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A review of the Australian private credit market in 2023

2023 private credit review

A review of the Australian private credit market in 2023

2023 marked a year of both challenges and opportunities for the Australian private credit market. On the one hand, the tighter credit conditions in the first half of the year saw decreased activity in mergers and acquisitions (M&A), project finance and real estate development financing. On the other, the latter part of the year boasted a more stable interest rate and inflation outlook, as well as improved credit margins, supporting more resilient private credit portfolios. 

Ernst and Young (EY) publish an annual report on the Australian private credit landscape, which is a must-read for anyone following this asset class, whether you are a believer or still sitting on the fence. I have summarised my key learnings from this report in the article below.  

Market size – despite a slow 2023, there is still a big runway for growth 

In 2023, the Australian private credit market saw robust growth of 7 per cent, with total assets under management reaching AU$188 billion. Whilst solid, this was moderate compared to the 32 per cent growth experienced in 2022. According to EY, business-related loans amounted to AU$112 billion, while commercial real estate-related loans amounted to AU$76 billion. Focussing on business-related loans, this included all lending that was not commercial real estate-related, such as leveraged and sponsor lending, direct lending, middle-market, small-to-medium sized business lending (SME), special situations, distressed and venture debt.

Importantly, private credit in Australia only represented 12 per cent of the total business related-loan market. Offshore, the private credit market globally was estimated to be as large as U.S.$1.6 trillion during 2023 and forecasted to continue to grow double digits well into 2028. As such, there is clearly still a big runway for growth here domestically.  

Resilient performance – some sector challenges but borrower quality is key 

Performance has been a strong point of attraction in accessing Australian private credit, with majority of providers being able to continue to pay out anywhere from cash plus three per cent per annum through economic shifts and challenges such as COVID-19 and the interest rate environment over the last couple of years.

In 2023, this, in part, can be attributed to insolvencies being very company-specific and experienced in more cyclical and challenged sectors. EY noted these to be construction, accommodation, hospitality and food, business services and retail trade. The ability for private credit providers to access a growing universe of quality borrowers, leaving more traditional finance providers, is a key thematic fuelling the continued stability of outcomes. Moreover, the Reserve Bank of Australia (RBA) noted in a recent report that SME lending accounted for over 50 per cent of total business lending in Australia. Despite this, lending to Australian SMEs only grew by six per cent over the year to September 2023.

The report also notes that more than 50 per cent of SMEs have issues accessing finance from traditional providers, with time to assess and approve being cited as a major impediment. Borrowers are also seeking alternate funding providers due to the size of the loans they are after (generally less than $2 million), duration (generally less than 12 months) and seeking to provide security outside of residential property. As such, this has carved out an area of the market that is starved for funding where niche private credit providers are still able to source strong forms of protection at the borrower level for working capital-focussed lending. In fact, the Australian Banking Association approximated the Australian SME loan market to be as large as AU$451 billion in 2022.  

Outlook – energy transition is a big opportunity 

EY further deduces that the economy-wide energy transition is another significant theme that will impact the Australian private credit market. With the need for capital investment in energy generation, technology, and infrastructure, private credit lenders are expected to play a crucial role.

In fact, quoting another recent EY publication, “Australia must attract an estimated $1.5 trillion in capital by 2030 and up to $9 trillion by 2060 to fund the transition to net zero emissions.” What role will private credit providers play here? EY namely cites in the form of new capital investments, refinancing and acquisition of lenders or loan books as traditional finance providers closely monitor their climate-related exposures under the new Australian sustainability reporting standards.

In conclusion, the Australian private credit market is navigating challenges with resilience and is well-positioned for growth in 2024. With improving economic conditions, a focus on sustainable investments, and a track record of portfolio quality, private credit lenders are poised to play a vital role in supporting Australia’s growing debt market. 


Dean Curnow joined Montgomery Investment Management in June 2016. Dean joined the firm from Colonial First State, where he was a Consultant for Retail Sales for 2 years. Prior to this, Dean was also a Relationship Manager with the Commonwealth Bank of Australia, where he spent 5 years working in Retail Banking.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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