Many foreign multinationals use subsidiaries in the Netherlands as elements of their cross-border financial infrastructure. DNB collects data on such 'Special Financial Institutions' or SFIs for use in compiling the Dutch Balance of Payments and International Investment Position (IIP).
Newly released figures on 2011 show that SFIs' foreign assets increased to €3,000 billion, mainly consisting of participations in subsidiaries (€1,800 bn), intragroup loans (€830 bn) and bank loans (note 1) (€230 bn, Chart 1). In addition, SFIs held securities and derivatives worth €140 billion.
In 2008, inbound financial transactions of SFIs peaked at €5,260 billion, to decline steadily afterwards to €4,000 billion in 2011. Every inbound transaction is balanced by an outbound one. The breakdown of transactions by instrument type differs radically from the breakdown by positions (Chart 1). In 2011, receipts in the form of participations amounted to €420 billion. (Note 2) The bulk of incoming transactions consisted of intragroup loans (€1,630 bn) and bank loans (€ 1,410 bn). These transactions consist mainly of rolled-over loans, where the redemption of the old loan and the extension of the new one each counts as a transaction. The decline of transactions since 2008 is explained by the lengthening of maturities after the strong maturity reductions seen in 2007 and 2008. Since participations tend to be of longer duration, the proportion of transactions to positions is far lower than that for intragroup loans or bank loans.
Financing from Luxembourg, the USA and the UK
SFIs received a large share of their financing from Luxembourg, the USA and the UK (Chart 2). Liabilities to these countries in the form of participations held by parent companies (€890 bn), loans (€310 bn) and securities inssued (€380 bn) together accounted, in 2011, for over 50% of SFIs' total foreign liability position. Liability positions vis-à-vis Luxembourg and the USA, in particular, had increased since 2006. Liabilties to the UK, however, had hardly increased. Assets in Luxembourg, the USA and the UK were, at €1,010 billion, considerably lower than the corresponding liabilities. By implication, the SFIs held net liabilities totalling €570 billion vis-à-vis these countries. Note that these figures relate to the geographical location of the direct counterparties, which may not coincide with that of the ultimate holder. Of the €480 billion in securities issued by SFIs, €130 billion was issued in the UK and €220 billion in Luxembourg. Without these securities, SFIs' net liability position on the USA stood at €200 billion and to Luxembourg at €60 billion, whereas the liabilities to the UK turned into net assets of €60 billion.
Assets in developing countries, southern EU and BRIICs
Because many SFI's operate as holding companies managing international participations, the geographical distribution of assets was more diverse. Opposite the few countries where SFIs held net liabilities, SFIs held net assets in many countries. These included developing countries, southern European countries and economies such as the BRIIC. Together, these three groups accounted for 40% of the total growth of SFs' foreign assets since 2006 (€430 bn on €1,120 bn total growth). SFIs' liabilities to these groups also increased strongly (from €110 bn in 2006 to €280 bn in 2011), which is an indication that multinationals from these countries have also increasingly used Dutch SFIs as channels for participations. The figure on assets also refers to the location of the direct counterparty, which may not coincide with that of the ultimate holder. This applies in particular to the offshore financial centres group, but also to other countries having substantial SFI sectors, such as Luxembourg, the USA and the UK .
Oncome received: €126 billion
The breakdown into net assets countries and net liability countries was reflected in the income flows. SFIs received dividends (and retained profits) on participations, and interest payments on loans outstanding. In 2011 the total income of Dutch SFIs amounted to €126 billion. The income was forwarded – also in the form of dividends, retained profit and interest – to the parent companies. In net terms, SFIs received income from the net asset countries while they paid income to the net liability countries (such as the US and Luxembourg).
Note 1: The latter consist principally of intragroup loans by SFIs owned by banking groups. Another component is loans to third parties.
Note 2: Consisting of the sale of participations abroad (decrease in assets) plus foreign investment in Dutch SFIs in the form of participations (increase in liabilities).