As the global economy emerges from unprecedented upheaval, lenders and borrowers alike must adapt to transformed credit markets. In this article, we examine fundamental shifts, explore emerging risks, and propose actionable strategies to thrive in the post-pandemic era.

The pandemic accelerated shifts that were already underway, forcing financial institutions to rethink traditional models. Today, lenders must balance resilient underwriting with agile execution, seeking growth while safeguarding against future shocks.

Macroeconomic Shifts Reshaping Lending

Between 2020 and 2025, private credit market expansion surpassing trillions has redefined the landscape. Private credit in the US surged by roughly 50%, reaching $3 trillion and eclipsing public high-yield bonds and syndicated loans. Projections by Morgan Stanley suggest growth toward $5 trillion by 2029 under current trends.

Regulatory reforms enacted after the global financial crisis prompted banks to de-risk balance sheets, creating an opening for specialized non-bank lenders. As traditional institutions scaled back direct corporate lending, NDFIs stepped in to offer faster and more predictable loan execution, appealing to borrowers seeking certainty and speed.

Bank exposure to NDFIs now accounts for 10% of total lending—up from 6% in 2021—totalling over $1.1 trillion, with another $1 trillion in unfunded commitments awaiting drawdowns. This shift underscores the need for robust monitoring and enhanced risk governance as banks navigate intertwined portfolios.

• Private credit CAGR of 23% since 2010
• NDFI lending grew at 15% CAGR from 2015 to 2023
• Alternative lenders filling post-crisis funding gaps

Simultaneously, late-cycle M&A activity and leveraged buyouts have picked up pace, driving capital demands and fueling credit issuance. Shareholder-focused strategies, such as dividend recaps, further increase reliance on alternative lenders.

Consumers Under Strain and Opportunity

Household budgets remain tight in 2026, influenced by rising housing costs, higher interest rates, and growing credit card balances. Delinquency rates ticked up to 95 basis points in Q3 of 2025, reflecting heightened consumer cautious financial behavior.

Over 22 million renter households face housing-cost burdens, with 12 million classified as severely impacted. Meanwhile, foreclosure filings have risen as pandemic homeowner protections expire, straining local communities and social support networks.

On the flip side, lenders that embrace flexible underwriting and tailored payment solutions can unlock opportunities among underserved segments—such as gig economy workers and first-time homebuyers—by assessing non-traditional income sources and credit histories.

• 22 million cost-burdened renter households
• 12 million severely burdened households
• Foreclosure rates rising post-protection programs

Meanwhile, point-of-sale financing and microloan platforms have seen rapid adoption, especially among younger consumers wary of traditional credit. By assessing real-time purchasing behavior, lenders can deploy bespoke financing options at checkout, improving both access and convenience.

Credit Market Conditions and Risks

Credit spreads are near decade lows, signaling potential complacency among investors. While corporate and consumer credit fundamentals remain generally sound, elevated asset valuations may leave markets vulnerable to volatility.

strict conservative loan-to-value ratios and tightly structured collateral packages have historically kept losses in NDFI lending lower than direct corporate loans. However, the pace of issuance underscores the need for vigilant stress testing and scenario planning.

De-leveraging since the 2008 crisis has reduced the private sector’s credit-to-GDP ratio from 293% to 208%, while household debt-to-GDP sits at 20-year lows. Despite this progress, new credit channels demand ongoing scrutiny to preempt pockets of systemic risk.

Credit risk transfer (CRT) transactions are gaining favor with larger institutions looking to manage regulatory capital more efficiently. The resurgence of repack vehicles and conduits highlights the complexity of modern debt structuring and the importance of robust due diligence.

Technology Driving Transformation

AI capabilities have evolved rapidly—from automating member service queries to orchestrating end-to-end lending workflows. Institutions integrating sophisticated AI-driven personalization engines can deliver curated loan offers, dynamic pricing, and frictionless customer journeys.

Embedded finance and open banking have also made inroads. By offering credit and payment solutions within non-financial apps, lenders can capture customers at the point of need, reducing acquisition costs and boosting engagement.

• Real-time data analytics fueling underwriting accuracy
• AI-powered fraud detection at unprecedented scales
• Open banking APIs fostering ecosystem interoperability

While AI offers tremendous advantages, institutions must institute governance frameworks to mitigate model risks and ethical concerns. Developing transparent, explainable AI processes ensures trust among regulators and customers alike.

Strategic Responses for Lenders

Traditional banks and new entrants are locked in fierce competition. To stand out, institutions must:

• Foster strategic fintech partnerships to access innovative capabilities
• Invest in modular digital platforms for rapid iteration
• Launch loyalty and rewards programs tied to credit usage

By enriching customer profiles with behavioral and transactional data, lenders can segment audiences with precision and deploy targeted offers, strengthening retention among younger, digitally native borrowers.

Building an innovation lab or accelerator can help institutions pilot new products more rapidly, leveraging agile methodologies to iterate and scale successful concepts. Equally important is cultivating talent skilled in data science, UX design, and cybersecurity to bridge technology and finance.

Private Markets and Investment Trends

High-net-worth clients and institutional investors have increasingly sought private credit exposures through innovative vehicles. Equity research coverage of private companies is expanding, and specialized platforms now facilitate margin loans against restricted securities, enhancing liquidity for alternative assets.

Alternative fund structures—such as evergreen vehicles, interval funds, and continuation funds—offer varying liquidity profiles tailored to investor preferences. Insurance companies continue to deploy capital into private markets, while private credit managers explore hybrid structures like statutory REITs and UITs to unlock fresh capital pools.

• Expansion of evergreen and semi-liquid fund formats
• Insurance companies allocating more to private credit
• Margin loans against private equity stakes increasing

Looking Ahead: Cautious Optimism

The industry outlook for 2026 is marked by optimistic yet cautious perspectives on growth. While the credit trajectory appears stable, an unanticipated economic shock—such as a steep rise in unemployment—could disrupt markets swiftly.

Lenders should maintain heightened coordination among executive teams to recalibrate strategies based on real-time indicators. Emphasizing conservative underwriting criteria, diversified funding sources, and sustained investment in technology will be key to navigating uncertainty.

Debt issuance is expected to remain elevated, with issuers facing significant maturity walls in 2026. Convertible bonds and short-term paper will feature prominently as corporates and financial institutions refinance pandemic-era borrowings. Staying attuned to interest rate trajectories and funding costs will be critical for treasury teams.

In this era of new norms, success hinges on a dual commitment: preserving the discipline of risk management while embracing the transformative power of innovation. Institutions that marry these principles will not only weather future storms but also shape the next frontier of lending excellence.