US banks and other lenders expressed a mostly positive outlook for the asset-based lending (ABL) market in the first quarter, driven by expectations of a soft landing for the economy.

However, they remain cautious of upcoming regulatory changes and are closely monitoring portfolios for signs of post-pandemic stress, according to data from the Secured Finance Network (SFNet).

SFNet’s survey of bank and non-bank asset-based lenders (ABLs) assessed key indicators for its quarterly Asset-Based Lending Index and the SFNet Confidence Index.

“On balance, the ABL industry remains healthy and has a moderately improving outlook even though current economic conditions have limited demand for borrowing,” said SFNet CEO Richard Gumbrecht.

Lenders showed the most positive expectations for portfolio performance and employment. However, they reported softer expectations for new-business demand and client utilisation rates.

The report noted that weaker-than-expected consumer spending and declining business inventories contributed to just 1.3% growth in the first quarter. Consumer spending was also affected by rising debt burdens and slowing real income growth.

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Survey highlights

Bank and non-bank expectations for general business conditions moved in different directions but ended up at a similar level, suggesting that both lender groups expect conditions to remain roughly the same, the report said.

For banks, asset-based loan commitments (total committed credit lines) were flat from the fourth quarter of 2023 to early 2024. Outstandings (total asset-based loans outstanding) ticked up by 1.3%.

“It was another quiet quarter for deal activity, with new commitments with new clients falling (-36.5%),” the report said. “However, commitment runoff fell by more (-40.4%), so net commitments were positive.”

Non-banks had a similarly quiet quarter. Commitments were flat but total outstandings inched up 3.2%.

The credit-line utilization rate, meanwhile, increased for bank and non-bank lenders. Bank utilization remained below the long-term historical average, the report said, and non-bank utilization was just above average.

Portfolio performance appears to be turning a corner and was stable in the first quarter for both banks and non-banks, according to the Asset-Based Lending Index. Banks reported an increase for criticized and classified loans and write-offs, but non-accruals declined.

Non-banks, meanwhile, reported decreased non-accruals and write-offs.

“Employment in the industry will likely be steady, as roughly 3 in 4 lenders expect headcounts to remain the same,” the report said.

The asset-based lending market continues to persevere in a difficult economic environment and is poised to help clients meet their working capital needs, the report said.

“As the large liquidity injection from the pandemic-era stimulus burns off, lenders will continue to carefully monitor portfolios for signs of stress but portfolios remain healthy by historical standards,” the report said.