Global finance watchdog warns over private credit industry fuelling AI boom | Financial sector

The private credit industry’s role in fuelling the AI boom could backfire, with a sharp correction leading to “sizeable” losses, the Financial Stability Board has warned.

A new report into private credit by the global watchdog, which monitors financial authorities including central banks in 24 countries, found that the healthcare, services, and tech sectors have become the biggest borrowers of private credit.

That includes AI firms, which have increasingly turned to private lenders to fund datacentres and other infrastructure. The AI industry accounted for more than a third of private credit deals in 2025, up from 17% over the previous five years. “This focus on specific sectors may leave private credit funds exposed to idiosyncratic risks … [and] increase exposure to region or industry-specific shocks,” the report warned.

On AI loans, the FSB warned that a “sharp correction in asset valuations, which have increased rapidly, could lead to sizeable credit losses to private credit investors”.

“This could be triggered by any significant shortfall in the supply of electricity, a critical factor in the construction and operation of datacentres, which could lead to delays or cancellations of projects,” the FSB said.

Meanwhile, AI company valuations could be hit if investments lead to an oversupply of datacentres, which eventually outpaces demand for AI, leading to lower-than-expected returns for investors.

The FSB report adds to ongoing concerns over potentially risky loans arranged by private credit firms, which lend to companies using investor money – rather than customer deposits or loans backed by those deposits – outside the traditional regulated banking system. Those anxieties recently led to a multibillion-pound surge in withdrawals from some private credit funds, forcing some to cap the amount of money that clients can pull out.

While advocates have said private credit lenders are better equipped to monitor risks and provide bespoke loan arrangements, the FSB said private credit borrowers typically had lower credit scores and larger debts than those turning to traditional banks for loans.

However, traditional banks are increasingly exposed to the private credit sector, either by lending directly to private credit funds, financing riskier fund portfolios, or lending to firms that are simultaneously borrowing from private credit firms. Meanwhile, a growing number of banks are agreeing to partner with asset managers on private credit deals.

That has exposed banks to an opaque sector where lenders “may have only partial information about borrowers, as illustrated by recent corporate bankruptcies and failings”, the FSB said.

The global watchdog pointed to last year’s collapse of two private credit-backed US automotive companies, Tricolor and First Brands. Both firms have…