European banks' exposure to private credit has come under market scrutiny during the current earnings season. Executives from major financial institutions have sought to reassure investors and ease concerns regarding potential risks in this pressured sector.

Barclays disclosed in its first-quarter earnings report on Tuesday that its private credit exposure amounts to £15 billion (approximately $20.3 billion). This forms part of the bank's broader structured financing exposure to non-bank financial intermediaries, which totals £66 billion, and includes £1 billion allocated to business development companies (BDCs)—entities that have recently been a focal point of stress in U.S. financial markets.

The British banking group reported £228 million in credit-related losses for the quarter, impacted by the February collapse of specialist mortgage lender Manitowoc Food Service (MFS). Barclays CEO C.S. Venkatakrishnan noted that this specific impairment is linked to a high-profile fraud case within the bank’s securitized products business. The U.K. Financial Conduct Authority launched an investigation into MFS in March. Market participants have interpreted MFS’s failure as a potential signal of broader underlying vulnerabilities in the sector.

Barclays emphasized that its private credit operations primarily focus on senior corporate loans, largely directed toward closed-end funds managed by large, established asset managers. The bank also maintains strict risk controls on borrower and industry concentration.

Santander’s Chief Financial Officer José García Cantera stated that the bank has fully provisioned for all potential credit losses in the first quarter, including those related to MFS. During an appearance on CNBC’s *Squawk Box Europe* on Wednesday, Cantera declined to comment specifically on MFS but emphasized that Santander’s overall private credit exposure is negligible, accounting for less than 1% of the bank’s total exposure, with 70% of that being undrawn credit lines.

“For us, the focus is not on individual cases that attract market attention, but on whether the risk control system is functioning effectively,” he said. “We have great confidence in our credit risk management framework, which has proven its robustness repeatedly.”

**Risk Sentiment Spreads** London-based MFS, which specialized in bridging loans and buy-to-let mortgages, is believed to have had an exposure of between £2 billion and £3 billion to Santander. MFS entered administration in February with liabilities of around £1.3 billion amid allegations of mismanagement. The fallout from its collapse has affected several banks and asset managers on both sides of the Atlantic.

This failure follows high-profile collapses last year of U.S. firms such as First Brands and Tricolor, amplifying market fears over high-risk underlying debt in private credit. Although those U.S. cases stemmed from complex asset financing and syndicated debt issues rather than traditional private mid-market direct lending, they have heightened market vigilance.

Concerns have since extended to U.S. BDCs—investment vehicles managed by private credit firms—and have been compounded by the impact of AI-driven industry changes on the software sector, leading to stricter scrutiny of lending to software companies.

UBS CEO Sergio Ermotti acknowledged ongoing pressure in the private credit space through 2026, particularly in the semi-liquid BDC segment, where several asset managers have restricted investor redemptions. “Currently, it is more of a liquidity issue rather than a fundamental deterioration in performance,” Ermotti stated in a CNBC interview on Wednesday.

He added that UBS’s first-quarter results showed no significant market dislocation or risk issues in its private credit investments. As a major Swiss bank and asset manager, UBS maintains a well-diversified private credit exposure with high asset quality, representing only about 0.5% of its balance sheet.

Deutsche Bank indicated that its private credit exposure has not resulted in actual losses, is highly diversified, and adheres to strict underwriting standards.

**Lack of Transparency in Exposures** Bank of America’s latest credit investor survey revealed that spillover risk from private credit remains a primary concern for investment-grade investors, partly due to insufficient transparency regarding exposures held by banks and insurers.

Barnaby Martin, Head of European Credit Strategy at BofA Global Research, noted that investment-grade investors generally perceive bank and insurance exposures to this sector as still lacking transparency, with volatility in software industry loans adding to the pressure.

In contrast, Martin explained, high-yield specialist investors on the front lines of risk appear more relaxed about private credit spillover risks, currently focusing more on high oil prices and inflationary pressures.

He clarified that U.S. credit risks are concentrated in the software sector, while in Europe, concerns are emerging in the chemicals sector, compounded by the impact of Chinese commodity and raw material exports to Europe. “This is the real risk to watch and the core source of credit loss pressure in Europe,” Martin added.