The Bank for International Settlements published research on the global expansion of private credit and its underlying drivers. The analysis finds that private credit’s footprint is larger in countries with lower policy rates, a less efficient banking sector and, to some extent, more stringent banking regulation, and that banks’ earlier funding advantage has eroded as private credit vehicles’ cost of capital moved closer to that of banks. Private credit funds’ assets under management are reported to have risen from about USD 0.2 billion in the early 2000s to over USD 2.5 trillion, with outstanding loan volumes increasing from around USD 100 billion in 2010 to over USD 1.2 trillion. While lending has broadened across industries, individual funds’ portfolios remain highly concentrated, with an average Herfindahl-Hirschman index of 0.74 for US-based funds and 0.81 for non-US-based funds. Using quarterly loan data for 45 countries from 2010 to 2019, the paper reports statistically significant associations between private credit originations and lower policy rates, a lower International Monetary Fund financial institutions index and higher bank regulatory stringency and non-financial corporate leverage, with the largest economic effect attributed to banking-sector efficiency. In US evidence on publicly listed business development companies (BDCs), the spread between BDCs’ and banks’ cost of capital is described as having narrowed substantially since 2010, driven mainly by a decline in BDCs’ cost of equity relative to banks and rising BDC leverage. From a financial stability perspective, the article highlights portfolio concentration, fund leverage, shifts in the investor base (including insurance companies and retail investors) and growing bank–private credit interlinkages as areas that warrant monitoring.
Bank for International Settlements 2025-03-11
Bank for International Settlements research traces private credit growth to low policy rates and a shrinking funding cost gap with banks
The Bank for International Settlements published research on the global expansion of private credit, noting its growth in countries with lower policy rates and less efficient banking sectors. Private credit funds' assets have surged from USD 0.2 billion in the early 2000s to over USD 2.5 trillion, with significant increases in loan volumes. The study highlights financial stability concerns, including portfolio concentration, fund leverage, and growing interlinkages between banks and private credit.