By Pritam Biswas and Arasu Kannagi Basil
April 17 (Reuters) - Several U.S. regional lenders this week detailed their exposure to non-bank firms after posting strong lending growth and beating first-quarter market estimates, seeking to address rising investor worries around private credit.
The move underscores how quickly private lending, which had soared in popularity with companies looking for quick bespoke debt and investors seeking high returns, has become a major area of focus in recent months.
Eight U.S. regional lenders revealed they had more than $230 billion in loans to non-bank financial institutions (NBFIs), with PNC Financial, U.S. Bancorp and Truist Financial accounting for the bulk of the exposure.
NBFIs are involved in what is commonly referred to as the "shadow banking" sector that includes private credit providers and private equity funds.
The announcements come close on the heels of bigger U.S. banks earlier this week disclosing financing exposure to private credit or related loans during their quarterly earnings.
Meanwhile, top regional banking executives dismissed fears of private credit being a systemic risk and said they were comfortable with their loan books.
"The sound bite you ought to walk away with here is that, we don't see any lost content in this book and certainly don't see any exposure to a systemic event," PNC CEO Bill Demchak said in a post-earnings conference call.
Private credit has faced a liquidity crunch in recent months as concerns around a lack of transparency in asset valuations and a barrage of negative headlines accelerated withdrawals at non-traded business development companies (BDCs), forcing many to cap redemptions at 5% of shares.
BDCs are investment vehicles that give investors access to private credit assets.
U.S. banks' lending to NBFIs was thrust into the spotlight last year after several lenders disclosed exposures to the high-profile bankruptcies of U.S. auto parts supplier First Brands and car dealership Tricolor.
DEMAND REMAINS STRONG DESPITE JITTERS
Banking executives emphasized exposure to private credit was well-structured and supported by senior positions and frequent reporting requirements.
They added banks might become more selective in client selection, but the appetite for private credit was still there.
"We really haven't seen a decrease in appetite. In fact, in a lot of the conversations and the deals we're getting ready to launch, we're getting inbound calls from the private credit side of the business," Citizens Financial head of commercial banking Theodore Swimmer said in the lender's post-earnings call.
Most banks reported robust growth in their loan books, further cementing a solid quarter for the U.S. lenders.
"Credit quality continues to outperform expectations. Net charge-offs, nonperforming loans, and criticized assets are declining," said Maureen Levelis, vice president, North American Financial Institution Ratings at Morningstar DBRS.
"While some management teams remain cautious on provisioning, underlying credit trends improved, reinforcing confidence in portfolio resilience."
(Reporting by Pritam Biswas and Arasu Kannagi Basil in Bengaluru; Editing by Sriraj Kalluvila)
