UBS Report: AI Could Push Private Credit Default Rates to 13%

Stark Warning from UBS: AI Shock Could Amplify Financial Risks

Global financial giant UBS Group AG has revealed that the rapid and profound transformation artificial intelligence (AI) could create in the business world may have an unexpected impact on financial markets. According to the bank's analysis, an aggressive structural shift driven by AI could create a shock effect, potentially pushing default rates in the U.S. private credit market to around 13%. This level significantly exceeds the market's expectations under normal conditions.

The private credit market refers to debt financing provided for mid-sized companies by institutional investors and alternative asset managers, operating outside the traditional banking system. This rapidly growing market in recent years is emerging as the potential "injured party" of the AI revolution, according to the UBS report.

The Financial Cost of Technological Transformation

While acknowledging AI's potential to boost productivity, the report emphasizes that the transition process could be painful. AI is expected to rapidly transform certain sectors, render traditional business models obsolete, and cause significant shifts in the labor market. During this process, companies unable to adapt to the transformation face increased risk of deteriorating cash flows and becoming unable to service their debts.

UBS analysts note that this technological shock could function as a "credit cycle trigger." They warn that defaults could increase in a chain reaction, particularly in sectors with high concentrations of companies slow to invest in technology or those losing market share in the face of AI competition. The exposure of private credit portfolios to such companies elevates overall risk.

UBS's Market Position and Analysis Background

UBS AG, issuing this warning, is one of the world's leading financial services institutions. The Swiss-based bank serves wealthy individual clients globally and is a major player in investment banking and asset management. Its research carries significant weight in financial circles. The analysis stems from growing concerns about second-order effects of the AI boom, moving beyond pure technology stock valuations to examine broader economic and stability implications. The report suggests that while AI promises long-term efficiency gains, the short-to-medium term disruption could create significant stress points in specific, vulnerable segments of the credit market, with private credit being a primary area of concern due to its characteristics and growth trajectory.