Key Takeaways
- • APRA estimates Australia's private credit market at about $250 billion, or less than 4% of the size of the banking system, which it says helps contain immediate financial stability risks.
- • The OECD estimates AI-related transactions accounted for 34% of global private credit deal values in 2025, up from 9% in 2024, according to APRA's System Risk Outlook.
- • Private credit represents around 2% of superannuation funds' total assets, per APRA, with direct exposures of banks and insurers described as small.
- • APRA is increasing supervisory focus on private credit and has proposed stronger superannuation investment governance requirements covering monitoring, valuations and accountability.
- • APRA warns that opaque, indirect exposures make the full extent of system-wide risk difficult to assess, and that Australian funds may gain AI-related exposure through data centre financing.
Summary
The Australian Prudential Regulation Authority (APRA) has highlighted the extent to which private credit is financing artificial intelligence development and the potential implications for Australian investors. The assessment appears in APRA's latest System Risk Outlook, which places the domestic private credit market at roughly $250 billion, or less than 4% of the size of the banking system. The regulator said this relatively small size helps contain immediate risks to financial stability, but warned that overseas developments highlight vulnerabilities that warrant close monitoring as the sector grows and becomes more connected to the broader financial system.
APRA cited recent overseas developments that have reinforced concerns about asset quality, opaque lending arrangements and concentrated exposures. Company failures and increased investor withdrawal requests have drawn attention to exposures to sectors that may be disrupted by AI, such as software firms. Citing OECD estimates, APRA noted that AI-related transactions accounted for 34% of global private credit deal values in 2025, up from 9% in 2024. The regulator said overseas stress has so far remained concentrated in certain borrowers and funds, though growing connections with the wider financial system could increase consequences over time.
Domestically, APRA said Australian private credit is concentrated in real estate, including property development and construction, rather than the technology exposures attracting attention overseas. It added, however, that financing of data centres and associated construction could expose Australian funds to AI-related developments. Direct links between private credit and APRA-regulated institutions remain limited. Private credit represents around 2% of superannuation funds' total assets, a conservative estimate of domestic and international exposure, though exposures vary across funds, with some holding larger or more concentrated positions. Insurers' investment exposures are relatively small but are expected to increase, and Australian banks' direct exposures also remain small. Regulated institutions have indirect exposure through off-balance sheet arrangements and broader market conditions.
APRA said stress in overseas private credit markets could transmit to Australia and that the opaque and indirect nature of some exposures makes the full extent of system risk difficult to assess, with risks potentially greater for individual institutions holding significant or concentrated positions. The regulator is increasing supervisory focus on private credit and has proposed stronger superannuation investment governance requirements, including for investment monitoring, valuations and accountability. APRA is also working with ASIC and other agencies through the Council of Financial Regulators (CFR) to improve visibility of emerging vulnerabilities and connections with the broader financial system.
APRA cited recent overseas developments that have reinforced concerns about asset quality, opaque lending arrangements and concentrated exposures. Company failures and increased investor withdrawal requests have drawn attention to exposures to sectors that may be disrupted by AI, such as software firms. Citing OECD estimates, APRA noted that AI-related transactions accounted for 34% of global private credit deal values in 2025, up from 9% in 2024. The regulator said overseas stress has so far remained concentrated in certain borrowers and funds, though growing connections with the wider financial system could increase consequences over time.
Domestically, APRA said Australian private credit is concentrated in real estate, including property development and construction, rather than the technology exposures attracting attention overseas. It added, however, that financing of data centres and associated construction could expose Australian funds to AI-related developments. Direct links between private credit and APRA-regulated institutions remain limited. Private credit represents around 2% of superannuation funds' total assets, a conservative estimate of domestic and international exposure, though exposures vary across funds, with some holding larger or more concentrated positions. Insurers' investment exposures are relatively small but are expected to increase, and Australian banks' direct exposures also remain small. Regulated institutions have indirect exposure through off-balance sheet arrangements and broader market conditions.
APRA said stress in overseas private credit markets could transmit to Australia and that the opaque and indirect nature of some exposures makes the full extent of system risk difficult to assess, with risks potentially greater for individual institutions holding significant or concentrated positions. The regulator is increasing supervisory focus on private credit and has proposed stronger superannuation investment governance requirements, including for investment monitoring, valuations and accountability. APRA is also working with ASIC and other agencies through the Council of Financial Regulators (CFR) to improve visibility of emerging vulnerabilities and connections with the broader financial system.
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