Private Credit Reshapes Banking Landscape as Competition Intensifies

What's New

S&P Global Market Intelligence's 2026 Private Markets Outlook reveals that private credit firms have significantly expanded their market presence, with the global market exceeding $1.7 trillion and dry powder totaling more than $160 billion as of September 2025. Traditional banks are simultaneously losing market share to these competitors while actively partnering with them through joint ventures, referral arrangements, and direct lending relationships.

Why It Matters

The rise of private credit is fundamentally restructuring how commercial lending operates in the United States, pushing risk outside the traditional banking system while creating new opportunities and vulnerabilities. This shift has implications for commercial real estate valuations, regulatory oversight, financial system stability, and how institutions manage their loan portfolios—particularly as hundreds of billions in CRE mortgages approach maturity over the next several years.

Big Picture Drivers

• Regulatory arbitrage: Heightened post-financial crisis regulation of traditional lenders created opportunities for less-regulated private credit firms to capture market share with more flexible structures and fewer covenants.

• Institutional allocation shifts: Major private equity firms including Apollo, Blackstone, Ares, Carlyle, and KKR have driven growth, with nine of the top 20 global private credit managers being large PE firms.

• Strategic bank partnerships: Major institutions like JPMorgan Chase, Citigroup, Wells Fargo, Fifth Third Bancorp, and Webster Financial have established formal relationships with private credit firms rather than purely competing.

• Capital structure advantages: Risk weighting for NDFI loans related to commercial real estate can be 50% lower than direct CRE loans, incentivizing banks to lend to private credit firms rather than directly to property owners.

By The Numbers

• $302.20 billion: Total bank loans to private equity funds in Q2 2025, representing 10.0% quarter-over-quarter growth

• 57% increase: Growth in loans to private equity firms through the first six months of 2025

• $789 billion: CRE loans set to mature in 2025, down from $912 billion estimated in December 2024

• 53-54%: Depositories' share of CRE mortgages maturing in 2029-2030, down from 59% for loans maturing in 2024-2025

• 1.52%: CRE delinquency rate in Q2 2025, declining from 1.59% in Q1 after 10 consecutive quarters of increases

Key Trends to Watch

• Capital deployment: Private credit firms are increasingly funding commercial real estate transactions, with direct lending-focused funds holding unprecedented levels of deployable capital that continues growing despite economic uncertainty.

• Transparency requirements: Bank exposure to nondepository financial institutions became more transparent in Q4 2024 when regulators required institutions to break out lending across five NDFI categories, revealing rapid growth particularly in business credit intermediaries.

• Maturity wall postponement: The "extend and pretend" strategy is pushing CRE loan maturities further into the future, with billions in mortgages being modified or extended rather than refinanced, suggesting traditional lenders are ceding significant market share to nonbank competitors.

• Systemic risk concerns: Regulatory scrutiny is mounting about potential spillover effects, with banking leaders like Zions CEO Harris Simmons warning that stress in the private credit sector during a recession could impact the broader financial system despite limited direct bank exposure.

The Wrap

While private credit's explosive growth presents competitive challenges for traditional banks, it has also supported asset valuations and helped banks manage their CRE exposure during a difficult period. The sector remains untested through a severe economic downturn, creating uncertainty about how private credit firms will perform when credit losses inevitably rise. Banks stand to feel some pain from future credit problems, but the growth of private credit has effectively transferred significant risk outside the regulated banking system—a development that carries both benefits and potential systemic concerns.