Twice a year, the Reserve Bank of Australia publishes its Financial Stability Review, its assessment of the risks facing Australia's financial system. The October 2026 edition looks more closely than usual at non-bank lending and private credit. It comes at a time of rising interest rates, falling house prices and increased regulatory scrutiny of the sector.
For commercial borrowers, developers and the brokers who arrange their funding, the review contains reassurance, some clear warnings and practical points. This article sets out what the RBA said and what it means in practice.
The big picture: resilient, but watching closely
The RBA's overall assessment is that Australia's financial system has a good degree of resilience. Most households and businesses are well placed to get through slower economic growth and falling house prices.
This resilience comes despite a tougher year. The RBA notes that cost pressures have risen, and the Monetary Policy Board has lifted the cash rate by 100 basis points this year to bring inflation back to target. Even so, its conclusion is that domestic risks are being watched closely but don't currently pose a systemic threat to financial stability.
Source: RBA Financial Stability Review, October 2026.
What the RBA said about non-bank lending
The review recognises the role non-bank lenders play. The RBA says non-bank lending has helped keep business credit conditions favourable in recent years, and non-bank lenders now account for around 10% of total business debt outstanding.
On private credit, the RBA's message has two sides.
The reassurance: private credit funds have grown from a small base, and banks' exposure to them is limited. Because of that, concerns about credit quality in parts of the market are more an investor-protection issue than a financial stability issue.
The warning: Australian private credit funds are less exposed than US funds to companies disrupted by AI, but more exposed to real estate, including construction and development. Investors in these funds could face lower-than-expected returns, or losses, in a downturn. The RBA notes this could affect the supply of new finance for real estate construction in particular.
Concerns about credit quality in parts of private credit are, in the RBA's assessment, more an investor-protection issue than a financial stability issue.
The RBA also flags unclear valuation practices and uneven standards of governance and risk management as issues ASIC is addressing. ASIC's work is continuing. This week it placed interim stop orders on three funds that invest in short-term mortgages, citing concerns that their disclosure documents may be defective. See our earlier article, ASIC's private credit crackdown: what brokers should be asking any non-bank lender.
What this means for developers
The point most relevant to developers is the RBA's warning about construction finance. If investors in private credit funds become more cautious, funds that depend on investor money may lend less to construction and development. In practice, developers should expect:
- More selective lending: funders may favour projects with stronger equity, clear exit strategies and experienced builders.
- Questions about the lender's funding: a construction facility is only as reliable as the funding behind it. Brokers should confirm that the full facility is committed at approval. See After Bathla: what comes next for development funding in Australia.
- More scrutiny of costs and builders: the RBA notes that insolvencies remain high in construction and hospitality, particularly among smaller firms. See Before you sign: checking your builder before you take out a construction loan.
What this means for commercial property owners
The review has encouraging news for commercial property. The RBA says there is little evidence of financial stress among owners of Australian commercial real estate, and it notes improving fundamentals among listed property trusts. The share of banks' commercial property loans classified as non-performing remains low, and the RBA's liaison with non-bank lenders suggests their commercial property loan performance also generally remains sound, though data on non-bank loan quality is limited.
That doesn't mean every asset or borrower is safe. The RBA also notes some signs of stress among some owners, and lease quality, tenant strength and debt levels still decide individual outcomes. It also warns that strong competition between lenders could weaken lending standards if it goes too far. But it does suggest the commercial property market is going into this tougher period in reasonable shape.
What this means for businesses
Most businesses entered 2026 with strong balance sheets and moderate debt, and bank loan arrears for businesses remain low. However, the RBA identifies smaller businesses and those in energy-intensive or cyclical industries, such as transport, hospitality and construction, as more exposed to cost pressures. That risk rises if weaker demand makes it harder for them to pass on higher costs.
The RBA also notes that strong lending competition among banks and non-banks has helped businesses access credit and get through a difficult period. It adds that lending standards need to stay prudent so this support doesn't weaken resilience.
For SME borrowers, the message is practical. If you can see cash flow pressure ahead, such as tax obligations, rising costs or slower trade, plan your funding early rather than at the last minute.
What this means for property-backed borrowers
House prices have fallen in recent months, and the RBA links this partly to tighter monetary policy and the changes to negative gearing and capital gains tax. Even so, it estimates that fewer than 1% of borrowers currently owe more than their property is worth.
The RBA also tested a harsher scenario. Even if prices fell a further 20% across the board, only about 5% of mortgages would fall into negative equity.
For borrowers who use property as security, this matters. Most owners still have meaningful equity, which supports refinancing, equity release and bridging, even in a softer market. But lenders will base their assessments on current values, not peak values. See Home values have fallen for six months: what it means for valuations, LVRs and refinancing.
What brokers should take from it
- The sector isn't a systemic risk, but it is being tested. The RBA's view supports the role of non-bank lending while acknowledging that standards vary across the market.
- Lender quality matters more than ever. Brokers should check governance, valuation practices and funding structure, especially for construction loans.
- Construction finance may tighten. Prepare development clients for more scrutiny, and allow extra time to arrange funding.
- Commercial property is holding up. Well-leased commercial assets with sound debt levels remain a strong basis for lending.
- Equity buffers are still meaningful. Most property-backed scenarios still have room, but LVRs should be based on current valuations.
The Funding Door view
The RBA's review is a balanced assessment: non-bank lending plays a valuable role in Australian business finance, and the standards behind it need to keep improving. For borrowers and brokers, the practical response is the same in any market: choose lenders carefully, value security realistically and plan exits early.
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