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FRM Part II · FRM Exam Part II · The Global Drivers of Private Credit

An analyst compares borrowers' reasons for choosing private credit over bank loans. Which reason is best supported as a demand-side driver rather than a supply-side driver?

Borrower preference for customized terms and easier renegotiation with one lender is a demand-side driver, because it reflects what borrowers want. Investor yield-seeking and bank capital constraints affect the supply of funds or bank credit, so they are supply-side explanations for private credit growth.

  1. AInstitutional investors seeking higher yields allocate more capital to direct lending funds
  2. BBanks face tighter capital requirements that reduce their lending capacity
  3. CBorrowers want customized terms, such as delayed-draw features and flexible amortization, and a relationship with a lender able to restructure without a broad creditor groupCorrect
  4. DLow interest rates push asset managers to search for yield

Explanation

Customized terms and ease of renegotiation with a single lender are borrower preferences, hence demand-side. Tighter bank capital rules, investor search for yield and low rates all describe the supply of funds or of bank credit, so they are supply-side factors.

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