Monday Market Minute | Apr 17, 2023
Canadian banks continued to tighten commercial lending standards post-SVB, pushing more borrowers toward private credit alternatives at premium pricing.
What Moved
Data from the BoC's Senior Loan Officer Survey confirmed what the private lending community had observed for weeks: Canadian banks had meaningfully tightened commercial lending standards in Q1 2023. CRE lending was the hardest hit, with several Big Six banks effectively pausing new originations for certain property types. Construction lending had become particularly restrictive, with higher equity requirements and more conservative appraisal assumptions. The post-SVB risk aversion compounded an already cautious posture.
Why It Matters
Every door that closed at a bank opened a window for private credit. Canadian private lenders reported pipeline increases of 30–50% in the weeks following SVB, with borrowers who would historically have qualified for bank financing now seeking private alternatives. The pricing reflected the scarcity premium — senior secured deals that might have priced at prime + 3% through a bank were now closing at 10–12% through private channels. For private credit investors, the opportunity was exceptional: bank-quality borrowers at private credit returns.
Signal to Watch
Whether the lending pullback would extend beyond CRE into mid-market corporate lending, which would open an even larger addressable market for private credit funds.