Cautious optimism marked Q2/24 in the asset-based lending market as banks and other lenders saw a rise in new-deal activity, according to data released by the Secured Finance Network (SFNet). The company continued to monitor signs of cooling in the U.S. economy — however, including a contraction in the manufacturing sector.
“Portfolios are generally healthy by historical standards, and the ABL industry is ready to meet new demand in Q3 and beyond as borrowing costs begin to fall,” Richard D. Gumbrecht, CEO of SFNet, said.
Asset-based lenders continue their hope of a soft landing for the U.S. economy, the report said. However, the lender confidence index for last quarter showed modest declines among banks and non-banks amid lingering economic pressures. Bank expectations dipped for business demand but improved for client utilization, and both lender groups remained focused on portfolio performance “as weaker loans cycle through portfolios,” the report said.
As inflation eased, job growth was moderate and unemployment trended down in Q2/24. Most lenders said they expected business conditions to stay the same over the next quarter.
Survey Highlights
For banks, asset-based loan commitments (total committed credit lines) were mostly unchanged in Q2/24. It was the same for outstandings (total asset-based loans outstanding). “Deal activity surged this quarter, with notable (quarterly) increases in new commitments with new clients (+89%), but commitment runoff also increased (+69%),” the report said.
Net commitments spiked from $270 million to $728 million. Also up significantly were new outstandings and outstandings runoff.
Banks reported more extensions or expansions with existing clients than deals with new clients in Q2/24. However, the new client deals were larger on average than those with existing clients. “Continuing a long-standing trend, the vast majority of total commitments came from revolver loans,” the report said.
Non-banks, meanwhile, saw slightly stronger but still modest growth for total commitments, up just 1.5%, and total outstandings inched up 2.9%. They reported more new deals than banks, with new commitments with new clients jumping 253% over the previous quarter. Commitment runoff fell 19%, and net commitments were solidly positive with an increase of $473.5 million in Q2/24.
New outstandings spiked 196%, while outstandings runoff fell by 12%. That led to an increase last quarter of more than $314 million in net outstandings. “Non-banks reported more deals this quarter with new clients than expansions or extensions with existing clients,” the report said. “As in past quarters, the vast majority of total commitments among non-bank lenders came from revolver loans. The proportion of total commitments held in revolver loans remained essentially flat.”
In terms of credit-line utilization rates, both lender groups reported slight increases from the first to second quarters. “Bank utilization remained below the long-term historical average (39.9%), while non-bank utilization remained above average (48.6%),” the report said.
ABL portfolio performance was a mixed bag but still strong in the most recent lending index. While it declined for banks, it held within the historical range. Criticized and classified loans were slightly down overall, even though the majority of banks reported an increase in such loans. Non-accruals increased 35% over the previous quarter as more banks reported increases than decreases. Write-offs, meanwhile, were down 35% as a share of outstandings.
Portfolio performance was stronger in the other lender group, the report said. “Performance generally improved for non-banks, with non-accruals falling 56%. Write-offs were flat for most banks but increased as a share of total outstandings, the report said. “Despite the increase, write-offs remain well below the high point for the past five years.”
