November 20 2025

Fitch warns of “transmission risks” as European private credit market scales

Ellie Duncan Global News, Top 3 Ekaterina Zadonskaya, Fitch Ratings

A combination of growth in European private credit and increasing financial system “interconnectedness” could heighten transmission risks in an instance of broader economic stress, according to Fitch Ratings.

In a new report, Fitch pointed out that increasing allocations to private credit by institutional and retail investors, as well as expanding partnerships with investment managers, have resulted in tightened regulatory oversight.

While Europe’s private credit market continues to scale, it remains smaller than North America’s, which Fitch attributed to lower penetration into corporate lending given that credit intermediation still largely relies on banks.

Despite this, Preqin has forecast that European private credit assets under management (AUM) will swell to just under €1tn (£880bn) by 2030.

Within European private credit, direct lending to corporates is the largest strategy, although asset-based finance, as well as other niche strategies, are growing in popularity.

European banks’ exposure to private credit is also growing and, while disclosure is “scarce”, Fitch noted that these exposures are, typically, secured so that they should protect against credit losses somewhat.

However, it warned that “the complex multi-layer nature of exposures” is complicating underwriting, monitoring and correlation risk assessment, including potential wrong-way risks.

Fitch said that tie-ups between insurers and alternative investment managers, which aim to grow AUM and fee income for investment managers, and help insurers to capture illiquidity premia and diversify portfolios while matching long-term liabilities, also heighten potential risks related to higher allocations to illiquid assets, complexity in group structures and misaligned incentives.

“European private credit continues to grow, while exhibiting increased structural complexity and interconnectedness,” said Ekaterina Zadonskaya, director at Fitch Ratings.

“Rising exposure at banks, insurance companies and other investor classes could expand transmission channels in the event of broader financial stress.”

Against this backdrop, Fitch said that regulators in Europe are “intensifying” oversight of private credit linkages, valuation practices and leverage.