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Confidence in Asset-Based Lending Holds Steady
December 8, 2021
By Secured Finance Network
SFNet survey reflects supply chain, inflation stress on sentiment
NEW YORK, NY, December 8, 2021 ─ Confidence in the asset-based lending market held steady in the third quarter as banks and other lenders kept a close eye on the bigger economic picture, according to data released by the Secured Finance Network (SFNet).
Non-bank lenders, meanwhile, have high expectations for loan utilization and demand for new business, but they indicated declining expectations for business conditions in Q4.
“This dip in expectation likely reflects concerns about the impact of the supply chain crisis and inflation on the broader economy,” said SFNet CEO Richard D. Gumbrecht.
Survey highlights
For banks, asset-based loan commitments (total committed credit lines) were up 2.5% in Q3 compared with the previous quarter. Outstandings (total asset-based loans outstanding) increased by 9.8%, though the survey analysis revealed that total outstandings have yet to rebound to pre-pandemic levels.
For non-bank ABLs, commitments inched up just 0.3%, but the change in outstandings was more solid: up 6.9% from Q2.
Both measures were up significantly from year-earlier levels, according to the survey analysis, with term loans representing a growing share of loans.
In terms of credit-line utilization rates, banks haven’t seen a rebound from two years ago when rates were in the mid-40s. The Q3 utilization rate was 35.4%, up slightly from 33.3% last quarter. The rate was higher for non-bank lenders: 50.3%, compared with 45.4% in the prior quarter.
“Steady economic growth means modestly higher demand for credit,” according to the report.
As for portfolio performance, it’s strong among secured lenders, according to the Q3 Asset-Based Lending Index. That’s likely due to economic growth overall and continued low interest rates, as well as business cash reserves.
“Total criticized or special mention loans have dropped as a share of total outstandings to 6.8% among reporting banks – the lowest share in years,” the report said. “(And) twice as many banks reported decreases to their gross write-offs in this quarter as reported increases.”
However, the industry may face new challenges heading into 2022, with rising inflation and Fed “tapering” now in process, the survey analysis said: “It is not just housing that will be impacted by rising interest rates. Durable manufactured goods, including automobiles, can be expected to suffer setbacks as interest rates increase. Rising interest rates can also undermine stock market valuations and asset prices more generally.
Still, the ABL market has demonstrated resiliency in all sorts of economic environments over the years.
“A bit more stress in the financial system is likely as the economic expansion matures, as more businesses look to finance inventory build, and as the next phase of capital spending kicks in—all developments that should bring expanding opportunities for the secured lending industry in 2022,” per this report.
Details
For more publicly available information, visit SFNet’s website. 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 2020.
About Secured Finance Network
Founded in 1944, the Secured Finance Network (formerly Commercial Finance Association) is an international trade association connecting the interests of companies and professionals who deliver and enable secured financing to businesses. With more than 1,000 member organizations throughout the US, Europe, Canada and around the world, SFNet brings together the people, data, knowledge, tools and insights that put capital to work. For more information, please visit SFNet.com.
Media Contact:
Michele Ocejo, Director of Communications/Editor-in Chief
Secured Finance Network
mocejo@sfnet.com, 212-792-9396
NEW YORK, NY, December 8, 2021 ─ Confidence in the asset-based lending market held steady in the third quarter as banks and other lenders kept a close eye on the bigger economic picture, according to data released by the Secured Finance Network (SFNet).
SFNet surveyed bank and non-bank asset-based lenders (ABLs) on key indicators for its quarterly Asset-Based Lending Index and SFNet Confidence Index.
“Overall sentiment for secured lenders moved laterally compared with last quarter, but remains positive,” according to the report. “Outlooks differ somewhat between banks and non-bank lenders on some specific issues. Bank lenders report very high expectations for overall business conditions, demand for new business, and loan utilization going into Q4, but expectations for portfolio performance dipped notably relative to last quarter.”Non-bank lenders, meanwhile, have high expectations for loan utilization and demand for new business, but they indicated declining expectations for business conditions in Q4.
“This dip in expectation likely reflects concerns about the impact of the supply chain crisis and inflation on the broader economy,” said SFNet CEO Richard D. Gumbrecht.
Survey highlights
For banks, asset-based loan commitments (total committed credit lines) were up 2.5% in Q3 compared with the previous quarter. Outstandings (total asset-based loans outstanding) increased by 9.8%, though the survey analysis revealed that total outstandings have yet to rebound to pre-pandemic levels.
For non-bank ABLs, commitments inched up just 0.3%, but the change in outstandings was more solid: up 6.9% from Q2.
Both measures were up significantly from year-earlier levels, according to the survey analysis, with term loans representing a growing share of loans.
In terms of credit-line utilization rates, banks haven’t seen a rebound from two years ago when rates were in the mid-40s. The Q3 utilization rate was 35.4%, up slightly from 33.3% last quarter. The rate was higher for non-bank lenders: 50.3%, compared with 45.4% in the prior quarter.
“Steady economic growth means modestly higher demand for credit,” according to the report.
As for portfolio performance, it’s strong among secured lenders, according to the Q3 Asset-Based Lending Index. That’s likely due to economic growth overall and continued low interest rates, as well as business cash reserves.
“Total criticized or special mention loans have dropped as a share of total outstandings to 6.8% among reporting banks – the lowest share in years,” the report said. “(And) twice as many banks reported decreases to their gross write-offs in this quarter as reported increases.”
However, the industry may face new challenges heading into 2022, with rising inflation and Fed “tapering” now in process, the survey analysis said: “It is not just housing that will be impacted by rising interest rates. Durable manufactured goods, including automobiles, can be expected to suffer setbacks as interest rates increase. Rising interest rates can also undermine stock market valuations and asset prices more generally.
Still, the ABL market has demonstrated resiliency in all sorts of economic environments over the years.
“A bit more stress in the financial system is likely as the economic expansion matures, as more businesses look to finance inventory build, and as the next phase of capital spending kicks in—all developments that should bring expanding opportunities for the secured lending industry in 2022,” per this report.
Details
For more publicly available information, visit SFNet’s website. 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 2020.
About Secured Finance Network
Founded in 1944, the Secured Finance Network (formerly Commercial Finance Association) is an international trade association connecting the interests of companies and professionals who deliver and enable secured financing to businesses. With more than 1,000 member organizations throughout the US, Europe, Canada and around the world, SFNet brings together the people, data, knowledge, tools and insights that put capital to work. For more information, please visit SFNet.com.
Media Contact:
Michele Ocejo, Director of Communications/Editor-in Chief
Secured Finance Network
mocejo@sfnet.com, 212-792-9396
