HSBC has told clients it will not renew their private credit lending facilities, joining a growing list of major banks pulling back from the sector. The report noted the decision on Tuesday, July 7, as concerns over defaults, investor redemptions, and risk management continue to ripple through the market.
Private credit — lending by non-bank funds to companies that might otherwise borrow from public markets — has grown rapidly in recent years. Total such lending was estimated at $1.5 trillion to $2 trillion as of the end of 2024, according to the source.
Banks provide financing to these funds through direct loans, revolving credit facilities, warehouse financing, and synthetic risk transfers. But after a string of high-profile bankruptcies, many lenders are tightening their standards.
The bank shifts toward less risky funds
It will focus on less risky funds while continuing to offer other services to the sector, the bank said. “We have built an offering that covers every stage of this market, offering a seamless process with robust central oversight,” it told the outlet in an emailed statement. “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.”
The bank’s own exposure to troubled lender Mortgage Financial Solutions (MFS) came through its lending to Apollo’s asset-backed lending unit Atlas SP.
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That resulted in a $400 million charge.
Barclays CEO CS Venkatakrishnan said in April that the alleged fraud at MFS, along with the earlier collapse of US sub-prime auto lender Tricolor, showed the importance of strong financial controls at borrowers. The lender is constraining lending to certain structured finance counterparties that operate more vulnerable business models and cannot demonstrate the quality and independence of their financial controls.
Deutsche Bank, J.P. Morgan also pulling back
Deutsche Bank has disclosed sizeable exposure, with its loan portfolio to the sector rising to €25.9 billion at amortised cost, up from €24.5 billion in 2024. Analysts estimated that the German lender faces potential losses of 13% of 2026 profit from a modelled downturn scenario.
That same analysis found that four institutions — Deutsche Bank, Barclays, BNP Paribas, and HSBC — account for almost two-thirds of the €137 billion exposure to the sector across the surveyed geographies.
The lender said it was not exposed to “significant risks” from non-bank financial institutions but acknowledged that indirect credit risks could arise.
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In March, J.P. Morgan Chase’s markets business, which holds roughly $22.2 billion in exposure to the sector, marked down collateral held by such firms and reduced their borrowing capacity. This largely affected software companies, whose vulnerability has been heightened by the rise of artificial intelligence.
The retreat is not an outright rejection of this sector. Recent history shows that after each wave of concern — whether over leveraged loans in 2015 or direct lending during the pandemic — banks tend to cycle back in when risk appetite returns. The difference this time may be that regulatory scrutiny is sharper and the sheer scale of the market — now in the trillions — makes a full-scale retreat harder to reverse quickly.
Regulators and industry insiders see long-term role
J.P. Morgan’s Troy Rohrbaugh and Doug Petno, in their April 2026 shareholder letter, said: “Despite increased scrutiny of this sector in recent months, we believe private markets will remain an important part of the financial system over the long term.” They noted that private companies far outnumber public ones, with many choosing to remain private longer due to the high costs of public listings.
The UK’s Financial Stability Board has described such lending as “essential for supporting economic activity, particularly in underserved sectors.” But the report also said further work is needed to assess vulnerabilities in interlinkages between non-banks, liquidity mismatches, mapping the ecosystem, supervisory capabilities, and data challenges.
Industry participants expect stronger risk controls and greater use of short-term trade finance assets to support the market’s long-term growth. For now, the pullback by HSBC and others signals that the era of easy lending in this sector may be giving way to a more cautious, selective approach.