'It's a fallacy': How the big banks are powering the private credit boom
Private credit is booming in part because banks are pulling out of lending to riskier sectors. But the big lenders are still clipping the ticket on the surging asset class.
The private credit boom in Australia owes its origins to the banks pulling back from key sectors, notably commercial property and small businesses.
Less appreciated is that a major player fuelling the growth of private credit is – the same banks. Rather than lending directly to these higher risk sectors, the banks instead are providing funding facilities for the private funds which are then doing the actual lending.
It’s an arbitrage. Lending directly carries a capital charge for the banks of up to 150%, lending to a warehouse for the fund carries just 50%. (Residential mortgages carry the lowest charge hence the banks’ heavy preference for the sector.) A higher capital charge means a lower return for the lender.
“It’s a fallacy that the main banks in Australia have pulled out of these markets – they’re still there, they’re some of the biggest funders of the non-bank space including private credit,” KeyInvest CEO Craig Brooke told Capital Brief.
