HSBC has stopped renewing lending facilities for some riskier private credit clients in recent weeks as Europe's biggest bank tightens its exposure following a series of high-profile corporate failures that have raised concerns over underwriting standards across the sector.

The Financial Times reported that HSBC has informed some private credit funds it will no longer provide back leverage, a form of bank financing used by lenders to expand their loan books, where returns no longer justify the level of risk. According to people familiar with the matter, the bank will instead concentrate on lower-risk private credit funds while continuing to offer other banking services to the sector.

A person close to HSBC said the lender remained committed to private credit but was "adjusting its risk tolerance to the sector". The person added that HSBC had withdrawn back leverage from a number of clients while maintaining broader support for private credit firms.

In a statement, the bank said it had "an offering that covers every stage of the private credit market" and was focused on "supporting deals globally for our most important clients, in regions where we see the most potential for growth".

HSBC follows Barclays in reducing exposure to the riskier end of the market. In April, Barclays chief executive C.S. Venkatakrishnan said the bank was "constraining lending to certain structured finance counterparties". People familiar with the matter told the newspaper that the retrenchment by both banks has forced some private credit funds to seek alternative financing to preserve the profitability of their lending.

Banks provide hundreds of billions of dollars in back leverage each year, generating lending income while taking indirect exposure to the underlying loan portfolios held by private credit funds. Britain's two largest banks reassessed their appetite for these arrangements after the collapse of bridging lender Market Financial Solutions in February. The company failed with more than £2 billion of debts following fraud allegations, prompting Barclays to book a £228 million provision and HSBC to take a $400 million charge linked to lending through Apollo's asset-backed lending unit Atlas SP.

Regulators have warned that these connections could increase financial stability risks. The European Central Bank has cautioned that links between banks and private credit funds create the potential for shocks to be "transmitted, amplified and redistributed" across the financial system. Barclays declined to comment.

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