Shifting dynamics: private credit versus banks

November 2026  |  FEATURE | BANKING & FINANCE

Financier Worldwide Magazine

November 2026 Issue

No longer viewed as an alternative corner of global finance, private credit has, over the last decade, moved from the margins to become a mainstream financing channel – an asset class in a state of quiet ascendancy.

Once known as ‘shadow banking’, private credit involves non-bank financial intermediaries (NBFIs) engaging in direct lending to companies, bypassing banks and public debt markets. These lenders work directly with borrowers to negotiate and originate privately held loans that are not issued or traded in public markets.

Although relatively quiet, its transition from niche to mainstream has been dramatic. Globally, the private credit sector has expanded to reach estimated assets under management (AUM) of approximately $3 trillion to $3.5 trillion, driven by growth in investment-grade corporate debt and asset-backed finance (ABF).

“The rapid expansion of ABF and infrastructure credit tells us the sector is now maturing,” says Yerbol Orynbayev, a former World Bank Governor on behalf of Kazakhstan. “Private credit has been taken from a sponsor-driven, direct lending model to a significantly more complex, long-term, multitrillion-dollar industry.

“ABF, in particular, is a critical tool for financing the daily activities of millions of businesses and consumers,” he continues. “The asset class has a wide variety of credit types to lean on – which is no doubt why top private lenders have turbocharged their ABF strategies.”

In terms of geographic distribution, the US possesses the lion’s share of the private credit market. Expanding from $500bn to $1.3 trillion over the last five years, the US is the most mature direct lending ecosystem, representing approximately 60 percent of total global private credit activity.

The asset class has also seen rapid adoption across Europe, with a current $530bn market, close to 30 percent of global AUM, expected to grow to $940bn by 2030. Concurrently, private credit activity across Asia-Pacific, projected to reach $92bn by 2027, and in emerging markets including India, Latin America and parts of East Asia, while smaller, is growing rapidly.

“Private credit can be seen as the most recent phenomenon in the progressive shift toward market-based forms of financial intermediation,” attests Vincenzo Bavoso, professor of commercial law at the University of Manchester Law School. “This shift results from the evolution of banks’ business models, and their engagement with capital markets.”

Against a backdrop of continued expansion, the market is seeing growth opportunities, liquidity risks, regulatory scrutiny and a growing interconnectedness between private credit managers and traditional financial institutions.

Driving the boom

Since the 2008 financial crisis, which caused banks to retreat from parts of the lending market amid stricter regulatory and liquidity requirements, private credit has expanded at a remarkable pace, increasing roughly tenfold between 2009 and 2023.

In its ‘The Rise of Private Credit: 2026 Market Trends and Growth Outlook’ analysis, Creative Planning highlights three key trends driving growth in the asset class.

Bank lending constraints continue to create market opportunities. The global financial crisis ushered in heightened financial regulation. Basel III introduced higher capital requirements and stricter risk weighting, resulting in reduced lending capacity, particularly for middle-market businesses.

“There is some agreement that the cost of lending for banks was negatively affected by the regulatory reactions following the global financial crisis of 2008,” points out Mr Bavoso. “The new capital ratios introduced under Basel III in particular impacted retail and commercial lending, introducing higher regulatory costs for banks extending loans to the real economy.”

In addition, banks’ willingness to lend to the real economy became further constrained by their business models, particularly in the case of multifunctional institutions. “These large banks are able to extract much greater profits from their capital markets operations than from traditional lending activities,” continues Mr Bavoso. “As a result, a mix of regulatory incentives and structural imbalances is at the heart of the expansion of private credit.”

Institutional investor demand for higher yields and diversification has also fuelled growth. Private credit can offer meaningful portfolio diversification, alongside higher yields and lower volatility than many public-market assets. Features such as floating-rate protection, senior-secured positions and consistent yield premiums distinguish the asset class. These characteristics have proved attractive amid market uncertainty, post-pandemic inflation and interest-rate volatility.

“Private credit momentum is largely being driven by persistently high inflation and a prolonged period of high interest rates across the world,” agrees Mr Orynbayev. “Inflation is keeping costs high for businesses while simultaneously putting a dampener on consumer spending, all of which increases balance sheet pressures. At the same time, elevated interest rates are making borrowing more expensive and affecting corporations’ ability to service debt effectively.”

Direct lending’s customisation advantage is another significant factor. Traditional banks, particularly in the US, often face constraints that make financing more difficult for middle-market companies. Private lenders have greater flexibility to assess borrowers on a case-by-case basis, structure bespoke loans, tailor covenants and make relationship-driven lending decisions.

“Businesses need faster access to capital,” asserts Mr Orynbayev. “Yet securing a commercial loan from a bank can take weeks or even months depending on the financing model – and pre-made credit packages rarely offer the flexibility that individual businesses need. This gap is exactly where private credit thrives, and as businesses grow more reliant on the direct lending model, the market continues to balloon with demand.”

