Acquisition of financial assets and external financing in Germany in the second quarter of 2020 Results of the financial accounts by sector

16.10.2020 | Deutsche Bundesbank DE

During the second quarter of 2020, German households’ financial assets grew by €253 billion, or 4.0%, to €6,630 billion at the end of June. At mid-year they thus once again surpassed their level at the end of 2019, following a decline in the first quarter. Households built up assets worth €109 billion, while at the same time benefitting from valuation gains to the tune of €144 billion. This largely offset the previous quarter’s valuation losses on equities, which were triggered by the pandemic and uncertainty about its economic consequences. Liabilities amounted to €1,908 billion, which was €16 billion higher than in the previous quarter. Overall, net financial assets thus grew by €236 billion to €4,722 billion.

In the context of external financing for non-financial corporations, the very significant transaction-related increase in debt securities was exceptional. At €24 billion, this was the highest figure recorded since the 1990s. Overall, however, external financing was moderate, at just over €5 billion, as financing via trade credits and advances saw sharp declines. Financial asset acquisition and net financial asset acquisition were negative, at -€14 billion and -€19 billion respectively.

Significant increase in households’ financial assets

Households’ financial assets grew again markedly in the second quarter to €6,630 billion, thus surpassing their end-2019 level. One of the main drivers of this was valuation gains on shares and other equity, which amounted to €74 billion. Valuation gains also benefitted investment fund shares, which were up by €64 billion (10.6%) after taking into account all transactions and valuation effects. Furthermore, households expanded their holdings of currency and deposits by €72 billion (2.8%).

The transaction-related acquisition of financial assets by households hit a new record high in the reporting quarter, at €109 billion net. This was mainly due to the aforementioned inflows into currency and deposits; even investments in savings bonds and savings deposits fell by less than in the previous quarter. At €16 billion, net purchases of shares and other equity (equity investments) were also an important factor. Listed domestic and foreign shares accounted for just over €6 billion each. In addition to shares, households also acquired € 13 billion worth of investment funds.

At €18 billion, the transaction-related rise in household debt was again somewhat higher than in the previous three-month period. Loans from monetary financial institutions again played a major role in net borrowing in the quarter under review. As in the previous quarters, these mainly took the form of loans for house purchase.

By the end of the reporting quarter, German households’ total liabilities had risen again by 0.9% to €1,908 billion. The household debt ratio, defined as total liabilities as a percentage of nominal GDP (four-quarter moving sum), thus saw a 1.7 percentage point increase on the quarter to 56.5%. This increase is partly due to the further rise in household debt, but above all to the significant decline in GDP. Nevertheless, overall, the growth in financial assets and liabilities resulted in a significant increase of €236 billion in households’ net financial assets, bringing the figure to €4,722 billion.

Debt ratio of non-financial corporations rises again

Although the external financing of non-financial corporations in the reporting quarter was rather low on balance at €5 billion, the moderate increase masks opposing developments. Capital market activity, for instance, was extremely high compared with the previous quarter. Issuance of debt securities reached a historical high of €24 billion. Furthermore, non-financial corporations acquired €10 billion through the issuance of shares and equity. At €21 billion, the increase in credit financing also remained relatively high. Unlike in the previous quarters, this development was driven not by loans from domestic banks, but chiefly by lending from other domestic corporations amounting to €11 billion, as well as government loans. By contrast, non-financial corporations reduced their credit liabilities to domestic banks by €3 billion on balance. The increase in external financing was also dampened by a substantial €48 billion reduction in other liabilities, including trade credits.

Non-financial corporations’ acquisition of financial assets was negative in the second quarter of 2020 (-€14 billion). This was attributable, amongst other things, to net sales of shares and other equity totalling €6 billion. Non-financial corporations had not reduced these forms of investment since 2008. Financial derivatives and employee stock options also registered net outflows. By contrast, currency and deposits were topped up.

However, as was the case for households, the predominantly negative impulses stemming from transactions were offset by significant valuation gains, which partly compensated for the losses in the first quarter. Non-financial corporations thus benefited from €171 billion in value gains on their portfolio equity, investment fund shares and other equity. Their financial assets increased to €4,763 billion on balance, bringing them back to their Q3 2019 level in any case.

Taking all transactions and valuation effects into account, the net financial assets of non-financial corporations fell sharply to -€1,907 billion (-16.3%). Their debt ratio, which is calculated on the basis of the sum of loans, debt securities and pension provisions in relation to nominal gross domestic product (four-quarter moving sum), rose particularly significantly in the second quarter, by 2.7 percentage points to 71.0%. This is not only the highest figure since 2003, but also represents the largest increase within a quarter. This surge was caused by the rising debt levels triggered by the sharp downturn in aggregate economic activity.

Owing to interim data revisions of the financial accounts and national accounts, the figures contained in this press release are not directly comparable with those shown in earlier press releases.