HSBC is halting lending to riskier private credit clients, becoming the latest major bank to reduce exposure to the asset class following a series of corporate collapses, according to a report by the Financial Times.
Europe’s largest bank has reportedly told clients in recent weeks that it will not renew facilities for private credit funds where returns are not seen as sufficient to justify the risk. The bank will instead focus on lending to lower-risk private credit funds.
The move relates to back leverage, where banks lend to private credit funds to support further lending activity. While the facilities can generate attractive income for banks, they also expose lenders indirectly to the performance of the underlying loans.
HSBC’s reassessment follows the collapse of UK bridging lender Market Financial Solutions, which entered administration in February owing more than £2bn to banks and private credit firms. HSBC took a $400m charge linked to lending to Apollo’s asset-backed lending unit Atlas SP, which had exposure to MFS.
Barclays has also reduced exposure to parts of the market, after taking a £228m provision linked to MFS. The retreat by large banks is forcing some private credit funds to seek alternative sources of financing on similar terms.