The Reserve Bank of Australia (RBA) has estimated that the private credit market in Australia stands at some $40 billion and is worth around 2.5 per cent of total business debt.
While citing EY’s estimate, which puts the market at $188 billion, the RBA explained that unlike EY’s, its figure is based on the level of lending to local businesses facilitated by asset management firms from investor money pooled into managed funds.
Direct lending from superannuation funds as part of a syndicated loan is also captured in the $40 billion figure.
“The RBA estimate focuses on business lenders with a managed fund structure to distinguish from other types of non-bank lenders in Australia,” the central bank explained in a recent market note.
“Private credit is typically funded with equity, whereas many Australian non-banks operate similarly to banks, raising funds from debt and securitisation markets but without access to deposit funding. These non-banks tend to provide standardised loans for specialised purposes like finance for vehicles or other equipment,” it said.
But despite acknowledging that the local private credit market is “growing rapidly”, the central bank said that risk remains low.
Namely, it identified that in Australia, private credit growth, which surpassed that of business debt over the past few years, actually slowed in 2024 but remained some 2 percentage points higher than growth of business debt.
“Globally, the growth in private credit has raised concerns related to a lack of visibility over leverage and interlinkages, with regulators taking steps to strengthen oversight of the market,” the RBA said.
“For Australia, the risks to financial stability appear contained for now, though regulators continue to monitor the sector closely.”
The central bank noted that domestic private credit funds account for around 70 per cent of private credit outstanding and have contributed the most to growth in lending, while super’s direct holdings of private credit via syndicated deals are relatively small.
“Australian superannuation funds primarily invest indirectly in the private credit sector via investment in private credit funds; this investment is captured in our estimate,” the RBA said.
Transparency concerns remain
As the asset class continues to gain prominence locally, the RBA reiterated that while current risks remain low, they are not to be underestimated.
Most of the RBA’s concerns centre on the lack of transparency in the market, with the central bank drawing attention to the limited amount of information available regarding leverage in the local private credit market.
“Although private credit funds’ leverage appears low compared with other lenders, end borrowers tend to be more highly leveraged than those in public markets, increasing the risks to financial stability,” the central bank cautioned.
Moreover, the bank flagged that private credit valuations are less frequent and subjective, posing risks of reassessment during economic shocks. While default rates have been low, the sector’s resilience to a major downturn remains untested, with higher losses often incurred during defaults, it said.
The RBA also raised liquidity risks, noting that while private credit funds mitigate liquidity risks through closed-end structures, a widespread, synchronised capital call during an economic shock could pressure end investors, potentially forcing rapid asset sales and causing financial market disruptions.
Ultimately, the RBA said private credit markets “remain opaque”. As they continue to grow rapidly, “work by regulators to improve transparency will assist in monitoring growth”, as well as the “potential risks to financial stability”.
