The shift from banks to private credit lenders as a source of business financing is here to stay with private credit funds set to take a growing slice of the lending market, while some banks will struggle to complete, according to a report by Bloomberg.
The report cites a paper from the BlackRock Investment Institute as suggesting that the movement of cash to money-market funds from bank accounts will diminish lenders’ ability to finance small and mid-size firms.
According to the paper, authored by BlackRock executives including Jean Boivin and Alex Brazier, banks will probably need to pay more interest to attract and retain deposits, which will in turn squeeze profits, “potentially discouraging them from lending as much”.
Raising interest rates to attract deposits “will erode some of the advantage they had in extending loans from being able to fund them with cheap deposits,” according to the paper.
