The third quarter saw continued confidence in the asset-based lending market, according to data released by the Secured Finance Network, and that was welcome news as the country wrestles with inflation, rising interest rates and a slowed economy.
SFNet surveyed bank and non-bank asset-based lenders (ABLs) on key indicators for its quarterly Asset-Based Lending Index and SFNet Confidence Index.
“Despite the challenges, the all-weather asset-based lending industry remains on solid footing,” said SFNet CEO Richard D. Gumbrecht. “Portfolio performance is strong by historical standards, commitments are up, and lenders anticipate strong demand. Overall, the industry is built to withstand worsening business conditions and provide essential capital into a potential recession.”
Lenders are confident in the value and resiliency of the industry in a difficult economy, he added. The most positive expectations were in demand for new business and hiring. Expectations for client utilization remained in the increase territory, but expectations dropped from the prior quarter, the report said. But lenders had lower expectations for general business conditions.
Survey Highlights
For banks, asset-based loan commitments (total committed credit lines) were up 3.3% in Q3 compared to the previous quarter. Outstandings (total asset-based loans outstanding) grew by 1.3%.
Commitment runoff increased by 12.9% quarter over quarter but is 19.8% lower than it was a year ago for banks reporting for Q3 2021 and Q3 2022, the report said. “Lower new commitments and higher commitment runoff reduced net commitments in Q3, but the level remained just below a multi-year high.”
Non-bank lenders, meanwhile, saw total commitments drop 2.4% from the previous quarter. Total outstandings were down as well, as well, falling 1.7%. But compared to the same quarter last year, total outstandings remain significantly elevated, up 29.7%.
“Though slightly more than half of non-banks reported an increase in new commitments compared to the prior quarter, new commitments decreased significantly quarter-on-quarter among those reporting for both Q2 and Q3,” the report said. “With a sharp drop in new commitments and an increase in runoffs, net commitments turned negative.”
In terms of credit-line utilization for bank lenders, the rate fell to 42% for banks after increasing for six consecutive quarters. For non-banks, utilization rose to a multi-year high of 58.7% in Q3, as the drop in commitments exceeded the dip in outstandings.
“Both bank and non-bank utilization rates remain near or above historical standards, underscoring the general health of the industry,” the report said.
Portfolio performance held steady in the third quarter. Banks reported lower levels of non-accruing loans compared to last quarter, but there were higher levels of criticized and classified loans and gross write-offs.
Non-bank trends were similar. There was an equal share of non-banks with increased and decreased non-accruing loans compared to Q2, the report said, though the majority of survey respondents reported no change in non-accruing loans.
The asset-based lending market now has its eye on a new year and remains hopeful for a strong 2023 despite persistent fears of recession.
“Although the U.S. economy posted negative growth in the first half of 2022—caused in large measure by spiking energy prices—steady gains in the labor market and resilient consumers have helped to bring a modest rebound in the second half of the year,” the report said. “The economy also appears to be moving past the worst of COVID-caused supply chain disruptions that challenged businesses. Meanwhile, most measures of severe financial stress – including consumer and business delinquencies and defaults as well as home foreclosures and bankruptcies – remain subdued by historical standards.”
For more publicly available information, visit SFNet’s report. Survey participants have access to additional data and detailed reporting.
For a broader view of ABL trends and this industry, visit SFNet’s Annual Asset-Based Lending Industry Survey for 2021.