The Australian Securities and Investments Commission (ASIC) has issued a stark warning that the private credit sector is showing 'the first significant cracks' and that the 'clock is ticking' on whether broader credit stress emerges. Speaking today at a Sydney event hosted by the Commercial and Asset Finance Brokers Association (CAFBA), ASIC commissioner Simone Constant said the collapse of NSW property developer Bathla has exposed how non-bank lenders are vulnerable to financially strained construction companies, and that many funds have failed to improve governance and disclosure despite repeated regulatory calls.
ASIC commissioner Simone Constant has delivered a blunt assessment of Australia's private credit sector, warning that rapid growth has outpaced risk management and that the coming months are critical.
"Our work has shone a light on the weaknesses in private credit, but despite our ongoing calls for uplift across the sector, too many have been too slow to respond," Ms Constant said in prepared remarks for the CAFBA gathering.
She described the Bathla collapse as a case study in poor practice: CVS Lane First Mortgage Fund and CVS Lane Property Finance Fund had exposure to the developer across nine loans. "The collapse of Bathla reinforces why strong governance, effective oversight, clear disclosure and accurate valuations are critical," she said.
ASIC has been intensifying scrutiny over the past 18 months, beginning with a discussion paper on public and private markets. Two subsequent reports painted what Ms Constant called a "seriously concerning picture" of the sector.
Of 28 funds reviewed by ASIC, only four published information about interest rates charged to borrowers. Less than half had detailed written credit or impairment and default management policies. Most funds lacked adequate separation between loan approval and independent performance assessment.
Private credit — lending outside the banking sector — has grown by an estimated 500 per cent over the past decade, according to ASIC. "But governance, controls and underwriting standards have not kept pace with this growth," Ms Constant said.
She pointed to a self-imposed deadline: "We challenged the sector to lift standards by 2027 — that's three months away." The commissioner warned that current economic conditions are testing the sector's weaknesses "at scale for the first time," with stress fractures now visible.
Analysis
Why This Matters
- Investor protection: Private credit funds have attracted significant retail and wholesale investment drawn by higher returns, but opaque disclosure means many investors may not understand the risks they hold — especially exposure to troubled construction loans.
- Systemic risk: With the sector having quintupled in a decade, a cascade of defaults could spill beyond private lenders into the broader economy, particularly if property values fall further.
- Regulatory credibility: ASIC has given the sector until the end of 2026 (three months away) to lift standards. How it responds to non-compliance will set a precedent for its enforcement posture.
Background
Private credit — lending by non-bank institutions such as mortgage funds and finance companies — has ballooned in Australia as banks tightened lending after the royal commission. Returns are higher than bank deposits, but the sector operates with less regulatory oversight and lower liquidity. ASIC has been gradually increasing its attention, with two reports in the past 18 months cataloguing widespread deficiencies in governance, valuation and disclosure. The collapse of Bathla, a major NSW property developer, has become a flashpoint: it revealed how private lenders were heavily exposed to a single, vulnerable borrower without adequate safeguards.
Key Perspectives
ASIC (regulator): The commission argues the sector is running out of time to fix fundamental problems. Commissioner Constant framed the Bathla collapse as a warning and stressed that strong governance, accurate valuations and clear disclosure are non-negotiable. ASIC has given the industry until the end of 2026 to meet minimum standards.
Private credit funds: The industry has been slow to respond, as reflected in ASIC's review data. Many funds may resist tighter rules, arguing that the sector's growth shows it is meeting a market need and that blanket regulation could stifle competition. However, the Bathla losses have already caused some investors to reassess their exposure.
Investors and borrowers: Wholesale and retail investors in funds like CVS Lane face potential losses or redemption freezes if more loans sour. Construction companies, already under pressure from rising costs and delayed projects, could find credit drying up as lenders pull back — exacerbating the stress ASIC is warning about.
What to Watch
- Bathla fallout: How CVS Lane and other exposed funds manage borrower workouts — and whether any trigger investor redemptions or fund suspensions.
- The 2027 deadline: Come January 2027, ASIC's response to funds that have not lifted standards will be telling — enforcement action would signal a new regulatory era.
- Construction sector health: A broader downturn in commercial property or residential building could convert stress fractures into a systemic problem for private credit.