HSBC reins in riskier private credit lending: FT

[HONG KONG] HSBC is pulling back from riskier private credit lending, becoming the latest bank to rein in exposure to the sector after a string of high-profile bankruptcies raised concerns over underwriting standards, the Financial Times (FT) reported on Tuesday (Jul 7).

The bank has told some clients that it will not renew their lending facilities after deciding to stop lending to private credit funds that did not offer sufficient returns to justify the risk, said the report.

HSBC will instead focus on lower-risk private credit funds, the report added, citing three people familiar with the matter.

“We have built an offering that covers every stage of the private credit market, offering a seamless process with robust central oversight. We focus on supporting deals globally for our most important clients, in regions where we see the most potential for growth and aligned to our strategy,” an HSBC spokesperson told Reuters in an emailed statement.

Exposure to private credit lending has troubled Europe’s biggest lender and added to the market jitters around the sector.

HSBC in May took a US$400 million hit linked to the collapse of British mortgage lender Market Financial Solutions, which specialised in complex property-backed loans.

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Reports later that month said that HSBC had paused a planned US$4 billion investment in its own private credit funds. The bank affirmed at the time that it remains committed to its private credit investments.

The FT report underscores the growing scrutiny of private credit portfolios, with regulators worldwide becoming ​increasingly concerned about banks’ exposure to the US$3.5 trillion private credit industry.

Wealthy investors have queued up to withdraw their money from private credit vehicles in recent months amid worries about weakening lending standards and fears of artificial intelligence-driven disruption at software companies that have borrowed from direct lenders. BLOOMBERG