Largely Untouched by COVID-19 Fallout in Q1, Banks and Independents Report ABL Growth

Secured Finance Network Quarterly Data Points to Banking, Finance and Economic Indicators

NEW YORK, June 11, 2020 ─ Banks and independent lenders were enjoying a strong market for asset-based lending (ABL) with solid credit quality in the first quarter before the full impact of the COVID-19 pandemic was felt, according to data released today by the Secured Finance Network (SFNet).

“Our expectation is that the Q2 2020 data will be much more revealing and reflective of how the economic shutdown related to COVID-19 is affecting asset-based loan portfolios,” said Richard D. Gumbrecht, CEO of SFNet. “However, as a ‘new normal’ emerges in time, lenders are optimistic that there will be more new business because the ABL market is an important source of capital to businesses in times of economic stress.”

According to the latest ABL data and analysis on Q1 2020, total commitments for bank lenders were $237.8B for the quarter, essentially flat in comparison to the prior quarter (-0.1%) but up 7.8% compared to the same period in 2019, indicating a slowing of prior years’ growth trend. By contrast, outstandings increased to $121.9B, a significant increase from Q4 2019 (+24.6%) and from Q1 2019 (+19.9%).  Similarly, utilization (loans outstanding as a percentage of total commitments) rose to 51.6% in Q1 2020 compared to 41.4% in Q4 2019, an increase driven primarily by the defensive draws that borrowers began to make in March 2020. 

Total commitments for non-bank lenders were $2.9B, down 1.8% compared to Q4 2019 and up 15.2% compared to the same period in 2019, reflecting strong growth throughout 2019.  Unlike bank lenders, outstandings were relatively flat compared to year end 2019 but up 6.2% from Q1 2019.  Similar to the bank market, utilization  for non-bank lenders increased quarter over quarter to 56.7%, a significant uptick from 43.7% in Q4 2019. 

Credit quality remained very strong in Q1 2020 with bank gross write-offs as a percentage of total outstandings near historic lows at 0.031% for the quarter.  While gross write-offs hovered near historic lows, there was an uptick in non-accruing loans as a percentage of total loans outstanding as non-accruals came in at 0.55% in Q1 2020--the highest level in a single quarter since Q3 2017.  SFNet expects higher write-offs in the coming quarters as the impact of the COVID-19 pandemic appears in bank data.

SFNet also reported the results of its quarterly “Confidence Index” survey, which solicited responses from senior executives in late April regarding their views on anticipated activity or conditions in the upcoming three-month period. Not surprisingly, all scores for both bank and non-bank lenders declined this quarter compared to Q4 2019, with lenders feeling that portfolios will deteriorate in the coming months as the impact of the COVID-19 pandemic begins to appear in bank data. Bank and non-bank lenders had similar responses this quarter with respect to economic outlook; however, non-bank lenders were slightly more optimistic regarding how the economic disruption would impact their origination efforts. 

SFNet is an international trade association for banks and finance companies involved in secured finance, which includes loans and other financial transactions secured using a borrower’s asset/s as collateral. ABL is one important form of secured finance for retailers, wholesalers, manufacturers and other sectors.

Details

Follow the links for more information about the Quarterly Asset-Based Lending Index for Q1 2020. For a broader view of ABL trends and this industry, visit SFNet’s Annual Asset-Based Lending Industry Survey for 2019. The study noted that ABLs in recent times have benefited from a strong economy, low default rates, an abundance of complementary capital and easing regulatory hurdles. Historically, the ABL market has also been resilient during times of economic uncertainty.

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