There was solid growth in commitments and outstandings in the asset-based lending market last year and portfolio performance was strong, according to data released by the Secured Finance Network. The factoring industry proved similarly resilient in a challenging economy and began 2023 on a positive note.

Lender confidence held steady, as well, with banks and non-bank lenders maintaining a positive outlook despite inflation and higher interest rates. In the most recent Confidence Index, they pointed to the industry’s resiliency and had high expectations in the demand for new business, hiring and client utilization.

“The U.S. economy grew by 2.1% in 2022, driven by consumer spending, exports, private inventory investment and nonresidential fixed investment. This growth occurred despite persistent inflation and rising interest rates,” said SFNet CEO Richard D. Gumbrecht. “A recurring theme for the asset-based lending industry in 2022 was its continued status as an ‘all-weather’ industry.”

SFNet surveyed bank and non-bank asset-based lenders (ABLs) on key indicators for its annual Asset-Based Lending Survey and Factoring Industry Survey.  

Annual ABL Survey Highlights

For all lenders, asset-based loan commitments (total committed credit lines) were up 10.3% in 2022, with banks and non-banks reporting similar increases. New client commitments decreased for banks but increased for non-banks. Banks reported more new deals with existing clients last year but fewer new clients. Non-banks saw the reverse happen in 2022, according to the report. All lenders had a decline in commitment runoff, so client retention was a key focus.

There were double-digit increases from the previous year in total outstandings (total asset-based loans outstanding): 25.5% for banks and 19.4% for non-banks.

That outpaced the growth in commitments and led to higher credit utilization, the report said. Retail outstandings grew the most but the wholesale industry stayed in the top position.

“The geographic location of both U.S. bank outstandings and clients did not change much from 2022 to 2021,” the report said. “The Southeast and Southwest gained the most in their share of both outstandings and clients, while the West dropped the most for both.”

As for revenues and profits, they decreased relative to outstandings for banks, but increased for non-banks. With rising interest rates, net interest income comprised a larger share of revenues for both banks and non-banks. The average return on assets increased for both lender groups but more so for banks. The average return on equity declined for banks, however.

Portfolio performance was a highlight of 2022, according to the report. Non-accruals and gross write-offs held at historically low levels for all lenders. Criticized and classified loans as a share of outstandings were up, suggesting that credit quality might start returning to normal levels after several strong months.

Year-over-year employment levels held steady for both banks and non-banks, with some growth in field examination and portfolio management.

Factoring Activity

The factoring industry dealt with pressures in 2022 ranging from inflation and a tighter monetary environment to geopolitical tensions, according to SFNet data. Still, it started the new year generally healthy. Overall factoring volume (including non-recourse) rose 6.5% last year, due in large part to an 89.8% hike in international factoring. Domestic volume decreased by 5.7%. The textiles/apparel industry comprised the greatest share of factoring volume, the report said, but that share dipped slightly year over year.

“The number of factoring clients fell by 4.7% from 2021 to 2022,” the report said. “Mirroring volume trends, the number of domestic clients dropped by 6.5% while international clients increased by 5.8%. Brokers remained the top source of client referrals in 2022, accounting for nearly 7 in 10 referrals.”

Regionally, there wasn’t much change from the previous year in factoring volume and clients, with the highest share of volume in the Northeast and the Southeast claiming the most clients. The Southwest had the lowest share for both those categories while the West gained in volume, but dropped client-wise.

Revenue was up, according to the report, relative to both volume and average earning assets. With numerous interest-rate increases in 2022, interest revenue comprised a greater share of total revenues than in 2021. Growth in expenses, meanwhile, was attributed to additional other direct expenses, while personnel expenses dropped as a share of direct expenses.

More Factoring Highlights:

• For portfolios, write-offs increased as a share of volume and average earning assets last year. But recoveries declined as a share of both measures.
• Profitability increased in 2022, with pre-tax income growing both as a share of volume and of average earning assets. These results align with the revenue and expense data, where growth in revenues outpaced growth in expenses.
• The number of employees in factoring increased year to year, most notably in account management and business development.

“The U.S. economy – and factoring clients – will continue to face challenges stemming from persistent inflation and elevated interest rates,” Gumbrecht said. “If economic conditions deteriorate, portfolio performance will be an area to watch. That said, the factoring industry tends to perform well in a challenging economic climate and plays a critical role in providing working capital during times of financial stress.”

For more publicly available information, visit SFNet’s website.  SFNet members have access to additional data and detailed reporting.