Raymond James has published a focused review of bank exposure to private credit, responding to renewed investor caution after a spate of problem loans tied to non-depository financial institutions (NDFIs) weighed on the banking sector's performance.
Private credit first emerged as a pronounced source of anxiety ahead of third quarter 2025 results, when two auto-related bankruptcies triggered fresh scrutiny of loan books. The firm says the resulting losses have been meaningful but largely concentrated among a small number of lenders with specific credit concentrations. In many of the troubled cases, alleged fraud - borrowers purportedly misstating collateral - has been central, and those situations are now the subject of ongoing legal actions.
Entering 2026, Raymond James observed that private credit fears had moderated as interest rates moved lower and economic fundamentals showed relative strength. The bank-focused indices reflected that optimism: through February 6, 2026 the BKX and BANK indexes had risen 7.3% and 11.3%, respectively, compared with a 1.3% gain for the S&P 500.
That rally, however, has since reversed. A combination of renewed concerns - including the potential impact of artificial intelligence on certain industries, tariff-related uncertainty, broader macroeconomic doubts, a fresh round of private credit worries following the MFS bankruptcy, and geopolitical strain stemming from the Iran war - have exerted downward pressure on the sector. From February 6, 2026 onward, Raymond James notes the BKX and BANK indices have fallen 16.5% and 13.7%, respectively, while the S&P 500 is down 4.3% over the same span.
At Raymond James' annual institutional investor conference last week, a clear gap surfaced between what bank management teams view as on-the-ground fundamentals and what investors and portfolio managers expect looking at credit and growth outlooks. Managers presenting at the conference generally painted a constructive picture of their businesses. Meanwhile, investor sentiment has become more guarded, particularly around commercial real estate (CRE) and private credit exposure.
JPMorgan's chief executive, Jamie Dimon, captured the cautious tone at a prior earnings call when he cautioned that ‘‘when you see one cockroach, there are probably more.’’ Raymond James noted that firms have continued to identify problem credits, pointing to a recent announcement from WAL and to notable investor redemptions in some cases, which the note attributes in part to falling yields.
Despite the market unease, Raymond James argues that concerns about loans to NDFIs are overstated when viewed as a single homogenous risk bucket. The report emphasizes that NDFI lending spans a range of products and risk profiles. It distinguishes lower-risk facilities - such as mortgage warehouse lines, capital call lines, and fund finance/asset-based lending (ABL) - which the firm regards as typically better structured and carrying a lower credit risk relative to conventional commercial and industrial (C&I) loans.
On an industry-wide basis, Raymond James reports relatively modest problem metrics for NDFI loans: past-due balances represent about 5 basis points and nonaccruals about 10 basis points. The firm frames the observed losses as generally isolated to instances where loan structure had been weakened, often because collateral management or due diligence processes were insufficient. Specific failings cited include lenders not retaining dominion of cash or not adequately verifying receivables or other pledged collateral.
Loans to NDFIs have been an important engine of bank loan growth, accounting for nearly one third of industry loan growth since the pre-pandemic period. That growth has not been evenly distributed: the largest banks were responsible for 89% of NDFI-related loan expansion over that timeframe. Across the industry, NDFI exposures represent roughly 11% of total loans, and they are higher at the largest institutions - about 15% for banks with assets above $100 billion.
In its report, Raymond James also listed specific bank names with NDFI exposures above 10% that it prefers. The firm assigns Strong Buy ratings to BANC, CUBI, FCNCA, and USB, and Outperform ratings to ASB, AX, CFG, MBIN, OBK, PNC, and TCBI.
Bottom line: Raymond James cautions that while headline private credit worries have pressured bank shares, the underlying picture is mixed. Industry-level metrics for NDFI loans remain modest, but losses have been focused where loan structures and collateral controls broke down, and investor sentiment has shifted toward caution amid several concurrent market and geopolitical concerns.