According to the recently released Asset-Based Lending Index by the Secured Finance Network, combined (bank and non-bank) business lenders’ confidence stayed slightly positive during Q1/23 at 50.3 points, although that was a 5.8-point decline from Q4/22.

Despite positive confidence overall, when lender sentiment was divided into bank and non-bank segments, expectations diverged. Banks’ combined lender confidence dipped to 42.6 points in the first quarter, falling below the 50-point level — which distinguishes improving from declining confidence — for the first time in three full years. This ready may have reflected the bank failures that occurred earlier this year and the resulting imperative for banks to emphasize credit value instead of growth opportunities. Non-banks, however, made a small gain and stayed above the 50-point threshold. The bank and non-bank expectations for new business demand and client utilization paralleled the overall confidence findings, as non-banks were bullish while banks were bearish.

“We’re seeing the first evidence of a shift from bank to non-bank lending in the secured finance space related to the business cycle,” Richard Gumbrecht, CEO of SFNet, said. “This is normal and underscores the resilience of our industry as an essential provider of capital in both a growing and receding economy.”

While the combined lender expectations for overall business conditions and portfolio performance were lower (more so for banks than non-banks) compared to the previous quarter, lenders also expressed confidence for gains in new business, hiring and client utilization. Even though lenders had slightly lower first quarter expectations for those three categories than for the previous quarter (though non-banks were more hopeful about hiring than banks), they nevertheless anticipated improvements in all three areas.

The report contained modestly positive news about committed credit lines in all categories during Q1/23. Total committed credit lines were up 2.1% for lenders who responded in all four quarters of 2022 and this year’s first quarter, and up 10.5% among these lenders year over year compared to Q1/22. New credit commitments for lenders reporting across all five quarters were up 3.6% in the first quarter of this year versus the last quarter of 2022, while new commitments among these lenders shot up 34.4% year over year compared to Q1/22.

Banks showed little movement in total commitments and outstanding loans between Q4/22 and Q1/23, growing just 1.8% and 1.4%, respectively. New commitments, though, were up 3.2% and commitment runoff was off by 27.7%, performances that gave a big boost to net commitments. Non-banks didn’t show much movement in total commitments and outstandings, either, with the former up by 2.5% and the latter inching up by 0.5%. (Hence, it may take another quarter or longer to see new business demand perk up.) While new commitments plummeted by 37.2% in the first quarter, they were still high; meanwhile, commitments runoff skyrocketed by 55.9% in the quarter. The upshot is that net commitments are still positive but down sharply from the last quarter.

The data for Q1/23 was mixed on combined credit line utilizations. Among lenders reporting across all five quarters, credit line utilization stayed largely flat after dropping for two consecutive quarters, which kept it slightly under its pre-pandemic levels. Nevertheless, credit line utilization grew by two basis points from Q4/22 and by 17 basis points year over year compared to Q1/22.

The minimal overall movement largely reflected how banks and non-banks performed. The bank respondents’ credit line utilization rate crept up to just 40.1% — below its most recent peak of 42.9% from the second quarter of last year — while the rate for non-banks was down 1% in the quarter from 53.8% to 52.8%.

Where combined portfolio performance was concerned, a smaller percentage of lenders reported taking on more non-accruing loans as a percentage of total loans outstanding in Q1/23 than was the case in the final quarter of last year. Conversely, a greater percentage of lenders reported that they had fewer such loans in the first quarter than the percentage reporting fewer loans in Q4/23. Specifically, 13.3% of lenders reported an increase in such loans in the first quarter versus 28.6% of lenders who reported having more of these loans in the last quarter of 2022. And 43.3% of lenders reported a decrease in non-accruing loans in Q1/23, while just 28.6% of lenders had fewer such loans in the previous quarter.

However, non-accruing loans as a percentage of total loans outstanding were up by 18 basis points from Q4/22 to Q1/23 and up 28 basis points compared to Q1/22.

Banks experienced a slight deterioration in portfolio performance, as criticized and classified loans and non-accruals increased both in absolute terms and as a share of outstandings. Non-banks’ performance stayed strong, as most of them reported declining or flat write-offs.

Finally, the percentage of lenders reporting a quarter-on-quarter decrease in gross write-offs remained the same in Q4/22 and Q1/23 at 16.7%. But a lesser percentage of respondents (4.2%) reported an increase in gross write-offs in the first quarter than in Q4/22 (16.7%). Meanwhile, 79.2% of reporting lenders had no change in gross write-offs in the first quarter versus 66.7% in Q4/22 that reported no change. For banks gross write-offs as a share of outstandings went down in the first quarter. All non-banks reported declining or flat write-offs too.