By James Mayger Australia’s central bank has downplayed concerns about the recent collapse of a large property developer, arguing that the company and its lenders in the private credit sector do not represent a system-wide financial stability risk.

“Private credit markets have grown in recent years, but their small size and structure mean they do not pose a system-wide financial stability risk at present,” the Reserve Bank said in its half-yearly Financial Stability Review released in Sydney on Thursday. However, “the opaque practices of some private credit funds can expose individual investors to unknown risks.”

While not naming Bathla Group, the report said that “firm-specific factors relating to excessive risk-taking over recent years appear to have played a key role” in the recent insolvency of “one large builder and developer.”The collapse of Australian homebuilder Bathla in insolvency earlier this month has raised concerns about wider financial contagion in the local private credit market. Earlier this week, one of Australia’s biggest private credit firms, Metrics Credit Partners, stopped investors from accessing some funds in a move similar to steps taken by global peers earlier this year that fueled concerns about stresses in the industry.

While the RBA argued that systemic risks were low as Australian banks had “relatively limited exposure to private credit funds,” it did raise concerns about the private credit market, noting that the industry has issues with “opaque valuation practices and uneven standards of governance and risk management.”In addition, “limited data availability make it challenging for authorities to monitor the sector.”The central bank said private credit is estimated to make up as much as 10% of total business debt.

Bathla has a wide range of financing arrangements from creditors that are collectively owed A$3.4 billion ($2.4 billion). Private lenders make up the lion’s share of that total. Some of their loans are fully secured by partially built apartments that are close to completion, while other debt is collateralized by land that is barely developed.

For the broader housing market, the central bank argued that homeowners were well placed to deal with rising interest rates and falling home prices, with the share of people in severe mortgage stress well below the 2024 peak due to substantial financial buffers. “Even in a scenario where housing prices were to decline by a further 20%, most borrowers would still have positive equity buffers given the earlier run-up in housing prices and prudent lending standards,” the report said.

The banking system is also well capitalized, the central bank said, estimating that even with a 20% drop in home prices and a 3% fall in gross domestic product, “the banking system would have sufficient capital to continue lending to households and businesses.”Housing prices started falling earlier in the year as buyers struggled to continue to pay high prices, with rate hikes and inflation worsening cost-of-living pressures for households, and tax changes in May damping investor demand. Those declines continued through September, when prices nationally fell 1.1% from August, according to Cotality, which is now forecasting the value of homes will continue to decline into next year.

The RBA this week delivered its fourth interest-rate increase this year as it tries to restrain resurgent inflation pressures that were gaining strength even before the US-Israeli attack on Iran. The resulting surge in oil prices as Iran struck energy-rich Gulf states and closed the Strait of Hormuz in response is exacerbating sharp price rises across the economy.