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Asset-Based Lending Holds Steady in U.S., Q3 SFNet Survey

January 05, 2024, 07:35 AM

The asset-based lending market held steady in the third quarter amid positive developments in the U.S. economy such as easing inflation, strong consumer spending and a solid job market, according to data released by the Secured Finance Network (SFNet). But while hope continues for a soft landing, overall confidence took a hit because of lingering concern about interest rates, consumer financial stress and an upward trend in commercial bankruptcies.  
SFNet surveyed bank and non-bank asset-based lenders (ABLs) on key indicators for its quarterly Asset-Based Lending Index and SFNet Confidence Index.
This “all-weather” industry was healthy in the third quarter and remained prepared for any ups and downs in Q4, said SFNet CEO Richard D. Gumbrecht. “New origination activity was muted, as many companies refinanced when interest rates were lower,” he said, “but portfolios showed no signs of major deterioration, despite increased scrutiny and economic headwinds.”
Indeed, the report found that non-banks were optimistic about a potential uptick in demand while banks were busy keeping a watchful eye on portfolios and deposits. Expectations for client utilization, meanwhile, were largely unchanged quarter-over-quarter for both lender groups.
Survey highlights
For banks, asset-based loan commitments (total committed credit lines) were flat in Q3. Outstandings (total asset-based loans outstanding) fell slightly by 2.3%.
“Commitment origination and runoff trends largely caused the muted commitment growth from Q2 to Q3,” the report said, “with a drop in new commitments with new clients (-25.9%) combining with a rise in runoff (+36.8%) to reduce net commitments.”
There was a similar trend in outstandings. The quarter-over-quarter change in ABL outstandings remained just below that of commercial and industrial loans for the past two quarters, the report said.
Non-banks, meanwhile, reported stronger growth in Q3 for both total commitments and total outstandings. And while there was a significant decrease in commitments with new clients, the drop in commitment runoff was not as pronounced, according to the report.
“Commitments with new clients may have declined, but extensions or expansions with existing clients were larger on average than they have been in past quarters,” the report said.
New outstandings and runoff declined from the previous quarter. Still, the weighted average quarter-over-quarter percent change among non-bank respondents for both commitments and outstandings remained positive across a majority of reported quarters, SFNet said.
In terms of credit-line utilization rates, both lender groups reported minor changes from the second to third quarters: from 39.9% to 38.9% for banks and from 48.7% to 50.1% for non-banks.
“With bank commitments flat and dipping outstandings, the utilization rate decreased for banks. But with growth in non-bank outstandings outpacing commitment growth, utilization increased for non-banks,” the report said.
ABL portfolio performance held within the normal historical range in the most recent Lending Index. Banks reported higher levels of criticized and classified loans; non-accruals dropped; and write-offs generally were unchanged. Non-bank portfolio performance was mixed. A higher share of survey respondents saw increased non-accruals while write-offs as a share of outstandings were flat.
“Despite the mixed results, performance is largely in line with historical trends and portfolios remain generally healthy,” the report said.
For more publicly available information, visit SFNet’s Q3 2023 Asset-Based Lending Index report.  SFNet members 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 2022.

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