Late last month, Citibank and Apollo Global Management announced their partnership to create a $25 billion private lending program.

Dubbed the largest collaboration between a bank and a private credit manager, the program aims to fund approximately $25 billion in debt opportunities over the coming years, leveraging Citi’s banking expertise and Apollo’s extensive capital base, with strong customer demand expected.

“This exciting project brings Citi together with Apollo and other best-in-class partners to offer a full suite of innovative, private finance solutions to our clients,” said Viswas Raghavan, Head of Banking and Executive Vice President at Citi.

"Combining the strength of Citi's banking and capital markets franchise with Apollo's deep capital resources will provide clients with a range of options to meet their evolving financing needs and achieve their strategic objectives."

Commenting on the deal, Paul Myron, co-founder and managing director of Sydney-based private credit provider Msquared Capital, said the joint venture marked a "unique chapter in the evolution of the private credit markets".

He said the deal marks a significant departure from the norm as Citibank, an international traditional bank, will use its extensive branch network to offer direct private lending solutions to customers, leveraging Apollo's capital and expertise from its private lending fund. managing over US$696 billion in assets.

"From an Australian perspective, this joint venture seems counterintuitive," Miron said in a note shared with InvestorDaily.

That, he explained, is because banks typically focus on raising capital and lending to consumers and businesses, raising questions about the traditional bank's entry into a space dominated by private equity funds.

"The primary business function of banks is to raise capital and lend money to consumers and business customers. Through a capital-intensive monopoly banking platform used by every type and size of business, banks have access to the cheapest capital through deposit holders, reserve banks and sophisticated financial markets, while benefiting from access to the full spectrum of business customers using their bank accounts,” Miron said.

"One question is probably on everyone's mind: why would a bank, traditionally focused on raising capital and lending money, enter into a joint venture with a private credit fund, a direct competitor in the field of lending? This unexpected move marks a significant turning point and permanent structural change in the industry.”

In the US, private equity funds now provide 70 percent of all commercial loans, having grown significantly since the global financial crisis as an alternative to traditional banking. Although private lending is not as established in Australia, Myron said the significance for Australian investors is that private lending is catching up as the fastest growing segment, expanding at more than 23 per cent annually.

"Therefore, we should expect the same structural changes to begin to emerge here in Australia," he said.

Ultimately, Miron believes, this joint venture not only demonstrates the rapid evolution of the banking and investment market, but also presents a promising future.

“For banks to remain relevant and protect their dominant position, they need to be able to offer full business life-cycle solutions such as lending, transactions and investments. Rather than competing with private credit funds, Apollo can complement banking offerings and share revenue that would otherwise be lost without the headache of regulatory burden, treasury function and human resources,” he said.

"For Apollo, this alternative distribution network can increase margins, offering a bright outlook for the industry and demonstrating the mutual benefit of co-existence between banks and private credit operators."