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This boom, however, is now attracting regulatory attention as concerns mount over the risks being passed on to everyday investors.
The rise of private credit is not an accident, but a direct consequence of regulatory and economic pressures on major banks
It’s more profitable for banks to focus on home loans. This created an opening for private lenders to step in and offer these commercial loans.
While second-tier lenders initially filled the gap, the market has since fragmented further. A new class of private lenders emerged, offering speed and flexibility that traditional institutions could not match, steadily mopping up business that no longer made economic sense for the big banks.
According to Aquamore’s head of distribution, Matthew Porch, as the private credit market has expanded, so have its methods for raising capital.
A significant portion of this growth has been fuelled by retail investors through peer-to-peer fundraising models. This is where the Australian Securities and Investments Commission (ASIC) is focusing its concern.
ASIC sees two big problems:
- Misleading returns: The returns advertised to investors often look better than they are. High, hidden fees (for things like loan extensions or due diligence) inflate the numbers.
- Unclear risks: It can be hard for investors to know what they’re actually investing in. Some lenders use shaky property valuations to make a loan look safer than it is, simply calling it “fully secured”.
The inevitable result of these concerns is increased regulatory scrutiny. ASIC has already begun issuing stop orders to some funds and has signalled that reporting requirements need to be “tidied up”.
This push for greater transparency and accountability is set to define the next chapter for the private credit industry.
“Where this puts us going forward is further scrutiny on the private lending space, we have already seen some stop orders issued by ASIC in regards to raising funds with some advice issued around reporting requirements needing tidied up,” Porch said.
The market is now so huge that the big banks may be tempted to jump back in, possibly by partnering with private lenders.
“It may also prompt the banks to start looking again at the commercial space with more emphasis given the sheer volume of loans being written outside their channel. At $200 billion and growing the space cannot be ignored and I think we will see some banks opening up their exposure to this through indirect channels such as white labels or subordinated funding arrangements,” he explained.
In this changing landscape, some lenders are using the opportunity to stress their stability.
The Australian private credit market has undeniably become a critical part of the economy, filling an essential gap in commercial lending.
However, its continued growth and stability now depend on its ability to navigate a new era of regulatory oversight and rebuild investor trust through clarity and robust risk management.
[Related: ASIC calls for higher standards in private credit sector]
