Non-bank loans have held at 15% of Canadian business funding for a decade
Canadian investors and banks are carrying roughly $500bn of private credit exposure, and most of that money is working outside the country.
The Bank of Canada put the combined value of private lending by Canadian investors and lending to private credit funds by Canadian banks at about that level around the beginning of 2026, with the bulk of it in the United States, according to a Sparks at Bank article.
Bloomberg reported the figure converts to roughly US$360bn.
The three largest Canadian life insurers held just over $200bn in private credit investments in the first quarter of 2026, the Bank of Canada estimated, or about 22 percent of their invested assets, a share stable over the past five years.
Canada's large pension funds held an estimated $215bn at the end of 2025, roughly 9 percent of invested assets, according to the same research.
The central bank said less than 1 percent of life insurers' holdings fall into the higher-risk category.
According to Bloomberg, the 22 percent figure overstates exposure to the leveraged buyout corner of the market, because insurers have bought privately placed corporate debt for decades to match long-dated loans against long-term liabilities.
Both groups lend mostly to businesses directly, which gives them a clearer view of credit risks than investing through a fund would, and their long horizons and limited reliance on short-term funding let them hold illiquid assets through stress.
Canadian investment funds held $54bn of private credit in 2025, up more than 60 percent since 2020, with more than two-fifths tied to real estate loans, the central bank estimated.
Those holdings represent only about 1.5 percent of the total net assets of Canadian stand-alone investment funds.
The estimate likely understates the group's exposure because the Ontario Securities Commission's Investment Fund Survey captures only some fund-like entities, with mortgage investment corporations only partially included, the authors said.
Canadian banks lent at least $40bn to asset managers running private credit funds in the first quarter of 2026, most of them US-based, according to the Bank of Canada, which works out to about 1 percent of their overall lending.
The loans are typically secured by capital commitments from the fund's investors rather than fund assets, and are repaid ahead of other fund investors, the central bank said.
Loans from non-banks have held at about 15 percent of Canadian businesses' funding over the past decade with banks and public debt markets supplying about three-quarters.
Bloomberg reported that share sits slightly below where it stood at the time of the 2008 financial crisis.
In the United States, private credit has become a primary source of financing in some segments, the Bank of Canada said, and US firms increasingly compete with banks and broadly syndicated loan markets to fund leveraged buyouts, according to Bloomberg.
The market totalled $1.34tn in the US and nearly $2tn globally by the second quarter of 2024, roughly five times its 2009 size, according to a FEDS Notes analysis by Jose Berrospide, Fang Cai, Siddhartha Lewis-Hayre, and Filip Zikes published by the US Federal Reserve Board.
The US Federal Reserve's May Financial Stability Report said market contacts surveyed in March and April named private credit among the most frequently cited risks to American financial stability.
The report also flagged weaker debt-servicing capacity among riskier private firms on floating-rate debt, and noted that some non-traded business development companies capped redemptions after requests jumped.
Private credit borrowers typically carry lower credit quality and higher leverage than borrowers in comparable public markets, the Financial Stability Board said in its May report, pointing to rising payment-in-kind use and default rates edging up from low levels.
Private placements had grown to about 20 percent of American life insurers' bond portfolios by 2022, Bloomberg reported, citing industry data drawing on Federal Reserve estimates, close to the 22 percent of invested assets the Bank of Canada attributes to Canada's three largest life insurers.
A sharp downturn in private credit abroad could still reach Canadian investors and domestic business lending, the Bank of Canada said, and assessing that risk is difficult because "transparency is limited, leverage can be difficult to measure," the authors wrote.
