Several prominent U.S. regional lenders have this week disclosed their considerable exposure to non-bank financial institutions (NBFIs), amidst growing investor concerns surrounding the private credit sector. These revelations follow a period of robust lending growth and first-quarter earnings that surpassed market expectations. Eight major regional lenders collectively reported over A$345 billion (US$230 billion) in loans to NBFIs, which form part of the “shadow banking” sector encompassing private credit providers and private equity funds. PNC Financial, U.S. Bancorp, and Truist Financial account for the majority of this exposure.
The increased scrutiny of private lending, which has soared in popularity for bespoke debt solutions and high returns, comes as the sector faces a liquidity crunch. Concerns over transparency in asset valuations and negative headlines have accelerated withdrawals from non-traded business development companies (BDCs), forcing redemption caps. BDCs are investment vehicles providing investors with access to private credit assets. Despite these challenges, top regional banking executives largely dismissed fears of private credit posing a systemic risk, asserting confidence in their loan books. PNC CEO Bill Demchak stated, “We don’t see any lost content in this book and certainly don’t see any exposure to a systemic event.”
Banking executives further emphasised that their private credit exposure is well-structured, supported by senior positions and stringent reporting. While acknowledging potential for increased selectivity, the overall appetite for private credit remains strong. Theodore Swimmer, head of commercial banking at Citizens Financial, noted, “We really haven’t seen a decrease in appetite… we’re getting inbound calls from the private credit side.” Most banks reported significant growth across their loan books, contributing to a solid quarter for U.S. lenders. Maureen Levelis, vice president at Morningstar DBRS, affirmed that credit quality continues to outperform expectations, with declining charge-offs and nonperforming loans, bolstering confidence in portfolio resilience.
