SYDNEY
The Australian Securities and Investments Commission has warned that private credit—lending outside the formal banking system—faces its first real test, citing the collapse of several large borrowers and redemption limits at major funds.
ASIC Chair Sarah Court said at a Sydney event that the regulator is closely scrutinizing a sector that is significantly more lightly regulated than traditional banking. "What we're seeing is in Australia the first significant cracks," Court said.
Investment portals have begun removing or closely monitoring access to private credit funds holding stakes in collapsed Sydney property developer Bathla Group. Bathla's parent company, Universal Property Group, reported $3.2 billion in liabilities as of June 30, with the majority reportedly owed to private credit funds. The firm recently appointed administrators following the earlier collapse of hospitality entrepreneur Jon Adgemis, who had borrowed $1.8 billion, much of it from private credit firms.
These defaults have forced Australian non-bank lenders to restrict investor redemptions due to their own liquidity constraints. Firms including Merricks, Longreach Credit and Centuria Bass have implemented these limits as investors seek to withdraw funds.
Most adult Australians hold exposure to private credit through superannuation funds, making the sector's health a national concern. Court said private credit "is important for all Australians because of the involvement of people's superannuation funds."
Reserve Bank of Australia Governor Michele Bullock said the central bank is closely monitoring the opaque debt market. "People don't know where the leverage is," Bullock said. "Any time that there's a big unknown, you know it's a big chunk of lending, but you don't know anything about it. That just makes people worried."
Bullock stated at the RBA's August press conference that she did not believe there was systemic risk to the overall financial system at this stage.
