NDFI Loan Performance Remains Strong Despite Rapid Growth, new Data Shows
New analysis of Non-bank Financial Institution (NDFI) loan data reveals a surprisingly strong performance profile, with a non-performing loan rate of just 10 basis points (bps) at the end of Q2. The findings, released by Cadwalader, Wickersham & Taft LLP, come as the sector faces increased scrutiny and upcoming changes to disclosure standards in Q4 2024.
The data indicates large lenders are increasingly drawn to the NDFI lending space, driven by their ability to offer a comprehensive suite of capital markets products to fund sponsors and accommodate larger facility sizes resulting from sponsor concentration in fundraising. Globally Systemically Vital Banks (GSIBs) allocate a higher share of total loan exposure to NDFIs compared to other banks.
Analysis of loan utilization rates, while complicated by data organization, suggests private equity-backed NDFI loans exhibit more consistent utilization, averaging around 51%. The study notes that NDFI loan disclosures include undrawn commitments, offering insight into potential future lending activity.
The report, leveraging data from Bankregdata, FDIC Research Details System, and call reports, highlights that concerns surrounding NDFI loan growth may be partially attributed to a misunderstanding of the impact of recent loan reclassifications and the upcoming disclosure changes.
