Market participants should prepare for greater regulatory oversight of the private credit industry, according to research by the Loan Market Association (LMA).
In a report assessing the landscape of EMEA loan markets up until 2040, the LMA said greater regulatory coherence will be critical to supporting efficient capital flows across jurisdictions going forward. This will need to be combined with appropriate oversight and resilience, it added.
The study is based on views from over 230 senior market participants across EMEA and found that nearly half of all respondents predict regulatory tightening of non-bank lenders and private credit funds. However, expectations vary by institution type, with 55 per cent of banks anticipating stricter rules as opposed to just 33 per cent of non-bank lenders.
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Scott McMunn, LMA’s chief executive, said the forces reshaping corporate lending are becoming “more profound and more complex”.
“The next decade will not simply be characterised by more lending. It will be characterised by a fundamentally different lending ecosystem,” he said.
The report states that, since 1996, EMEA syndicated lending volumes have increased sixfold, helping transform the loan markets into one of the most important engines of economic activity across the region.
However, the private credit segment is seeing several challenges to its future growth. More than half of the market (54 per cent of respondents) pointed at economic slowdown and rising default rates as factors preventing further growth in the sector. Meanwhile, regulatory intervention followed at 39 per cent, with sector concentration risk close behind at 38 per cent.
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The LMA sets out three action points to future-proof loan markets. First, invest in technology, by enhancing governance frameworks and seeking industrywide collaborations. Second, it advocates for stronger regulatory alignment, so that cross-border financing spurs economic growth. And third, embed sustainability and transition finance into the fabric of lending. With environmental and social considerations moving towards the centre of credit decision-making, the LMA said the challenge for the market is to develop frameworks that are both credible and commercially practical.