Passing or permanent

As private credit continues to evolve and offer investors new ways to pursue income, diversification and long-term growth, questions inevitably arise over whether its expansion represents a structural shift or simply reflects prevailing market conditions.

What has become increasingly clear over the last two decades, observes Mr Bavoso, is that corporate finance has moved beyond traditional classifications of debt and equity, taking forms that reflect the changing nature of both lenders and borrowers.

“Within this picture, the receding role of banks, particularly in their more traditional role as lending institutions, has become a more significant feature,” says Mr Bavoso. “Private credit, in all its different forms, has taken up part of this space. Whether this is a temporary market phase is difficult to say.”

Leaning more toward permanence than a fleeting fad is Mr Orynbayev. “Such growth cannot cease; it will only keep going,” he contends. “Private credit is certainly benefitting from current conditions, but the fact is it has become too instrumental as a source of capital for the ecosystem to return to the way it looked before.

“Moreover, the regulatory architecture that has restricted global banks’ lending appetite is still in place,” he continues. “Despite easing capital requirements – with delays to the Basel III endgame and looser stress testing – bank retrenchment is ongoing. Fundamentally, it is very unlikely global systemically important banks will regain the same level of access to the lending market that they once had.”

Competitiveness and collaboration

In many respects, the relationship between banks and private credit today resembles collaboration more than competition, an evolution with significant implications for corporate borrowers.

“The symbiosis between banks and NBFIs changed after 2008, and it has become less evident in many ways,” says Mr Bavoso. “With securitisation and repurchase agreement exposures becoming more expensive under Basel III, banks have shifted their interactions with non-bank firms, whereby they now provide a range of warehousing, underwriting and lending facilities. As a result, interconnectedness is still present, but has taken different shapes.

“The reality for corporate borrowers is that they are more likely to receive credit facilities by the panoply of non-bank actors,” he continues. “Very often loans are syndicated among non-bank lenders, with private equity firms coordinating the transaction, and banks providing some form of credit facility.”

Indeed, many banks are partnering with private credit lenders, providing financing, distribution capabilities and specialist expertise. Research from the US Federal Reserve shows that credit lines extended by the largest US banks to private credit vehicles increased by approximately 145 percent between 2020 and 2024, reaching around $95bn in 2024.

For example, banks such as Citigroup possess extensive corporate networks and strong origination capabilities, while private credit lenders such as Apollo have the capital to support direct lending mandates and absorb the risks associated with holding leveraged loans on their balance sheets. “These two industry giants have partnered so that they can take advantage of each other’s individual strengths,” adds Mr Orynbayev.

Beyond specific partnerships, private lenders and banks often provide different forms of financing to the same borrowers. As a result, relationships between lenders have softened because they are not always in direct competition. For borrowers, however, this dynamic can be a double-edged sword.

“While on the one hand borrowers can access a broader, more diverse range of capital sources, for those already struggling to manage their debt capacity, such deep wells could lead to over-borrowing,” explains Mr Orynbayev. “Such broad access to capital is not always beneficial, especially at a time when delinquencies and defaults are on the rise.”

As competition intensifies, differentiation is increasingly shifting beyond pricing and leverage tolerance. Technology, data analytics and sector expertise are becoming important advantages for lenders seeking to identify opportunities, assess risk and support portfolio companies. In turn, borrowers are placing greater value on speed, certainty of execution and strategic insight.

Monitoring systemic risks

While private credit offers flexibility as a source of corporate funding, it can also create vulnerabilities through hidden financial interconnections, valuation opacity and leverage. These are systemic risks that banks, insurers and regulators must monitor closely.

“Banks are exposed to the non-bank ecosystem through a set of mutual dependencies,” says Mr Bavoso. “Among them, direct lending from banks to non-banks, liquidity management by banks, clearing services provided by banks, underwriting services provided by banks and warehousing.

“These interlinkages can become transmission channels that propagate shocks from one corner of the financial system to other markets and entities operating in different corners of the financial system,” he continues. “This is the essence of systemic risk.”

Citing the high-profile collapses of Tricolor and First Brands in 2025, Mr Orynbayev believes a lack of transparency is a key systemic risk. In both cases, the companies filed for bankruptcy amid allegations of fraud, including the double-pledging of collateral to multiple warehouse lenders, exposing vulnerabilities within opaque private credit markets.

“By nature, private credit enables opaque dealings,” says Mr Orynbayev. “There is little visibility as to where debt and capital obligations actually lie, and as financing vehicles stack on top of each other, the line of debt can quickly become confusing. Just one default can spark an adverse chain reaction.

“As a result, investors and regulators must watch lenders’ disclosures hawkishly,” he continues. “As private lenders, banks and insurers become increasingly interconnected, regulators must push for more stringent reporting requirements – fixing a firm eye on lenders’ access to capital as they become increasingly entwined with various financial institutions.”

As private credit enters a new phase of development, its future influence may be measured not only by the capital it deploys but also by how it reshapes relationships across the financial system. Participants will need to balance innovation, discipline and trust in an increasingly interconnected marketplace.

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Fraser Tennant