SFNet’s Annual & Q4 Asset-Based Lending Surveys Reflect Continuing Growth

In perhaps the last snapshot of the secured finance industry before the onset of the COVID-19 pandemic, the fourth quarter and annual SFNet Asset-Based Lending Surveys reflect that banks and independent lenders reported that asset-based lending to U.S. businesses increased steadily and credit quality remained strong. However, the unfolding COVID-19 pandemic that began in the first quarter of 2020 is having an unprecedented impact on financial markets worldwide.

The quarterly report is segregated into a bank/non-bank classification while the annual report is generally on an overall level with specific bank/non-bank classifications in certain areas.  Both surveys had comparable number of respondents with prior quarters and years with 34 participants for the annual survey and 35 participants for the quarterly survey.

Confidence Index – At the time of completion (February), for both bank and non-bank lenders, there was no major shift on the confidence index since the prior quarter, reflecting continual optimism. 

Asset Growth – Quarterly Survey:  For bank lenders, the survey showed continued growth similar to the prior quarters and following a historical pattern.  Although the committed credit lines increased 2.1% from Q3 2019, there was a decrease in outstandings of 5.7% for the same period.  The decrease in outstandings in the quarter is largely attributable to the robust capital markets in the last quarter of the year with clients accessing additional capital and paying down their revolvers as well as paydowns from the retail sector in Q4.  For the non-bank lenders, similar trends were apparent with increased commitments and leveled outstandings.  As expected, based on the above, utilization rates have dropped for both bank and non-bank lenders.  As noted in the quarterly slides, for non-bank lenders, there was one reporting group that attributed to the large increase in both commitments and outstandings quarter over quarter. 

Annual Survey:  Both bank and non-bank lenders showed an increase in commitments from 2018 to 2019.  Overall commitments increased by 9.2% with non-bank lenders increasing by 27.5% year over year.  Overall average commitment sizes also increased year over year with the average bank commitments at $37.4 million and non-bank commitments at $38.1M.  Outstandings, however, stayed relatively stable with an overall 0.2% increase year over year and utilization levels dropped from 43.2% in 2018 to 39.7% in 2019.  Utilization drops and stable outstandings as compared to 2018 is largely attributable to the robust credit market experienced in the last quarter of 2019 as previously noted.

Asset Quality – Quarterly Survey:  Asset quality continued to improve in Q4.  Non-accruing loans as a percentage of outstandings decreased by 6 basis points in the current quarter and was below Q42018 levels by 7 basis points.  Criticized or special mention loans as a % of total outstandings was at its lowest level in three years at 9.9%.  Annual Survey:  Similar decreases in asset-quality metrics were seen on the annual survey pointing to a stronger credit portfolio in 2019 versus 2018.  The non-bank lenders saw the most dramatic decrease in metrics signaling more of an improvement in credit quality than bank lenders.  Gross write-offs as a % of outstandings remained stable in banks, but again, non-bank lenders showed a significant improvement with a decrease of 61 basis points. Decrease in the non-bank sector could be due to the retail effect, which resulted in higher gross write-offs in 2018.  Looking at the historical write-offs, the trend seems to be that write-offs come in the quarters following a downturn in economy.  If historical trend applies to the current environment, it would be expected that credit quality and related nonaccruals and write-offs will occur in the quarters after the economic downturn.

Revenues and Expenses:  On a whole, total revenues as a % of outstandings for banks and non-banks were relatively stable compared to 2018, however, both were slightly lower in 2019.  It is noted that one reporting entity in the non-bank reporting sector had a significant impact in the results.  As noted in the report, if 2018 and 2019 had the same base of respondents, total revenues as a % of outstandings actually increased by 135 basis points, suggesting that yields were better in 2019 than in 2018 as a result of the rate environment.  Components of lender revenues for both banks and non-banks skewed higher towards net interest income in 2019, which is a result of the rate environment in 2019 versus 2018.  Expenses as a % of outstandings has been on par with prior years with both the bank and non-bank lenders. 

The detailed reports can be found here:

Annual ABL Survey

Quarterly ABL Survey