There was confidence in the asset-based lending market in the second quarter despite the economic pain of surging inflation and rising interest rates, according to data released by the Secured Finance Network.
 
SFNet surveyed bank and non-bank asset-based lenders (ABLs) on key indicators for its quarterly Asset-Based Lending Index and SFNet Confidence Index.  
 
“Asset-based lending continues to demonstrate that it is an ‘all-weather’ industry,” said SFNet CEO Richard D. Gumbrecht. “Demand for financing is improving and portfolio performance remains strong even as broader business conditions weaken and recession risks rise.”
Lenders are confident in the continuing value of the industry, the report said, with the most positive expectations in demand for new financing and hiring. And while expectations for client utilization remained high, they fell from the previous quarter.
 
Survey highlights
 
For banks, asset-based loan commitments (total committed credit lines) were up 3.1% in Q2 compared to the previous quarter. Outstandings (total asset-based loans outstanding) increased by 12%.
 
“Bank lenders reported solid growth in commitments and outstandings, reflecting strong demand for asset-based lending,” the report said. “New commitments increased by 33.2% for banks that responded in both Q1 and Q2 2022, with about two-thirds of banks reporting an overall increase in the quarter.”
 
Commitment runoff decreased by 25.2% from the first to second quarters.
 
“The opposing shifts in new commitments and commitment runoff flipped net commitments from negative to positive in Q2 2022,” the report said.
 
Non-bank trends were similarly strong. Commitments grew by 5.2%, but the change in outstandings was up 8.2% from the previous quarter. Outstandings increased significantly from the same quarter last year, up 34.3%.
 
In terms of credit-line utilization rates for bank lenders, there was an increase for the sixth consecutive quarter. The Q2 utilization rate for banks was 43.7%, up from 40.8% last quarter. Non-banks saw a slight dip to 57% after hitting a multiyear high of 57.6% in the prior quarter.
 
“Current utilization rates for both banks and non-banks either meet or exceed pre-pandemic levels, providing another indicator that the asset-based lending industry is healthy,” the report said.
 
Portfolio performance was solid in the second quarter. Banks reported higher levels of criticized and classified loans and non-accruing loans while non-banks saw an increase in non-accruing loans in the most recent quarter.
 
“Though portfolio performance remains strong by historical standards, the uptick in criticized and classified and non-accruing loans may indicate that performance has peaked,” the report said.
 
The asset-based lending market has proven its resiliency over the years, but that ability to withstand challenges is needed now more than ever amid financial stress caused by inflation, higher interest rates, geopolitical conflict and continued supply-chain disruptions.
 
“In line with rising recession risks, expectations for general U.S. business conditions remained low for banks and fell dramatically for non-banks to a multi-year low,” the report said. “(But) despite pessimism about general business conditions, lenders remain optimistic in other areas because asset-based lending is an ‘all-weather” product and typically is robust to economic downturns.”
 
For more publicly available information, click here.  (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.