The Bank for International Settlements published a BIS Quarterly Review article analysing the rapid expansion of private credit and the factors behind its growth across countries. The research links a larger private credit footprint to lower policy rates, a less efficient banking sector and, to some extent, more stringent banking regulation, and finds that banks’ funding advantage over US business development companies has narrowed substantially since 2010. Private credit funds’ assets under management are estimated to have risen from about USD 0.2 billion in the early 2000s to over USD 2,500 billion, with global outstanding private credit loan volumes increasing from around USD 100 billion in 2010 to over USD 1.2 trillion. Despite broader activity across industries, individual funds’ loan portfolios remain highly concentrated, with an average Herfindahl-Hirschman index of 0.74 for US-based funds and 0.81 elsewhere, raising sector-downturn exposure as retail access expands via structures offering more frequent redemptions. In a panel of 45 countries from 2010 to 2019, private credit origination is higher where policy rates are lower and banks are less able to meet loan demand, with a one standard deviation decrease in the policy rate associated with about a 12% increase in private credit and a one standard deviation decrease in the International Monetary Fund financial institutions index associated with about a 33% increase. The study also reports that the spread between the cost of capital of publicly listed business development companies and banks declined by around 200 basis points between the Great Financial Crisis and 2019, driven mainly by a fall in business development companies’ cost of equity relative to banks and rising leverage, with their average debt-to-equity ratio increasing from around 0.4 in 2011 to over 1.
Bank for International Settlements 2025-03-11
Bank for International Settlements examines what is driving private credit growth and the narrowing funding gap with banks
The Bank for International Settlements, in its BIS Quarterly Review, reported rapid global expansion of private credit, linking its growth to lower policy rates, less efficient banking sectors and, to a lesser extent, more stringent banking regulation. The study highlights sharp increases in private credit funds’ assets under management and loan volumes, high portfolio concentration and growing retail access, and finds that banks’ historical funding advantage over United States business development companies has narrowed since 2010.