Banking biggie HSBC will be pulling back from riskier private credit lending, becoming the latest financial institution to rein in exposure to the sector after a string of high-profile bankruptcies raised concerns over industry practices like underwriting standards.
“The bank has told some clients it will not renew their lending facilities after deciding to stop lending to private credit funds that did not offer sufficient returns to justify the risk. It will instead focus on lower-risk private credit funds,” claimed a Financial Times (FT) report, citing three people familiar with the matter.
Exposure to private credit lending has troubled Europe’s biggest lender and added to the market jitters around the sector. HSBC, in May 2026, took a USD 400 million hit linked to the collapse of British mortgage lender Market Financial Solutions. Such was the extent of the blow that in June, the venture decided to pause a planned USD 4 billion investment in its own private credit funds.
In this background, the FT report further underscores the growing scrutiny of private credit portfolios, with regulators across the globe becoming increasingly concerned about banks’ exposure to the USD 3.5 trillion private credit industry.
Wealthy investors, so far in 2026, have queued up to withdraw their money from private credit vehicles, as worries about weakening lending standards and fears of AI-driven disruption at software companies that have borrowed from direct lenders have continued to dominate the industry discourse.
However, the exception here has been Goldman Sachs’ private credit fund, which has continued to escape the elevated redemption trend, with its investors reportedly seeking to repurchase roughly 3.24% of its total shares in Q2, extending its streak of lower redemptions.
The bank’s fund, GS Credit, in June 2026, outperformed the sector once again, while its peers continued to face elevated redemption requests. As per Goldman, Q2 repurchase requests were below its 5% quarterly repurchase cap and were fulfilled in full. GS Credit generated roughly USD 275 million of gross inflows during the second quarter.
“Business development companies (BDCs) typically channel investor capital into private loans, making them a key part of the private credit industry. Across the largest non-traded BDC managers reporting second quarter activity to date, peer repurchase requests have generally ranged from approximately 10% to nearly 17% of shares outstanding,” Goldman said in a letter to shareholders.
However, analysts and technology companies have argued that concerns about AI’s impact on the software sector are overblown, saying established companies have “difficult-to-replace” businesses, proprietary data, and customer relationships.
“We continue to believe that incumbency moats — mission-critical workflows, proprietary data, deep domain expertise, regulatory complexity, and customer trust — remain powerful sources of defensibility,” Goldman said. As per the Reuters reports, a large share of the GS Credit’s investors came through Goldman’s private wealth channels, where clients have been long-term investors in private credit and are better positioned to endure illiquidity.
“GS Credit’s non-accrual rate, which reflects delinquencies in its loans, was well below the broader industry at 0.2% as of March 31. Loans are typically placed on non-accrual status after borrowers miss payments for 90 days or more. In GS Credit’s case, only one company in its portfolio has missed payment and is under non-accrual status. By comparison, other non-traded BDCs had non-accrual rates ranging from 0.4% to roughly 2.4%,” the fund said further.
“Payment-in-kind (PIK) income accounted for 3.3% of GS Credit’s investment income as of March 31, below the industry average, at a time when the metric is being watched for signs of stress since amended and restructured loans often allow borrowers to defer cash payments. Only 0.3% of GS Credit’s PIK income came from such loans. We believe that we are entering a period of meaningful dispersion among private credit managers,” Goldman told its investors.