The report: ‘Private Debt as an opportunity for Polish corporates and banks’ provides an in-depth analysis of the Private Debt market, highlighting its unique position between traditional debt and equity investments. It covers the market’s growth, key sectors, and regional trends, with a particular focus on the Polish market, projecting significant growth and identifying the main drivers and challenges in this sector.
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Przemysław Paprotny
Partner
PwC Poland
Jakob Szucsich
Director
Strategy& Poland
The low investment rate in Poland (a decline in investment spending as a share of GDP from 20% to 17,7% over the last decade) and the limited access to bank financing for many small and medium-sized enterprises make private debt a potentially significant driver of economic growth. In many cases, it can not only accelerate investment projects but also enable them to get off the ground in the first place. Despite having substantial capital bases, banks face challenges in financing large-scale projects related to energy transformation, infrastructure and defense. In this context, opening up to the private debt segment presents an attractive solution. The value of the private debt market in Poland, which according to our estimates does not exceed PLN 4 billion, poses no threat to the position or profitability of banks. On the contrary, the coexistence of private debt funds and banks could bring considerable benefits to the Polish economy.
Private Debt globally
Private Debt, an asset class that straddles the line between traditional debt and equity alternative investments, has been gaining significant traction worldwide. Defined as debt investments not traded on public markets, Private Debt involves lending to privately-held companies or projects by non-banks. This market offers greater flexibility in financing conditions but comes with higher margins compared to traditional bank loans. The global Private Debt market, estimated at around USD 1.5 trillion in 2023, is predominantly concentrated in the United States, which accounts for over 60% of the market. Key sectors benefiting from Private Debt include healthcare, technology, and consumer goods, which require substantial capital for growth.
Source: Preqin Global Private Debt Report 2023
* AuM includes outstanding loans volume and „dry powder” (undistributed share of fund)
Private Debt in Poland
In Poland, the Private Debt market is still in its nascent stages but shows significant potential for growth. The current market size is estimated at around PLN 2.5 to 4.0 billion, representing 1-2% of total corporate lending. The market is expected to grow rapidly, potentially reaching between PLN 9.2 billion to PLN 16.9 billion by 2030, depending on various scenarios. Factors such as high financing costs, economic uncertainty due to the COVID-19 pandemic and the Ukraine conflict, and high inflation have impacted the corporate loans market in recent years.
*CAGR for optimistic scenario
Source: Strategy& analysis
Private Debt in Poland offers faster access to funds with tailored terms, making it an attractive option for medium-sized businesses that often face challenges in obtaining bank financing. The favorable macroeconomic conditions, including stable interest rates and improved economic growth forecasts, further support the potential of Private Debt in Poland.
Private Debt as an opportunity for Banks
Banks are responding to the rise of Private Debt by expanding their value propositions and exploring strategic partnerships. They are innovating with tailored loan structures, mezzanine financing, and hybrid debt instruments to attract borrowers. By offering relaxed covenants and customized repayment schedules, banks aim to compete with Private Debt providers and retain clients. Strategic funding partnerships allow banks to diversify their funding base, optimize returns on risk-weighted assets, and increase their platform value.
For instance, banks can partner with Private Debt providers to leverage capital, expand their network, and share expertise. This approach helps banks mitigate risks, enhance their decision-making processes, and utilize their existing infrastructure to support Private Debt initiatives. By adopting these strategies, banks can maintain their competitiveness and continue to meet the evolving needs of their clients.
Conclusion
The future of Private Debt looks promising, with continued growth expected globally and in Poland. As the market matures, Private Debt will play an increasingly important role in providing flexible and tailored financing solutions to businesses. The ongoing shift towards retail investor participation and the development of new investment vehicles will drive additional capital flows into private credit markets.
In Poland, the Private Debt market is poised for significant expansion, supported by favorable economic conditions and the increasing demand for alternative financing options. Banks will need to adapt by enhancing their product offerings and forming strategic partnerships to stay competitive. By doing so, they can capitalize on the opportunities presented by the growing Private Debt market and continue to support the financial needs of businesses across various sectors.
Private Debt as an opportunity for Polish corporates and banks
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