credit are not recognised as a liability.

        41 Short-term loans 
                411 Short-term loans

Short-term loans are loans with an original maturity of one year or less. Loans repayable on the demand of the creditor should be classified as short-term, even when these loans are expected to be outstanding for more than one year.

        42 Long-term loans 
                421 Long-term loans

Long-term loans are loans with no stated maturity, or an original maturity of more than one year.

5 Equity and investment fund shares

Holders of equity and investment fund shares own a residual claim on the assets of the institutional unit that issued the instrument.

        51 Equity

Equity consists of all instruments and records acknowledging, after the claims of all creditors have been met, claims to the residual values of incorporated and unincorporated enterprises. Equity is not a debt instrument, as it gives a residual claim on the assets of the entity. Equity includes all participating preference shares, but not non-participating preference shares.

                511 Listed shares

Listed shares are equity securities listed on an exchange. They are also referred to as quoted shares. The existence of quoted prices of shares listed on an exchange means that current market prices are usually readily available. Listed shares may be on a domestic or foreign stock exchange. Stock Exchange (NZX) is currently New Zealand’s only exchange.

                512 Unlisted shares

Unlisted shares are equity securities not listed on an exchange. They can also be referred to as private equity; venture capital usually takes this form.

Unlisted shares also include shares issued in overseas economies owned by New Zealand-based entities and households. Rules and regulations governing the issue of equity securities abroad may be different from those exercised in New Zealand.

                513 Other equity

Other equity is equity that is not in the form of securities. It can include equity in unincorporated enterprises (e.g. branches, trusts, sole traders, limited liability, and other partnerships), unincorporated funds, ownership of real estate, and other natural resources (such as land and minerals). The ownership of some international organisations is not in the form of shares and is classified as other equity, although equity in the Bank for International Settlements (BIS) is in the form of unlisted shares. In New Zealand shares in the BIS are held only by the central bank.

        52 Investment fund shares

Investment funds are collective investment undertakings through which investors pool funds for investment in financial or non-financial assets, or both. These are sometimes known as mutual funds. These funds issue shares (if a corporate structure is used) or units (if a trust structure is used). The shares in the fund purchased by individual investors represent an ownership interest in the pool of underlying assets – that is, the investors have an equity stake. Because professional fund managers make the selection of assets, investment funds provide individual investors with an opportunity to invest in a diversified and professionally managed portfolio of securities, without the need for detailed knowledge of the individual companies issuing the stocks and bonds.

                521 Money market fund shares

Money market funds are investment funds that invest only or primarily in short-term money market securities such as Treasury bills, certificates of deposit, and commercial paper. Money market fund shares or units represent a claim on a proportion of the value of an established money market fund.

                522 Other investment fund shares

Other investment funds typically invest in longer-term financial assets. They are not transferable and are typically not regarded as substitutes for deposits. Other investment fund shares or units represent a claim on a proportion of the value of an established investment fund, other than a money market fund.

6 Insurance, pension, and standardised guarantee schemes

Insurance, pension, and standardised guarantee schemes all function as a form of redistribution of income or wealth mediated by financial institutions. Units participating in the schemes contribute to them, and may receive benefits (or have claims settled) in the same or later periods.

        61 Non-life insurance technical provisions/reserves 
                611 Non-life insurance technical provisions/reserves

Non-life insurance technical reserves consist of:
(a) Reserves for unearned insurance premiums (prepayment of premiums)
(b) Reserves against outstanding insurance claims – the amounts identified by insurance corporations to cover what they expect to pay out, arising from events that have occurred but for which the claims are not yet settled. These are recorded when the insured event occurs, rather than when the insurance claim is made by the policyholder.

Both non-life direct insurance and reinsurance are included in this item. These reserves represent liabilities of the insurer and a corresponding asset of the policyholders.

        62 Life insurance and annuity entitlements 
                621 Life insurance and annuity entitlements

Life insurance and annuities entitlements show the extent of financial claims that policyholders have against an enterprise offering life insurance or providing annuities. These instruments provide benefits to policyholders on the expiry of the policy, or compensate beneficiaries on the death of policyholders, and are therefore kept separate from shareholders’ funds. These entitlements are regarded as liabilities of the insurance companies, and assets of the policyholders and beneficiaries.

