BoE private credit stress tests could “build stronger long-term outcomes”

The Bank of England is reportedly exploring stress testing in the private credit market amid concerns about its impact on the wider economy.

Speaking in parliament, deputy governor Sarah Breeden said the “aim of the system-wide exercise is to shine a light on what’s currently opaque and try and understand the complexity.” She added that the BoE will provide more details later this year and that the exercise would likely be undertaken in nine to 12 months’ time.

“We’ve been talking to the firms involved, asking them if they would find it valuable to participate and they’ve been willing to do so,” she said, according to a Bloomberg report.

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Andrew Tully, head of client relationships, private credit Europe at Aztec Group, said the move is understandably “raising eyebrows” in the sector, but cautioned that it shouldn’t be cause for concern – and that it could benefit the market long-term.

“The Bank of England’s exploration of stress tests in the private credit market has understandably raised eyebrows. Yet it’s worth remembering: the sector has thrived through uncertainty before,” he said.

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“Funds with dry powder will continue to invest. They may scrutinise counterparties more closely, but disciplined capital is not the same as frozen capital. If anything, heightened selectivity can lead to stronger, more sustainable portfolios.

“The question isn’t whether private credit can withstand scrutiny – it’s how well the industry adapts and continues to evolve as part of a balanced financial ecosystem. When fear exceeds greed, activity may slow temporarily, but disciplined capital tends to build stronger long-term outcomes.”

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