The burgeoning AI sector’s reliance on private credit could potentially spark significant financial setbacks, as cautioned by the Financial Stability Board (FSB). The global financial watchdog, responsible for overseeing financial authorities such as central banks in 24 nations, has released a report highlighting the substantial borrowing by healthcare, services, and technology companies from private credit sources. Among these, AI firms have increasingly sought private lenders to finance essential infrastructure like datacentres, with AI-related deals comprising more than a third of such transactions in 2025, a significant rise from 17% over the previous five years.
The FSB’s report warns that the concentration of private credit within specific sectors may render funds vulnerable to unique risks and industry-focused disturbances. For AI-related loans, a rapid correction in asset valuations, which have been climbing swiftly, could result in substantial credit losses for investors in private credit. This risk could be exacerbated by disruptions in electricity supply, a vital element for building and operating datacentres, potentially causing project delays or cancellations.
Moreover, the valuation of AI companies might suffer if investments lead to an oversupply of datacentres, surpassing the demand for AI capabilities and yielding lower-than-anticipated returns for investors. The FSB’s findings contribute to increasing concerns over the potentially precarious loans orchestrated by private credit firms. These firms lend to businesses using investor funds, bypassing traditional banking systems that rely on customer deposits or loans backed by those deposits. Such worries have recently triggered a multibillion-pound increase in withdrawals from certain private credit funds, compelling some to impose limits on client withdrawals.
Proponents of private credit lenders argue that they possess superior risk monitoring capabilities and can offer tailored loan arrangements. However, the FSB indicates that borrowers from private credit sources typically exhibit lower credit scores and higher debt levels compared to those relying on conventional banks for financing. Despite this, traditional banks are becoming increasingly entangled with the private credit sector. They are lending directly to private credit funds, financing risk-laden portfolio ventures, and providing loans to companies that are concurrently borrowing from private credit entities.
Additionally, an expanding number of banks are entering into partnerships with asset managers on private credit transactions. This growing entanglement underscores the interconnected nature of the financial ecosystem and the potential ripple effects of any instability within the private credit domain.