Bank of Canada Warns of Risks in Private Credit Market

The Bank of Canada is closely monitoring the rise of private credit in Canada, which has grown to an estimated $500 billion in value. This alternative lending model involves businesses taking out loans from non-bank lenders, such as asset managers and insurance companies, rather than traditional banks.

While the share of Canadian businesses using private credit remains limited at around 15%, global adoption is growing rapidly. The Bank of Canada notes that this expansion is happening largely outside a regulatory environment, posing potential risks to investors and financial stability.

Economists at the central bank have flagged concerns about the lack of transparency in private lending, where deals are often negotiated behind closed doors. They also warn that complex structures and limited visibility around private lending could lead to contagion effects if there is a sharp downturn in the performance of private credit abroad.