The asset-based lending market held steady in Q3/23 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. However, while hope continues for a soft landing, overall market confidence took a hit because of lingering concern about interest rates, consumer financial stress and an upward trend in commercial bankruptcies.

SFNet compiled the data by surveying bank and non-bank asset-based lenders on key indicators for its quarterly Asset-Based Lending Index and SFNet Confidence Index.

The “all-weather” ABL industry was healthy in Q3/23 and remained prepared for any ups and downs in Q4/23, Richard D. Gumbrecht, CEO of SFNet, said. “New origination activity was muted, as many companies refinanced when interest rates were lower, 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 Q3/23. 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, with a drop in new commitments with new clients (-25.9%) combining with a rise in runoff (+36.8%) to reduce net commitments,” the report said.

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 Q3/23 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 bank and non-bank 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 SFNet 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 experienced 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.