Asia-Pacific Private Credit Markets on the Rise: Moody's Insights

Private credit markets in the Asia Pacific region are rapidly expanding due to rising niche demand, despite banks dominating the lending landscape. Moody's Ratings indicates significant growth in private credit driven by large economies and increasing interest from Asia-Pacific investors in global markets.

Private credit markets in the Asia Pacific region have witnessed rapid growth over the past decade and are poised for further expansion, according to Moody's Ratings. This growth is attributed to niche demands spurred by burgeoning economies, though the dominance of banks in lending indicates these markets are still comparatively small.

Moody's Ratings highlighted that the private credit sector in Asia-Pacific is set to expand, propelled by substantial economies, as the region's strong economic performance amplifies overall financing requirements. Furthermore, it was noted that investors in Asia-Pacific are turning their attention to the global private credit market, which may lead to increased investments in the US and Europe.

The market size and growth are evident with private credit assets under management (AUM) designated for lending to Asia-Pacific firms nearly doubling to approximately USD 120 billion by the end of 2023 from four years prior. Despite this, the market remains small, constituting only 6-7% of total global transactions over the past decade.

India's private credit market is expected to grow robustly, driven by financing needs in real estate, infrastructure, and manufacturing, along with companies in their nascent or growth stages. Moody's Ratings also foresees continued demand for private credit from middle-market firms to cover funding gaps and as a viable option for financing infrastructure projects and leveraged buyouts (LBOs).

Investment interest in private credit is notably from long-term institutional investors with higher risk appetites in the Asia-Pacific. Developed economies like Australia, Japan, and Korea benefit from more advanced financial and legal systems, along with larger investor bases. Conversely, in developing economies such as China and India, demand is fueled by economic progress and evolving regulatory and legal frameworks, Moody's Ratings conveyed.

(With inputs from agencies.)