The resilience of the asset-based lending market continued in the fourth quarter, according to data released by the Secured Finance Network (SFNet). Lenders held positive against the backdrop of an uneven economy, but are closely watching portfolios in 2024.

SFNet surveyed bank and non-bank asset-based lenders (ABLs) on key indicators for its quarterly Asset-Based Lending Index and SFNet Confidence Index.  

"The asset-based lending industry performed well in the fourth quarter of 2023, as the economy finished the year strongly, albeit a bit unevenly,” said SFNet CEO Richard D. Gumbrecht. “Overall, lender confidence rose, reflecting a moderately positive view of the industry going forward and a sense that any portfolio softening will be mitigated. ABL has always been an all-weather industry that will continue to perform well even in a bumpy economy."

In the most recent Confidence Index, lenders acknowledged challenges but had improved expectations for portfolio performance, demand for new business and hiring. The outlook for business conditions also improved among both lender groups, but while bank expectations rose for client utilization, there was a slight decline among non-banks.

Survey highlights

For banks, asset-based loan commitments (total committed credit lines) were down slightly (0.7%) in the fourth quarter compared to the previous quarter. Outstandings (total asset-based loans outstanding) fell 5.4%. Commitment runoff fell by 2.3% quarter over quarter.

“Weaker new originations largely caused the muted QoQ commitment growth,” the report said, “with the fall in new commitments with new clients outpacing a slight decline in runoff to turn net commitments negative.”

Non-bank lenders, however, saw total commitments rise by 4.5% last quarter. Total outstandings were up, as well, by 1.5%. The growth in total commitments stemmed from a double-digit increase in new commitments with new clients and a significant decline in commitment runoff, the report said.

“With increased new commitments and decreased runoff, net commitments increased,” for the non-bank segment the report said. “Similarly, new outstandings rose significantly (+63.2%) and outstandings runoff plummeted (-41.3%), leading to an increase in net outstandings.”

In terms of credit-line utilization for bank lenders, the rate fell to 36.0% last quarter. That’s below the five-year historical average of 39.4%, the report said. For non-banks, commitments growth exceeded outstandings growth at year-end, leading to a drop in the utilization rate to 48.0%.

“As in prior quarters, the vast majority, 85.3%, of the non-bank borrowing base in Q4 2023 was composed of advances against receivables and inventory,” the report said. “The remaining categories compose only 14.7% of the overall borrowing base.”

Portfolio performance at the end of 2023 deteriorated for banks and non-banks alike but was within the historical range. Criticized and classified loans, non-accruals and gross write-offs rose for banks quarter over quarter. Non-banks, meanwhile, reported increases in non-accruals and write-offs.

The report said: “Portfolios are generally stable despite the increase in criticized/classified loans and non-accruals, and write-offs remain low by historical standards. That said, performance is toward the weaker end of the normal historical range and lenders are keeping an eye on portfolios for signs of stress.”

Details

For more publicly available information, visit SFNet’s Q4 2023 Asset-Based Lending Index. 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.

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.