Article by David Ross, courtesy of The Australian.
17.11.2025
Financial regulators are sharpening their focus on the consumer credit market, warning that more Australians are going bust due to bad car loans and ballooning personal debts.
New data from the Australian Financial Security Authority reveals personal insolvencies have hit their highest level since the Covid-19 pandemic, with 12,257 people going bust in the 2025 financial year, up 5.3 per cent on 2024 levels. Bankruptcy levels are now up almost 25 per cent from their lows in 2021.
But the rise in bad debts is not being felt by Australia’s banks, with market watchers warning the imposition of lending rules have driven borrowers into the less-regulated private credit markets. AFSA, which oversees the bankruptcy process, warns it expects the levels of bad debts and personal insolvencies will continue to rise to nearly 13,750 by 2027 as cost of living pressures weigh on Australians.
AFSA chief Tim Beresford said the rise in bad loans was concerning, saying the rising figures were the first signs of “weakening financial resilience”.
“One in five debtors had an asset-to-liability ratio below 10 per cent, meaning they had very limited capacity to absorb financial shocks,” he said.
Mr Beresford told The Australian many bankruptcies were triggered by borrowers with less than $50,000 in debts, with much of it from personal loans or car financing.
Mr Beresford said many of these bankrupt borrowers were “vulnerable Australians”.
“There’s obviously a lot of other vulnerabilities washing over their lives,” he said.
Almost half of bankrupts had a buy now, pay later loan, while AFSA said subprime lenders were increasingly cropping up as lenders to those in financial strife. The rise of non-bank lending has troubled the Australian Securities and Investments Commission, with the regulator’s investigators running a detailed surveillance of the market.
ASIC investigators, under regulation and supervision executive director Peter Soros and commissioner Alan Kirkland, are running the ruler over consumer credit lenders. Last week the regulator warned the motor vehicle finance sector was under serious scrutiny, warning lenders were engaging in high-pressure sales tactics with high fees and opaque terms.
Mr Kirkland said the regulator was concerned companies were exploiting vulnerable borrowers. “Almost half of all consumers who defaulted on their car loans did so within six months, raising serious questions for ASIC as to the suitability of these loans,” he said.
ASIC has threatened to sue the worst offenders in the car finance market, with one case against one dealership, which allegedly engaged in unlicensed lending, already before the courts. The regulator is also closely examining lenders in the non-bank home lending market, as well as those operating in the point end of the business finance market.
But the rise in bad debts is not being seen in bank balance sheets, despite corporate insolvencies also spiking to their highest levels since public records started in 1999.
ASIC reported 14,722 companies went bust in the 2025 financial year. The big banks reported a combined $29.8bn profit after tax, broadly flat on levels reported last year.
Expected credit losses were dialled by 2.8 per cent across the big banks, to $22.3bn, but these bad debts have yet to be revealed.
Instead of drowning in poor loans, key bankers now think the sector’s outlook is fundamentally different to the past.
Atlas Funds Management boss Hugh Dive said the prophecy of doom and gloom is far off, with no bank reporting bad debts in excess of 0.15 per cent of their total loan book.
Westpac, Macquarie and ANZ reported loan losses tracking around 0.04 per cent, seven times smaller than levels the banking sector faced in the 1992 recession.
ANZ chief executive Nuno Matos even acknowledged his bank may have been playing it too safe, telling The Australian his bankers could look to move up the risk curve.
In a note to clients, Mr Dive said two factors were driving the low loan losses for banks: the Australian Prudential Regulation Authority’s lending rules, alongside the rise of private credit and non-bank lenders.
Mr Dive said the troubled loans in the financial system were now increasingly in the hands of non-bank lenders and private credit funds.
“What we have seen almost weekly in 2025 are signs of stress in private credit funds, with various funds converting non-performing loans into private equity stakes and entering residential property development as loans went sour,” he wrote.
“While an APRA-regulated bank would have to declare this as a bad debt, private credit funds have been slow to record these as losses.”
Mr Dive told The Australian the APRA rules had pushed banks out of “sketchier credit”, with onerous capital rules incentivising them to lend to only the safest of borrowers in the property market.
Further, Mr Dive said banks were also benefiting from a low unemployment rate.
“If you’ve got a job people are going to continue to service that mortgage,” he said.
