Bank of Canada Keeps Close Eye on Private Credit Growth

The Bank of Canada is closely monitoring private credit growth in Canada, which exposes investors and banks to approximately $500 billion in loans. This model includes loans from non-bank entities like asset managers, insurers, and pension funds. While private credit primarily serves mid-sized businesses seeking growth capital when traditional bank loans or bond markets are not viable options, its adoption among Canadian firms remains limited.

The rapid global uptake of private credit has raised concerns due to its association with notable bankruptcies in the U.S., including the collapse of Texas-based First Brands Group. The Bank of Canada highlighted private credit as a potential risk in its May 2026 financial stability report and recently published research to shed light on its growth in Canada.

According to the Bank of Canada, while there is a significant demand for private credit globally due to its speed and flexibility, its share in domestic business lending has remained stable at about 15% over the last decade. Banks are involved by lending to funds participating in private credit, but Canadian investors' exposure to private credit could exacerbate lending challenges within the domestic economy should international markets falter.

Private credit gained traction after the 2008-09 financial crisis as major banks withdrew from lending to small and medium-sized enterprises. The lack of transparency in private credit arrangements and the absence of standard reporting requirements across different financial institutions pose risks to overall financial stability.