SFNet Report on Confidence in Asset-Based Lending Market: Survey Shows Industry is Well Positioned to Weather a Recession

NEW YORK, NY, Dec. 19, 2022 ─ 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 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 decently-positioned to weather worsening business conditions and 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 improvement territory but dropped from the prior quarter, the report said. But banks 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 percent from the previous quarter. Total outstandings were down, 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 by 50.4% 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.

“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.”

Details

For more publicly available information, visit SFNet’s survey 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 2021.

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
Secured Finance Network
mocejo@sfnet.com
212-792-9396