Download Differences between SNA 2008 and ESA 2010

Enlargement of the financial corporations sector:
Classification of holding companies and other captive
institutions
Methodological questions and practice in Hungary
OECD
Working Party on Financial Statistics
Béla Simon
24-27 October 2011
Content of the presentation
Changes in the methodological rules (SNA, ESA)
Differences between SNA 2008 and ESA 2010
Decision-making autonomy as a key question
Content of the new financial corp. sub-sector
Significance of special entities in Hungary
Practical decisions made (to be applied from
2014)
• Reasons behind the practical decisions
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Changes in methodological rules (SNA, ESA)
Extension of the financial corporations sector
SNA 1993, ESA 1995:
• Financial corporations sector (S.12) =
Financial intermediaries + Financial auxiliaries
• Financial intermediation is a service for the public
SNA 2008, ESA 2010:
• Financial corporations sector (S.12) =
Financial intermediaries + Financial auxiliaries +
other (captive) financial corporations
• Corporations with passive holding or financing
functions become part of the financial sector
Sector classification of holdings and captive institutions - Béla Simon
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Differences between SNA 2008 and ESA 2010
According to the rules, the new financial sub-sector
(S.127) should contain holding companies, SPEs and
lending companies having limited partners. But
definition of these entities contains differences in
the Manuals.
ESA 2010 (2.14): Head offices and holding companies
are institutional units. (No test required?)
SNA 2008 does not contain the same statement.
SNA 2008 (4.56): SPEs are often resident in a territory
other than territory of the related corporations.
ESA 2010 defines SPEs as units only having links to
non-residents (the „often” is missing).
Sector classification of holdings and captive institutions - Béla Simon
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Decision-making autonomy as a key question
According to the general rules, all economic entities
have to be examined whether they are independent
institutional units or not.
SNA and ESA underline that an entity that cannot act
independently of its parent and is simply a passive
holder of assets and liabilities is not treated as a
separate institutional unit unless it is resident in an
economy different from that of its parent.
SNA and ESA explicitly states that SPEs, captive
financial institutions and artificial subsidiaries with
no independence of action are to be allocated to the
sector of their controlling body. (ESA 2010: 2.20)
Sector classification of holdings and captive institutions - Béla Simon
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Content of the new financial corp. sub-sector
In our view, holding companies and other group
financing entities are substantially SPEs.
(No employees, no non-financial assets, no production,
little physical presence, relation with other
corporations.)
The new financial sub-sector „S.127 Captive financial
institutions and money lenders” can be composed of
(substantially) SPEs which are controlled by nonresidents.
Otherwise, SPEs are not treated as independent units
and will be kept in the sector of the related units,
according to our understanding of the new rules.
Sector classification of holdings and captive institutions - Béla Simon
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Significance of special entities in Hungary
Foreing controlled SPEs having financial links only with
non-residents represent 1/3 of the total assets of
the non-financial corporations sector (124% of GDP).
The total assets of holding companies and other group
financing units (classified until now as non-financial
corporations) amount to 8-9% of the GDP.
Out of this, foreign controlled holding and other group
financing companies are less signifinant (5% of GDP)
SPEs, holding and group financing
companies (currently NFCs)
Foreign controlled SPEs
Holding companies (Class 6420)
o/w operating without employees
Other companies (Class 6492 or 6499)
o/w operating without employees
Number of entities Total assets (GDP %)
Total assets of biggest
20 (GDP %)
800
124.0
78.0
1420
8.0
5.0
1320
7.0
5.0
580
0.5
0.4
560
0.4
0.3
Sector classification of holdings and captive institutions - Béla Simon
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Practical decisions made (to be applied from 2014)
• Foreing controlled SPEs connected exclusively to
non-residents will be reclassified into the financial
corporations sector (sub-sector S.127).
The reclassification will cause a significant decrease
in the total assets of non-financial corporations
sector (and increase in the financial sector).
• Holding and other group financing companies will be
kept in the sector of related corporations (mainly
non-financial corporations sector) and will be
consolidated. The consolidation will cause some
decrease in the balance-sheet of the non-financial
corporations sector.
Sector classification of holdings and captive institutions - Béla Simon
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Reasons behind the practical decision
• Most of Hungarian holding companies are parts of an
ownership chain through which foreign owners
control resident non-financial corporations. The
reclassification of these holding companies would
split the investment links between the foreign
investors and the ultimate subsidiary corporations
(usually non-financial corporations engaged in
production).
• Most of Hungarian holding companies control only
one single subsidiary corporation and they exist due
to administrative reasons. They do not fulfil the
criteria of „holding assets of a group of subsidiary
corporations” (ISIC/NACE 6420).
Sector classification of holdings and captive institutions - Béla Simon
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Thank you for the attention!
The floor is open for questions.