US banks’ loans to private credit providers have surged to nearly $300 billion, Moody’s said in a report released this week, and the ratings agency warned that smaller lenders could face heightened risks if underwriting standards weaken.
Loans to non-depository financial institutions (NDFIs) are now 10.4 per cent of total bank loans, nearly three times the 3.6 per cent exposure a decade ago, the report said. The aggressive growth outpaced all other lending activities since 2016, it added.
Investors have been concerned about wider strains in the financial sector after some regional banks, including Zions Bancorp (ZION.O), flagged bad loan and alleged fraud issues in recent weeks.
Besides exposure to private credit providers, there was a further $285 billion in loans to private equity funds as of June, and $340 billion in unutilized commitments available to these borrowers, Moody’s said.
Analysts see the recent episodes as idiosyncratic events rather than a systemic concern in credit quality. Top banking executives have also downplayed the risk in private lending.
