Canadian banking regulator to review big banks' private credit exposure
14/04/2026 20:46
TORONTO, April 14 (Reuters) - Canada’s federal banking regulator said on Tuesday it was conducting reviews on the big banks' exposure to private credit, or loans to non-bank groups, as negative headlines have drawn scrutiny to the rapidly expanding asset class. The high-profile bankruptcies of U.S. auto parts supplier First Brands and car dealership Tricolor turned the spotlight on Wall Street banks' exposure to non-depository financial institutions such as private equity and private credit managers. Here is what the Office of the Superintendent of Financial Institutions said in its annual risk outlook: Canadian banks’ exposures to private capital firms and their portfolio companies have grown considerably in recent years, representing a material component of the balance sheet, OSFI said. Banks are increasing the use of NBFIs, or non-bank financial institutions, to provide credit protection on their lending portfolios using synthetic risk transfers and other arrangements. Reductions in credit protection could reduce banks’ ability to lend to clients, increase credit risk, and negatively impact capital levels, the regulator said. "The opaque nature of this market can mask structural weaknesses, and the highly leveraged nature of these private capital firms can intensify losses in a stress event," the regulator said. It is now conducting reviews on exposure to NBFIs, risk rating approaches, and governance processes. According to RBC Capital Market analysts, Bank of Montreal BMO.TO and CIBC CM.TO have some of the largest exposure to financial loans at about 11% and 10% of total gross loans, respectively, as of their first quarter. Scotiabank BNS.TOand National Bank have the smallest among the big banks. Royal Bank of Canada RY.TO last quarter said NBFI and financing products comprised 8% of its total loans. Meanwhile on Wall Street, bank executives said they were stress‑testing or monitoring private credit portfolios, but said they were comfortable with their exposure. (Reporting by Nivedita Balu in Toronto Editing by Nick Zieminski) ((Nivedita.Balu@thomsonreuters.com ; +1-343-401-6776))