- HSBC has joined other major banks in reducing private credit lending amid rising concerns over defaults, investor redemptions and risk management.
- Despite recent market stress, private credit remains an important source of funding for businesses, including trade and working capital finance.
- Industry participants expect stronger risk controls and greater use of short-term trade finance assets to support the private credit market’s long-term growth.
The Financial Times reported on Tuesday, 7 July, that HSBC is reducing its exposure to private credit lending, telling clients it will not renew their lending facilities.
Instead, the bank will focus on less risky funds while continuing to provide other services to the sector.
Private credit refers to lending by non-bank funds to companies that might otherwise borrow from public markets. Banks provide financing to private credit funds both directly and through revolving loan facilities alongside private credit loans, as well as warehouse financing and synthetic risk transfers. Total private credit lending is estimated at $1.5 trillion – 2 trillion, as of the end of 2024.
“We have built an offering that covers every stage of the private credit market, offering a seamless process with robust central oversight,” HSBC told Trade Finance Global (TFG) 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.”
A widespread retreat by lenders from the sector follows high-profile bankruptcies and concerns about arguably stringent regulation.
CS Venkatakrishnan, CEO of Barclays, said in April that the alleged fraud at Mortgage Financial Solutions (MFS), as with the earlier case involving US sub-prime auto lender Tricolor – both companies which have collapsed – showed the importance of strong financial controls at borrowers.
Barclays 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.
HSBC’s own exposure to MFS came through its lending to Apollo’s asset-backed lending unit Atlas SP, which had lent to MFS, resulting in a $400 million charge.
Deutsche Bank has also disclosed sizeable exposure, with its private credit loan portfolio rising to €25.9 billion at amortised cost, up from €24.5 billion in 2024. This exposure has led Bloomberg Intelligence (BI) to estimate that the German lender faces potential losses of 13% of 2026 profit from a BI-modelled downturn scenario.
The same BI analysis found that four institutions – Deutsche Bank, Barclays, BNP Paribas and HSBC – account for almost two-thirds of the €137 billion private credit exposure across the surveyed geographies. Deutsche Bank said it was not exposed to “significant risks” from non-bank financial institutions but acknowledged that indirect credit risks could arise.
In March, J.P. Morgan Chase’s markets business – whose exposure to private credit totals roughly $22.2 billion – marked down collateral held by private credit firms and reduced their borrowing capacity. This largely affected software companies, whose vulnerability is enhanced by the rise of artificial intelligence (AI).
While the US bank declined to comment on the trade finance implications of the trend, Troy Rohrbaugh, CEO of J.P. Morgan’s Commercial and Investment Bank (CIB), and Doug Petno, CEO of Consumer and Community Banking (CCB) for the bank, discussed the industry in their April 2026 shareholder letter.
“Despite increased scrutiny of private credit in recent months, we believe private markets will remain an important part of the financial system over the long term,” they said. “Today, private companies far outnumber public ones, with many choosing to remain private longer due to the high costs and complexities of public listings. Simultaneously, surging investor appetite for private assets is reshaping capital flows and creating new opportunities for growth.”
The UK’s Financial Stability Board (FSB) has described private credit as “essential for supporting economic activity, particularly in underserved sectors.” However, the report also noted that further work is needed to assess vulnerabilities in interlinkages between non-banks, in liquidity mismatches, in mapping the ecosystem properly, in supervisory capabilities, and in exploring data challenges to improve monitoring.