        63 Pension entitlements 
                631 Pension entitlements

Pension entitlements show the extent of financial claims that existing and future pensioners hold against either their employer, or a fund designated by the employee or employer, to pay pensions earned as part of a compensation agreement between the employer and employee. KiwiSaver is an example of a fund designated by an employee. KiwiSaver is voluntary, work-based long-term savings initiative for retirement. The economy of residence of pension schemes may differ from that of some of their beneficiaries – in particular for: border workers, guest workers who return home, people who retire to a different economy, staff of international organisations, and employees of transnational enterprise groups that have a single pension fund for the whole group. Liabilities of unfunded pension schemes are also included in this category. These entitlements represent liabilities of the pension fund and a corresponding asset of the beneficiaries.

        64 Claims of pension funds on pension managers 
                641 Claims of pension funds on pension managers

Claims of pension funds on pension managers refers to the situations where an employer contracts with a third party to look after the pension funds for his employees. The pension manager and the administrator retain the risks/rights in case of deficit/excess funding. When the pension manager is a different unit from the administrator, and the amount accruing to the pension fund falls below/exceeds the increase in entitlements, a claim/liability of the pension fund on the pension manager is recorded.

        65 Provisions for calls under standardised guarantees 
                651 Provisions for calls under standardised guarantees

Provisions for calls under standardised guarantees are financial claims that their holders have against the institutional units providing them. Provisions relating to calls under standardised guarantees are prepayments of net fees, and provision to meet outstanding calls under standardised guarantees. The value to be entered in the balance sheet for provisions for calls under standardised guarantees is the expected level of claims under current guarantees, less any expected recoveries. Like provisions for prepaid insurance premiums and reserves, provisions for calls under standardised guarantees include unearned fees (premiums) and calls (claims) not yet settled.

7 Financial derivatives and employee stock options

Financial derivatives and employee stock options are financial assets and liabilities with similar features, such as a strike price and some of the same risk elements. However, although both transfer risk, employee stock options are also designed to be a form of remuneration.

The Securities Market Act 1988 regulates trading on registered exchanges and authorised futures exchanges. The Financial Markets Authority enables the authorisation and registration of securities and futures.

        71 Financial derivatives 
                711 Financial derivatives

Financial derivatives are financial instruments that are linked to a specific financial instrument or indicator or commodity, and through which specific financial risks can be traded in financial markets in their own right. The value of a financial derivative is derived from the price of an underlying item. Examples of financial derivatives are: foreign exchange swaps, interest rate swaps, dairy futures, currency options, forwards, and warrants. Payments associated with derivatives may be contingent on the realisation of an event, or alternatively, both parties in the contract may have unconditional rights to a pre-determined set of payments that conform to a set of variables (e.g. swaps). Derivatives are primarily used to manage risk and to speculate on the future dynamics of the underlying asset.

        72 Employee stock options 
                721 Employee stock options

An employee stock option is an agreement made on a given date under which an employee may purchase a given number of shares of the employer’s stock, at a stated price, either at a stated time or within a period of time.

8 Other accounts receivable/payable

Other accounts receivable/payable consists of (a) trade credit and advances, and (b) accounts receivable/payable nec.

        81 Trade credits and advances 
                811 Trade credits and advances

Trade credit and advances for goods and services consists of:
(a) credit extended directly by the suppliers of goods and services to their customers
(b) advances for work in progress (or yet to be undertaken), and prepayment by customers for goods and services not yet provided (the debt is extinguished when the supplier provides the goods and/or services).

Trade credits and advances do not include loans to finance trade credit, which are classified as loans.

        82 Accounts receivable/payable nec 
                821 Accounts receivable/payable nec

Accounts receivable/payable nec covers amounts related to taxes, dividends, purchases and sales of securities, security lending fees, wages and salaries, and social contributions that have accrued but are not yet paid. These are receivables/payables that do not relate to goods and services.

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