Private Credit Expanding in Australia’s Loan Market

19/02/2025 A Growing Opportunity for Brokers In recent insights shared by the Australian Broker, private credit is making significant strides in Australia’s loan market, creating a wealth of new opportunities for borrowers, brokers, and lenders. Globally, private credit has evolved into a thriving market, valued at around US$1.7 trillion. This growth largely followed the Global Financial Crisis when banks, facing tighter regulations, reduced their lending activities. As a result, non-bank institutions stepped in to fill the gap, offering direct loans to businesses with fewer restrictions. Now, experts like Moody’s predict that the private credit sector will hit around US$3 trillion by 2028. Australia is seeing similar growth in private credit. As of late 2024, the country’s private credit market managed assets worth around $200 billion AUD, up from $188 billion AUD in the previous year. As traditional banks have pulled back from certain sectors, non-bank lenders have stepped forward, offering home loans and other financial services. Private credit firms operate with more flexibility than banks, as they are not bound by the regulations of the Australian Securities and Investments Commission (ASIC). They can lend or invest with greater freedom, often providing significant loans to medium-sized businesses. Chris Wyke, co-founder and co-CEO of MA Financial, highlighted the trend of loans that were once central to bank lending but are now being serviced outside of the banking system. With an aging population looking for higher returns than banks can provide, private credit has found fertile ground. The combination of loan supply and capital demand has allowed the market to thrive. This is reflected in the enthusiasm of Australian investors, who are eager to tap into a market that promises substantial returns. Recently, US-based Monroe Capital expanded its operations in Australia, and Ares raised a substantial $2.6 billion for a direct lending fund targeting Australia and New Zealand. Additionally, Sydney’s Pengana Capital Group launched a private credit fund catering to retail investors. According to Wyke, the increase in private credit in Australia can be attributed to ongoing regulatory reforms, which have created more opportunities for deals that offer attractive returns. These shifts in the financial landscape have made it easier for private credit to flourish, especially as banks have pulled back in pricing loans. One of the notable beneficiaries of this growth is the broking community, which has found new opportunities in the expanding private credit space. Wyke pointed out that the credit market is broadening beyond traditional real estate loans, with significant growth in areas such as equipment financing and small business loans. As banks retreat from these sectors, brokers are stepping in to fill the void, managing an increasing range of loan types and sizes. Opportunities for brokers are particularly evident in the commercial finance sector. While brokers already handle a significant portion of the residential loan market (over 74% of home loans are arranged through brokers in Australia), the commercial market has been slower to embrace brokerage. However, this is changing. Jason Arnold, group executive for origination at Pallas Capital, a mid-market real estate private credit firm, noted that brokers are capturing a growing share of the commercial finance market. Arnold revealed that 75% of Pallas’s business volume comes via brokers, with more corporate and individual clients turning to brokers for commercial transactions. The flexibility of private credit also benefits brokers by providing faster loan approval times. While a major bank might take three to four months to approve a complex construction loan, private credit lenders can approve loans in just four to eight weeks. This speed can be crucial for clients needing quick access to funds. Private credit is also making inroads in sectors like auto loans and self-managed super funds (SMSFs), areas where banks have become less active. Wyke pointed out that banks are increasingly reluctant to offer non-resident home loans and SMSF loans, creating a gap that private credit lenders are keen to fill. In the last few years, MA Financial has expanded its private credit portfolio to around $5 billion AUD. This growth mirrors trends in non-bank lending across both residential and commercial sectors, where traditional banks are pulling back due to regulatory and capital constraints. Non-bank platforms, such as MA Money, are stepping in to fill this gap and are experiencing significant growth. The rise of private credit in Australia reflects broader trends in the financial sector, where banks are retreating from certain types of lending, creating new opportunities for non-bank institutions and brokers. As the market continues to expand, brokers have the chance to tap into new sources of capital and provide their clients with faster, more flexible lending options. Private credit is an increasingly important part of Australia’s loan market, providing both borrowers and brokers with a wealth of opportunities. With its rapid growth, flexibility, and higher potential returns, private credit is set to play a key role in reshaping the Australian financial landscape. Start here: https://finstreet.au/broker-hub/